Caterpillar Inc.

100 Northeast Adams Street
Peoria, Illinois 61629
U.S.A.
(309) 675-1000
Fax: (309) 675-5815

Public Company
Incorporated: 1925 as Caterpillar Tractor Company
Employees: 60,409
Sales: $11.13 billion
Stock Exchanges: New York Midwest Pacific London Paris Brussels Frankfurt Zürich

Caterpillar specializes in the manufacture of heavy vehicles for construction and agriculture. With 25 major production facilities worldwide, Caterpillar does about half of its business within the United States and half abroad. After suffering losses of almost $1 billion between 1982 and 1984, Caterpillar regained its profitability. The company’s plant-modernization program, to be completed in the early 1990s, will enable Caterpillar to produce more high-quality construction vehicles and diesel engines than any other company, and to do so with the speed and efficiency that can be found only in automated factories.

In 1859 Daniel Best left his Iowa home for California. After about ten years of working at various jobs, Best observed that many farmers transported their grain to special cleaning stations to make it suitable for market. Best thought there was a way to clean grain by machine at the same time as it was being harvested to avoid the costly step of transporting to another site. By 1871 Best had patented his first grain cleaner, which he manufactured and sold with great success. By the 1880s Best owned manufacturing centers in Oakland, California, and in Oregon.

Charles Holt arrived in California in 1863, and would found the firm that would put together what is today’s Caterpillar. Intending to further the family business of selling hard-wood products, Holt founded C.W. Holt & Company with his savings and operated it with his brothers, who came west from New Hampshire. The Holt brothers then set up the Stockton Wheel Company, in 1883, to season woods in a way that would prepare them for use in the arid midlands of California and deserts of the West. The Holts poured $65,000 into their venture, equipping their factory with the best machinery available. The new subsidiary manufactured wooden wheels, and marked the firm’s first experience with the vehicular products that would be the company’s strength in the years to come.

In the 1880s the combined harvester and thresher, known as the combine, revolutionized the farming industry because of its ability to cut and thresh, and later to clean and sack grain, in vast quantities, using far less time than previously needed for these individual operations. The Holt brothers’ Link Belt Combined Harvester, developed in 1886, advanced agricultural technology further by using flexible chain belts rather than gears to transmit power from the ground wheels to the working parts of the machine. This innovation cut down on machine breakage.

Near the end of the 19th century, the major drawback in large-scale agriculture was the need for animal power. The combine had made large farms profitable, but the cost of housing and feeding large horse teams and the men who drove them cut into earnings. Both the Holts and Daniel Best were interested in solving this problem by using steam-driven engines to supply tractive power.

The Holts built a steam-driven tractor that could haul 50 tons of freight at three miles per hour. The Stockton Wheel Company was then incorporated as Holt Manufacturing Company in 1892. Almost concurrently, Daniel Best refined his steam-engine tractor into one of the finest available during this period, and throughout the 1890s steam-powered tractors were used for hauling freight and plowing fields, as well as for harvesting grain.

In the early 1900s the Holt brothers turned their ingenuity to another farming problem. The land around Stockton, California, where the Holt Company was headquartered, was boggy and became impassable when wet. To overcome this limitation the Holts produced the first caterpillar-style tractor, or crawler. It was built on tracks instead of wheels, and the “Cat” could negotiate any terrain short of a swamp. It soon allowed planters to reclaim thousands of acres of land previously thought useless. In 1906 a steam-powered crawler was perfected, and caught on quickly because of its ability to work on ground that all but swallowed other machines.

In 1908 the engineers who were building the 230-mile Los Angeles Aqueduct used a gas-powered crawler to transport materials across the Mojave Desert. The machine worked so well that 25 more tractors were purchased for further work on the aqueduct, thus giving the Holt tractor credibility with the public and a substantial boost to sales.

In 1908 Daniel Best sold out to the Holts, after decades of individual success. Best’s son, C.W. Best, was taken on as company superintendent, but after two years, formed his own company and advanced the state of tractor technology even further on his own.

In 1909 Charles Holt, who had been looking for a new manufacturing plant in the eastern half of the United States, bought the abandoned but relatively new plant of a tractor company that had failed. The new Peoria, Illinois, location offered Holt everything he needed in a manufacturing center, and despite the need to pour capital into retooling the plant, it proved so profitable that by 1911 the factory employed 625 people. At that time Holt began to export his tractors to Argentina, Mexico, and Canada.

After the Peoria plant opened, Holt continued to improve his tractor and expand its range of applications. He experimented with several different materials for the body design to achieve a heavy-duty tractor that was not excessively heavy. Holt knew that his tractors could be used for even more rugged chores than agriculture or freighting, and fitted adjustable blades onto his tractors. He then hired them out to grade roads or move soil and rocks at construction sites.

Soon after World War I broke out in 1914, thousands of troops were caught in trench warfare. Observing such repeated attacks, a British lieutenant colonel, Ernest Swinton, sought an armored machine to resist automatic weapons, that also would be able to negotiate the war-scarred terrain of the battlefield. His requirements resulted in the invention in 1916 of an experimental tank, based on the track-laying tractors designed by Holt and others. A year later the tank was used to such telling effect that it is credited with winning the Battle of Cambrai, in France, for the Allies. Some historians point to this battle as the turning point of the war. Germany had investigated the military applications of the track-laying vehicle well before anyone else and concluded that tractors were without military significance.

Holt tractors themselves served the war effort by hauling artillery and supplies. In all, more than 10,000 Holt vehicles served the Allied forces, and the international exposure that the Holt tractor received during the war did much to popularize the tracked vehicle.

In the early 1920s the Holt company faced the problem of going from wartime boom to peacetime bust. Almost overnight the military orders that kept the factories working at capacity seemed to vanish. Holt used this down period to increase efficiency, both mechanical and human; for example, studies were made to determine how to use space and personnel to the best advantage.

In 1925 Holt and C. W. Best’s company merged, this time to form the Caterpillar Tractor Company (Cat). Its first problem was to choose the outlets that would represent the new concern from among the many solid dealerships that Best and Holt had established under their respective names. Caterpillar picked only the most successful sites and quickly began to expand by opening dealerships in Australia, the Netherlands, east Africa, and Tunisia. Caterpillar dealerships developed a reputation for keeping their machines running. The firm insisted that the dealers keep a large supply of spare parts available and employ a large service force.

In 1929 Caterpillar’s sales were $52 million, and the Peoria plant alone employed more than 4,000 workers. The crash of 1929, however, hit Caterpillar hard, but not as hard as it might have, thanks to an increase in sales to the Soviet Union in the early 1930s. In the aftermath of the financial world’s collapse, Caterpillar went from sales of $45 million in 1930 to $13 million in 1932. Salaries were cut, including those of executives, and many factories went on a four-day workweek or were consolidated with other plants. Yet the company stayed profitable and rebounded in the late 1930s, primarily, again, because of Soviet purchases. The Soviets at that time were forming vast collective farms, some of which approached 400,000 acres in size. Caterpillar products helped make such farms manageable, and the Soviets ordered millions of dollars worth of tractors and combines from Caterpillar. In the early 1930s Caterpillar moved its main office to Peoria, for a more geographically central location.

By 1931, the diesel tractor engine, which had been used before but not widely, was finally perfected for common use by Caterpillar. Previously diesels had been too heavy and un-dependable for commercial use. The Diesel-60 tractor, however, made the diesel the staple engine for heavy-duty vehicles, as it is to this day. In 1933 Caterpillar’s diesel production was double that of all other U.S. firms combined. This boon gave Cat the impetus to redesign many of its old models, making them more efficient and economical. Sales began to rise and continued to do so throughout the late 1930s, as Caterpillar benefited from the huge road-building projects of President Franklin D. Roosevelt’s public-works programs. Caterpillar’s many innovations in rubber-tired tractors and diesel engines for trucks clearly contributed to revitalizing the firm.

Caterpillar’s contributions to World War II were many and varied. Of substantial importance was the conversion of a gasoline airplane engine into a dependable diesel engine. In 1942 Caterpillar unveiled the new RD-1820 radial diesel engine, which was used to power the M-4 tank. The company manufactured other engines, as well, and even artillery shells for the war effort. It set up an aluminum foundry in Decatur, Illinois, to help ease the shortage of this vital material. Caterpillar engineers found that they could make a stronger metal with cheaper, more plentiful raw materials if they used high-frequency electrical induction to harden the steel used in tanks and personnel carriers.

Caterpillar tractors worked in battle zones repairing damaged roads, building new ones, bulldozing tank traps and, constructing pillboxes. Because the Cat was usually seen doing such roadwork with a bulldozer blade attached, the term “bulldozer” came to be used for Caterpillar products. Caterpillar tractors and road-building equipment were used to build the Burma Road. The makeshift repair shop that was set up to service the machines working on that road by the 497th Heavy Shop Company was dubbed Little Peoria.

In the postwar period, Caterpillar experienced enormous growth rather than recession, because of the massive rebuilding campaigns begun both in Europe and Japan, with the use of Marshall Plan and other funds. In the United States itself, demand seemed limitless. Caterpillar could not get its products to its customers fast enough. It launched, therefore, an expansion program in 1949 that was the first step toward becoming a truly international firm with major impact on world industry.

The new plant built in 1949 in Joliet, Illinois, was only the beginning of a program to establish manufacturing centers and subsidiaries around the globe. In 1950 Caterpillar announced the formation of its first overseas subsidiary, Caterpillar Tractor Company Ltd. of Great Britain. To further accommodate the postwar need for construction and road-building equipment, Caterpillar opened up subsidiaries in Brazil in 1954, in Australia in 1955, and in Scotland in 1956. In the 1950s, within the United States, Cat built new factories in Davenport, Iowa; York, Pennsylvania; and Milwaukee, Wisconsin; and parts distribution centers in Morton, Illinois, and Denver, Colorado.

In the 1960s the continuing boom in the construction of highways, dams, and mines kept sales increasing rapidly. By 1970 employment at Caterpillar was twice that of ten years prior. Caterpillar increased its exports, gaining a rival in the heavy-construction industry, Komatsu of Japan.

In 1961 Cat suffered the first of many involved labor conflicts with the United Auto Workers (UAW), when 12,600 workers in Peoria walked off their jobs in a wage dispute. An agreement was reached after only eight days, but this strike was the beginning of a series of increasingly bitter and complex battles between labor and management. Recognizing that industry works abroad by rules that differ from those of the United States, in 1962 Caterpillar announced the formation of a jointly owned venture in Japan. Caterpillar and Mitsubishi Heavy Industries built Cat-designed vehicles in a factory just outside of Tokyo.

After the three-year contract extension signed in 1961 was terminated, another strike began in Peoria. Announced as settled as early as February 1964, the strike was off and on until late October. In 1965 Caterpillar exceeded $1 billion in sales for the first time, announced that its stock would be sold on most of the major European stock exchanges, and started Caterpillar Belgium S.A. to build front-loading tractors there.

The year 1966 brought another confrontation with the UAW, this time in the form of a two-month walkout in Decatur. The lawsuit that Cat filed against the union, claiming an illegal strike, was settled out of court, in exchange for an agreement that stipulated that the union would settle all conflicts not relating to contract specifications before going out on strike. During this year Caterpillar of Canada Ltd. announced the construction of a 64,000-square-foot addition to its distribution warehouse.

In March 1968 the Justice Department moved to block a proposed merger between Cat and Chicago Pneumatic Tool Company, and the merger did not take place. In the same year, Caterpillar was the first company located outside of a major city to enlist in a government-sponsored program to hire and train people considered to be unemployable. This program was directed to persons who had been out of work for extended periods. The hirees would work half of the day at entry-level positions and spend the other half of the day learning job skills for better-paying jobs.

A contract with Ford in 1970 to supply small V-8 truck engines convinced Cat that manufacturing smaller diesels could make money, and the firm spent millions of dollars redesigning and retooling existing plants to build the new engines. Profits earned from an increase in state construction programs helped pay the cost of these investments. By 1972 Cat had announced plans to build a 900,000-square-foot plant in Belgium and a 1.25 million-square-foot production facility in Mossville, Illinois. Sales to the Soviet Union increased during this year.

In 1974 Caterpillar embarked on another dramatic expansion program, announcing plans to build a 650,000-square-foot addition to its Aurora, Illinois plant, a 1.3 million-square-foot addition to its diesel engine shop in Mossville, a 720,000-square-foot addition to its Peoria plant, and a new 670,000-square-foot manufacturing center in Brazil. In 1975 Caterpillar allocated more funds than ever before for expansion and product development. The company expanded its foreign market at this time by selling pipe-laying equipment to China, cashing in on the thaw in relations between China and the United States.

By 1978 the Cat expansion program was paying off. Sales approached $6 billion and the new manufacturing plants were able to turn out thousands of vehicles. The product line had expanded to the point where Cat offered more heavy-duty agricultural, construction, and material-hauling machines than any other company. In 1978 plans were revealed to build more new plants in York, Pennsylvania; Lafayette, Indiana; and Pontiac, Illinois.

The longest UAW strike against Caterpillar occurred in 1979. More than 23,000 workers in Illinois walked out of six of the company’s major manufacturing plants. More than 3,500 workers were laid off because of the parts shortages that resulted from the strike. After almost three months of negotiations, a new three-year contract was forged, which offered better wages and a profit-sharing concession.

Caterpillar settled an involved lawsuit with Goodyear Tire & Rubber Company in 1981. Three years previously Goodyear had begun selling a radial earthmoving tire that infringed on Caterpillar’s beadless-tire technology. The beadless tire lacked the beads, or edges, that attach the tire to wheel rims, and was more durable and economical than previous designs. In the out-of-court settlement Goodyear agreed to pay Caterpillar an amount mutually agreed upon, and become a licensee of Cat, paying the firm royalties for the use of beadless technology in the further manufacture of the tire.

In 1981 the firm won a political battle to be granted the right to sell $90 million in pipe-laying equipment to the Soviet Union, despite stiff opposition from the administration of U.S. President Ronald Reagan. That year the firm sold more machines than ever before, with sales of more than $9 billion for the year.

The recession of 1982 hit Caterpillar especially hard. The economic downturn caused sales to drop to $6.5 billion that year. Caterpillar laid off almost 12,000 employees at this time, and closed its plant in Mentor, Ohio. Trying to cut overhead, Cat proposed pay freezes and a cut in benefits, prompting a seven-month UAW strike, the longest in the firm’s history. To add to the company’s problems, barely six weeks after the 37,500 UAW workers left their jobs, a jury awarded Kast Metals a $9.2 million settlement for Caterpillar’s failure to live up to an oral agreement to buy steel castings from Kast if Kast were to build a new plant to make the castings.

Caterpillar began 1983 by announcing the first annual loss in earnings in half a century. Cat started laying off workers, and closed a plant in Newcastle-On-Tyne, England. Sales slumped to a recent-history low of $5.4 billion. Yet after the new contract was signed with UAW, Caterpillar acquired a new direction and strategy that made things look better. Despite the concession of a profit-sharing plan, the wage freeze that the firm won in the contract dispute helped stem rising costs. The anticipation of the bottled-up demand that would create a larger market after the recession made investors think that Cat stock might be a good buy. By committing itself to less expansion, more creative marketing techniques, and reduced costs, Caterpillar intended in late 1983 to ride out the economic slump and position itself to return to profitability in 1984.

Caterpillar’s problems continued, however, in 1984. Despite this being the expected comeback year for the firm, the plant closings and layoffs continued. The Burlington, Iowa, parts plant locked its doors to workers and, despite optimistic projections of recalling around 3,200 workers in 1985, Cat actually laid off about 3,000 other workers during that year. Caterpillar continued to cut back operations at its factories, then eliminated cost-of-living allowances in wages, and delayed the completion of its Morton, Illinois, distribution center. The firm blamed its second straight losing year on high interest rates and stiff price competition from other companies.

In February 1985 George A. Schaefer was named chairman and CEO of Caterpillar; Donald V. Fites was named president. Despite a net loss of almost $430 million the year before, Schaefer confidently predicted that Cat would make a profit during his first year as company head. During this year Caterpillar made two key strategic moves, which, despite their controversial nature, would be credited with making the firm once again profitable. Caterpillar first shifted some of its production and purchasing functions overseas. This meant that jobs that were in Peoria moved to Scotland or Japan. The high dollar made such a change necessary for company survival, management argued. Secondly, Caterpillar embarked on a $600 million factory-modernization program. It would reduce permanently the labor force needed to make tractors by automating as many manufacturing processes as possible. Approximately 2,300 workers were cut from the Caterpillar payroll during 1985. Company executives argued that the firm needed to compete with Komatsu, which had a much greater manufacturing efficiency than Cat because of its highly automated plants.

In 1986 Caterpillar Tractor Company became Caterpillar Inc., and announced that it had made a profit of almost $200 million in the previous year. The firm bounced back from its problems by marketing a new automated lift truck, which had the potential to secure part of a multibillion dollar market for Caterpillar. The firm even directly challenged Komatsu by expanding Cat’s partnership with Mitsubishi Heavy Industries to include the production of hydraulic equipment.

Caterpillar faced, however, another strike during this year. Workers in Joliet walked out for four weeks, but were brought back to work under terms much like those previously rejected. Caterpillar again won a wage freeze, but cash bonuses as well as the firm’s promise to lay off other workers as long as the strike continued were enough to get the Joliet workers to settle their grievances.

The weakening of the dollar abroad raised production costs and cut into profits for Caterpillar in 1987. Though the firm improved its sales and earnings over 1986, Caterpillar was still forced to close three factories.

In 1988 Caterpillar again made the kind of large profits it had made in the past, reaping $617 million for the year. In early 1989 Caterpillar’s stock took a sharp downturn. The modernization campaign had swelled to a cost of more than $1.8 billion and flattened profits for the year. After its long climb back to profitability, this was a major setback, but it was expected that the modernization project would give Caterpillar a competitive edge during the next ten years. Cat’s automated production facilities could turn out vehicles more quickly and efficiently, reducing manufacturing costs by 20%.

Caterpillar is looking to the future with more in mind than plant modernization. It is streamlining its corporate structure by combining the functions of its product lines into two new business groups. One of these will deal with the smaller product line and the other will be concerned with agricultural products. In 1990 the new company chairman and chief executive officer, Donald Fites, saw Cat as a company that is in the right place at the right time. With its new, quick, and flexible production system nearly completed and its expanded product line and reduced labor costs, Caterpillar should be able to deal with any challenge that the market or its competitors can offer into the next century.

Principal Subsidiaries

Carter Machinery Company, Inc.; Caterpillar Americas Co.; Caterpillar of Australia Ltd.; Caterpillar Brasil S.A. (Brazil); Caterpillar Capital Co., Inc.; Caterpillar Commercial N.V. (Belgium); Caterpillar Commercial Services Ltd. (Canada); Caterpillar of Delaware, Inc.; Caterpillar Export Ltd. (Virgin Islands); Caterpillar Finance Corp.; Caterpillar Financial Services Corp.; Caterpillar Financial Services N.V. (Netherlands Antilles); Caterpillar Industrial Inc.; Caterpillar Insurance Co., Ltd. (Bermuda); Caterpillar Insurance Services Inc.; Caterpillar Investment Management Ltd.; Caterpillar Logistics Services Inc.; Caterpillar Overseas S.A. (Switzerland); Caterpillar Paving Products, Inc.; Caterpillar Services Ltd.; Caterpillar Venture Capital, Inc.; Caterpillar World Trading Corp.; CATPAC Two, Inc.; CONEK S.A. de C.V. (Mexico); Production Technology Inc.; Solar Turbines Inc.; Tecnologia Modificada S.A. de C.V. (Mexico).

Further Reading

Century of Change: Caterpillar Special World Historical Edition, Peoria, Illinois, Caterpillar Inc., 1984; Bremner, Brian, “Can Caterpillar Inch Its Way Back Into Heftier Profits?,” Business Week, September 25, 1989.

—Wallace Ross

Caterpillar Inc.

100 Northeast Adams Street
Peoria, Illinois 61629
U.S.A.
(309) 675-1000
Fax: (309) 675-6155

Public Company
Incorporated: 1925 as Caterpillar Tractor Company
Employees: 54,352
Sales: $16.07 billion (1995)
Stock Exchanges: New York Midwest Pacific London Paris Brussels Frankfurt Zurich
SICs: 3052 Rubber & Plastics Hose & Belting; 3321 Gray & Ductile Iron Foundries; 3511 Steam, Gas & Hydraulic Turbines; 3519 Internal Combustion Engines, Not Elsewhere Classified; 3531 Construction Machinery & Equipment; 3537 Industrial Trucks, Tractors, Trailers & Stackers; 3621 Motors & Generators; 5082 Construction & Mining Machinery & Equipment, Except Petroleum, Wholesale; 5084 Industrial Machinery & Equipment; 6159 Miscellaneous Business Credit Institutions; 7374 Computer Processing & Processing & Data Preparation Services

Caterpillar Inc. is the world’s largest manufacturer of earth-moving machinery. In addition to its tractors, trucks, graders, excavators, scrapers, and other heavy machinery used in the construction, mining, and agriculture industries, Caterpillar also makes diesel and gas engines used in medium- and heavy-duty trucks, electric power generation equipment, locomotives, and other industrial equipment. With 45 major production facilities worldwide and 187 dealers in 128 countries, Caterpillar does about half of its business within the United States and half abroad.

In 1859 Daniel Best left his Iowa home for California. After about ten years of working at various jobs, Best observed that many farmers transported their grain to special cleaning stations to make it suitable for market. Best thought there was a way to clean grain by machine at the same time as it was being harvested to avoid the costly step of transporting to another site. By 1871 Best had patented his first grain cleaner, which he manufactured and sold with great success. By the 1880s Best owned manufacturing centers in Oregon and Oakland, California.

Charles Holt arrived in California in 1863, and would found the firm that would put together what is today’s Caterpillar. Intending to further the family business of selling hardwood products, Holt founded C.W. Holt & Company with his savings and operated it with his brothers, who came west from New Hampshire. The Holt brothers then set up the Stockton Wheel Company, in 1883, to season woods in a way that would prepare them for use in the arid midlands of California and deserts of the West. The Holts poured $65,000 into their venture, equipping their factory with the best machinery available. The new subsidiary manufactured wooden wheels, and marked the firm’s first experience with the vehicular products that would be the company’s strength in the years to come.

In the 1880s the combined harvester and thresher, known as the combine, revolutionized the farming industry because of its ability to cut and thresh, and later to clean and sack grain, in vast quantities, using far less time than previously needed for these individual operations. The Holt brothers’ Link Belt Combined Harvester, developed in 1886, advanced agricultural technology further by using flexible chain belts rather than gears to transmit power from the ground wheels to the working parts of the machine. This innovation cut down on machine breakage.

Near the end of the 19th century, the major drawback in large-scale agriculture was the need for animal power. The combine had made large farms profitable, but the cost of housing and feeding large horse teams and the men who drove them cut into earnings. Both the Holts and Daniel Best were interested in solving this problem by using steam-driven engines to supply tractive power.

The Holts built a steam-driven tractor that could haul 50 tons of freight at three miles per hour. The Stockton Wheel Company was then incorporated as Holt Manufacturing Company in 1892. Almost concurrently, Daniel Best refined his steam-engine tractor into one of the finest available during this period, and throughout the 1890s steam-powered tractors were used for hauling freight and plowing fields, as well as for harvesting grain.

In the early 1900s the Holt brothers turned their ingenuity to another farming problem. The land around Stockton, California, where the Holt Company was headquartered, was boggy and became impassable when wet. To overcome this limitation the Holts produced the first caterpillar-style tractor, or crawler. It was built on tracks instead of wheels, and the “Cat” could negotiate any terrain short of a swamp. It soon allowed planters to reclaim thousands of acres of land previously thought useless. In 1906 a steam-powered crawler was perfected, and caught on quickly because of its ability to work on ground that all but swallowed other machines.

In 1908 the engineers who were building the 230-mile Los Angeles Aqueduct used a gas-powered crawler to transport materials across the Mojave Desert. The machine worked so well that 25 more tractors were purchased for further work on the aqueduct, thus giving the Holt tractor credibility with the public and a substantial boost to sales.

In 1908 Daniel Best sold out to the Holts, after decades of individual success. Best’s son, C. W. Best, was taken on as company superintendent, but after two years, formed his own company and advanced the state of tractor technology even further on his own.

In 1909 Charles Holt, who had been looking for a new manufacturing plant in the eastern half of the United States, bought the abandoned but relatively new plant of a tractor company that had failed. The new Peoria, Illinois, location offered Holt everything he needed in a manufacturing center, and despite the need to pour capital into retooling the plant, it proved so profitable that by 1911 the factory employed 625 people. At that time Holt began to export his tractors to Argentina, Mexico, and Canada.

After the Peoria plant opened, Holt continued to improve his tractor and expand its range of applications. He experimented with several different materials for the body design to achieve a heavy-duty tractor that was not excessively heavy. Holt knew that his tractors could be used for even more rugged chores than agriculture or freighting, and fitted adjustable blades onto his tractors. He then hired them out to grade roads or move soil and rocks at construction sites.

Soon after World War I broke out in 1914, thousands of troops were caught in trench warfare. Observing such repeated attacks, a British lieutenant colonel, Ernest Swinton, sought an armored machine to resist automatic weapons, that also would be able to negotiate the war-scarred terrain of the battlefield. His requirements resulted in the invention in 1916 of an experimental tank, based on the track-laying tractors designed by Holt and others. A year later the tank was used to such telling effect that it is credited with winning the Battle of Cambrai, in France, for the Allies. Some historians point to this battle as the turning point of the war. Germany had investigated the military applications of the track-laying vehicle well before anyone else and concluded that tractors were without military significance.

Holt tractors themselves served the war effort by hauling artillery and supplies. In all, more than 10,000 Holt vehicles served the Allied forces, and the international exposure that the Holt tractor received during the war did much to popularize the tracked vehicle.

In the early 1920s the Holt company faced the problem of going from wartime boom to peacetime bust. Almost overnight the military orders that kept the factories working at capacity seemed to vanish. Holt used this down period to increase efficiency, both mechanical and human; for example, studies were made to determine how to use space and personnel to the best advantage.

In 1925 Holt and C. W. Best’s company merged, this time to form the Caterpillar Tractor Company (Cat). Its first problem was to choose the outlets that would represent the new concern from among the many solid dealerships that Best and Holt had established under their respective names. Caterpillar picked only the most successful sites and quickly began to expand by opening dealerships in Australia, the Netherlands, east Africa, and Tunisia. Caterpillar dealerships developed a reputation for keeping their machines running. The firm insisted that the dealers keep a large supply of spare parts available and employ a large service force.

In 1929 Caterpillar’s sales were $52 million, and the Peoria plant alone employed more than 4,000 workers. The crash of 1929, however, hit Caterpillar hard, but not as hard as it might have, thanks to an increase in sales to the Soviet Union in the early 1930s. In the aftermath of the financial world’s collapse, Caterpillar went from sales of $45 million in 1930 to $13 million in 1932. Salaries were cut, including those of executives, and many factories went on a four-day workweek or were consolidated with other plants. Yet the company stayed profitable and rebounded in the late 1930s, primarily, again, because of Soviet purchases. The Soviets at that time were forming vast collective farms, some of which approached 400,000 acres in size. Caterpillar products helped make such farms manageable, and the Soviets ordered millions of dollars worth of tractors and combines from Caterpillar. In the early 1930s Caterpillar moved its main office to Peoria, for a more geographically central location.

By 1931, the diesel tractor engine, which had been used before but not widely, was finally perfected for common use by Caterpillar. Previously dieseis had been too heavy and unde-pendable for commercial use. The Diesel-60 tractor, however, made the diesel the staple engine for heavy-duty vehicles, as it is to this day. In 1933 Caterpillar’s diesel production was double that of all other U.S. firms combined. This boon gave Cat the impetus to redesign many of its old models, making them more efficient and economical. Sales began to rise and continued to do so throughout the late 1930s, as Caterpillar benefited from the huge road-building projects of President Franklin D. Roosevelt’s public-works programs. Caterpillar’s many innovations in rubber-tired tractors and diesel engines for trucks clearly contributed to revitalizing the firm.

Caterpillar’s contributions to World War II were many and varied. Of substantial importance was the conversion of a gasoline airplane engine into a dependable diesel engine. In 1942 Caterpillar unveiled the new RD-1820 radial diesel engine, which was used to power the M-4 tank. The company manufactured other engines, as well, and even artillery shells for the war effort. It set up an aluminum foundry in Decatur, Illinois, to help ease the shortage of this vital material. Caterpillar engineers found that they could make a stronger metal with cheaper, more plentiful raw materials if they used high-frequency electrical induction to harden the steel used in tanks and personnel carriers.

Caterpillar tractors worked in battle zones repairing damaged roads, building new ones, bulldozing tank traps and, constructing pillboxes. Because the Cat was usually seen doing such roadwork with a bulldozer blade attached, the term “bulldozer” came to be used for Caterpillar products. Caterpillar tractors and road-building equipment were used to build the Burma Road. The makeshift repair shop that was set up to service the machines working on that road by the 497th Heavy Shop Company was dubbed Little Peoria.

In the postwar period, Caterpillar experienced enormous growth rather than recession, because of the massive rebuilding campaigns begun both in Europe and Japan, with the use of Marshall Plan and other funds. In the United States itself, demand seemed limitless. Caterpillar could not get its products to its customers fast enough. It launched, therefore, an expansion program in 1949 that was the first step toward becoming a truly international firm with a major impact on world industry.

The new plant built in 1949 in Joliet, Illinois, was only the beginning of a program to establish manufacturing centers and subsidiaries around the globe. In 1950 Caterpillar announced the formation of its first overseas subsidiary, Caterpillar Tractor Company Ltd. of Great Britain. To further accommodate the postwar need for construction and road-building equipment, Caterpillar opened up subsidiaries in Brazil in 1954, in Australia in 1955, and in Scotland in 1956. In the 1950s, within the United States, Cat built new factories in Davenport, Iowa; York, Pennsylvania; and Milwaukee, Wisconsin, and parts distribution centers in Morton, Illinois; and Denver, Colorado.

In the 1960s the continuing boom in the construction of highways, dams, and mines kept sales increasing rapidly. By 1970 employment at Caterpillar was twice that of ten years prior. Caterpillar increased its exports, gaining a rival in the heavy-construction industry, Komatsu of Japan.

In 1961 Cat suffered the first of many labor conflicts with the United Auto Workers (UAW), when 12,600 workers in Peoria walked off their jobs in a wage dispute. An agreement was reached after only eight days, but this strike was the beginning of a series of increasingly bitter and complex battles between labor and management. Recognizing that industry works abroad by rules that differ from those of the United States, in 1962 Caterpillar announced the formation of a jointly owned venture in Japan. Caterpillar and Mitsubishi Heavy Industries built Catdesigned vehicles in a factory just outside of Tokyo.

After the three-year contract extension signed in 1961 was terminated, another strike began in Peoria. Announced as settled as early as February 1964, the strike was off and on until late October. In 1965 Caterpillar exceeded $1 billion in sales for the first time, announced that its stock would be sold on most of the major European stock exchanges, and started Caterpillar Belgium S.A. to build front-loading tractors there.

The year 1966 brought another confrontation with the UAW, this time in the form of a two-month walkout in Decatur. The lawsuit that Cat filed against the union, claiming an illegal strike, was settled out of court, in exchange for an agreement that stipulated that the union would settle all conflicts not relating to contract specifications before going out on strike. During this year Caterpillar of Canada Ltd. announced the construction of a 64,000-square-foot addition to its distribution warehouse.

In March 1968 the Justice Department moved to block a proposed merger between Cat and Chicago Pneumatic Tool Company, and the merger did not take place. In the same year, Caterpillar was the first company located outside of a major city to enlist in a government-sponsored program to hire and train people considered to be unemployable. This program was directed to persons who had been out of work for extended periods. The hirees would work half of the day at entry-level positions and spend the other half of the day learning job skills for better-paying jobs.

A contract with Ford in 1970 to supply small V-8 truck engines convinced Cat that manufacturing smaller dieseis could make money, and the firm spent millions of dollars redesigning and retooling existing plants to build the new engines. Profits earned from an increase in state construction programs helped pay the cost of these investments. By 1972 Cat had announced plans to build a 900,000-square-foot plant in Belgium and a 1.25 million-square-foot production facility in Mossville, Illinois. Sales to the Soviet Union increased during this year.

In 1974 Caterpillar embarked on another dramatic expansion program, announcing plans to build a 650,000-square-foot addition to its Aurora, Illinois plant, a 1.3 million-square-foot addition to its diesel engine shop in Mossville, a 720,000-square-foot addition to its Peoria plant, and a new 670,000-square-foot manufacturing center in Brazil. In 1975 Caterpillar allocated more funds than ever before for expansion and product development. The company expanded its foreign market at this time by selling pipe-laying equipment to China, cashing in on the thaw in relations between China and the United States.

By 1978 the Cat expansion program was paying off. Sales approached $6 billion and the new manufacturing plants were able to turn out thousands of vehicles. The product line had expanded to the point where Cat offered more heavy-duty agricultural, construction, and material-hauling machines than any other company. In 1978 plans were revealed to build more new plants in York, Pennsylvania; Lafayette, Indiana; and Pon-tiac, Illinois.

The longest UAW strike against Caterpillar (to that date) occurred in 1979. More than 23,000 workers in Illinois walked out of six of the company’s major manufacturing plants. More than 3,500 workers were laid off because of the parts shortages that resulted from the strike. After almost three months of negotiations, a new three-year contract was forged, which offered better wages and a profit-sharing concession.

Caterpillar settled an involved lawsuit with Goodyear Tire & Rubber Company in 1981. Three years previously Goodyear had begun selling a radial earthmoving tire that infringed on Caterpillar’s beadless-tire technology. The beadless tire lacked the beads, or edges, that attach the tire to wheel rims, and was more durable and economical than previous designs. In the out-of-court settlement Goodyear agreed to pay Caterpillar an amount mutually agreed upon, and become a licensee of Cat, paying the firm royalties for the use of beadless technology in the further manufacture of the tire.

In 1981 the firm won a political battle to be granted the right to sell $90 million in pipe-laying equipment to the Soviet Union, despite stiff opposition from the administration of President Ronald Reagan. That year the firm sold more machines than ever before, with sales of more than $9 billion for the year.

The recession of 1982 hit Caterpillar especially hard. The economic downturn caused sales to drop to $6.5 billion that year. Caterpillar laid off almost 12,000 employees at this time, and closed its plant in Mentor, Ohio. Trying to cut overhead, Cat proposed pay freezes and a cut in benefits, prompting a seven-month UAW strike, the firm’s longest strike yet. To add to the company’s problems, barely six weeks after the 37,500 UAW workers left their jobs, a jury awarded Kast Metals a $9.2 million settlement for Caterpillar’s failure to live up to an oral agreement to buy steel castings from Kast if Kast were to build a new plant to make the castings.

Caterpillar began 1983 by announcing the first annual loss in earnings in half a century. Cat started laying off workers, and closed a plant in Newcastle-on-Tyne, England. Sales slumped to a recent-history low of $5.4 billion. Yet after the new contract was signed with UAW, Caterpillar acquired a new direction and strategy that made things look better. Despite the concession of a profit-sharing plan, the wage freeze that the firm won in the contract dispute helped stem rising costs. The anticipation of the bottled-up demand that would create a larger market after the recession made investors think that Cat stock might be a good buy. By committing itself to less expansion, more creative marketing techniques, and reduced costs, Caterpillar intended in late 1983 to ride out the economic slump and position itself to return to profitability in 1984.

Caterpillar’s problems continued, however, in 1984. Despite this being the expected comeback year for the firm, the plant closings and layoffs continued. The Burlington, Iowa, parts plant locked its doors to workers and, despite optimistic projections of recalling around 3,200 workers in 1985, Cat actually laid off about 3,000 other workers during that year. Caterpillar continued to cut back operations at its factories, then eliminated cost-of-living allowances in wages, and delayed the completion of its Morton, Illinois, distribution center. The firm blamed its second straight losing year on high interest rates and stiff price competition from other companies.

In February 1985 George A. Schaefer was named chairman and CEO of Caterpillar, and Donald V. Fites was named president. Despite a net loss of almost $430 million the year before, Schaefer confidently predicted that Cat would make a profit during his first year as company head. During this year Caterpillar made two key strategic moves, which, despite their controversial nature, would be credited with making the firm once again profitable. Caterpillar first shifted some of its production and purchasing functions overseas. This meant that jobs previously performed in Peoria were moved to Scotland or Japan. The high value of the dollar overseas made such a change necessary for company survival, management argued. Secondly, Caterpillar embarked on a $600 million factory-modernization program. It would reduce permanently the labor force needed to make tractors by automating as many manufacturing processes as possible. Approximately 2,300 workers were cut from the Caterpillar payroll during 1985. Company executives argued that the firm needed to compete with Komatsu, which had a much greater manufacturing efficiency than Cat because of its highly automated plants.

In 1986 Caterpillar Tractor Company became Caterpillar Inc. and announced that it had made a profit of almost $200 million in the previous year. The firm bounced back from its problems by marketing a new automated lift truck, which had the potential to secure part of a multibillion dollar market for Caterpillar. The firm even directly challenged Komatsu by expanding Cat’s partnership with Mitsubishi Heavy Industries to include the production of hydraulic equipment.

Caterpillar faced, however, another strike during this year. Workers in Joliet walked out for four weeks, but were brought back to work under terms much like those previously rejected. Caterpillar again won a wage freeze, but cash bonuses as well as the firm’s promise to lay off other workers as long as the strike continued were enough to get the Joliet workers to settle their grievances.

The weakening of the dollar abroad raised production costs and cut into profits for Caterpillar in 1987. Though the firm improved its sales and earnings over 1986, Caterpillar was still forced to close three factories. Nevertheless, in 1988 Caterpillar again made the kind of large profits it had made in the past, reaping $616 million for the year. In early 1989 Caterpillar’s stock took a sharp downturn. The modernization campaign had swelled to a cost of more than $1.8 billion and flattened profits for the year. The cost of the program continued to affect company profits through 1992, while the company also suffered from the effects of the recession of the early 1990s.

A decline in sales in 1991 contributed to Cat’s first loss since 1984, $404 million. Sales increased only marginally in 1992, while the firm suffered another loss, this time $218 million. Meanwhile, newly appointed CEO Fites initiated a corporate reorganization in 1990 which moved Cat away from a function-oriented structure to one revolving around product lines and geographic areas.

Labor strife returned to Peoria in late 1991 when Caterpillar tried to alter a pattern agreement that had been agreed to in October at John Deere. When the UAW and Cat workers refused to accept that contract, they struck two Cat plants with 2,400 workers in early November. Caterpillar responded by locking out 5,650 more workers. Over the next five months, Caterpillar used managers to fill in at the affected plants, then threatened to permanently replace 15,000 UAW workers. In April 1992 the workers returned to their jobs without a contract and eventually accepted a company-imposed contract. However, the striking workers returned to what they believed was a hostile environment, where they faced suspension or dismissal for wearing union-supporting T-shirts or buttons. By mid-1994, more than 80 complaints against Caterpillar for such tactics were issued by the National Labor Relations Board.

In 1993 Caterpillar completed the factory-modernization program and at the same time began to benefit from its results. The time to process a part from start to finish was reduced by 75 percent and in-process inventories were reduced by 60 percent. Coupled with an overhaul of the new product development process, vast improvements were made in new product introductions. Only 24 new or improved products were introduced in 1991; that figure doubled in 1992 and reached 53 in 1994. Such gains led to record sales of $11.62 billion in 1993 and record profits of $652 million. The next year brought more records: $955 million in profits on sales of $14.33 billion.

In the early 1990s Caterpillar looked to the east and south for its future growth. The company strongly supported both the North American Free Trade Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT), concluding that the elimination of trade barriers could add $350 million in Cat sales a year by 2000. By 1994 Caterpillar had already reaped the benefits of NAFTA when it posted $239 million in sales in Mexico, an increase of 59 percent over 1993. Outside North America, Caterpillar formed several joint ventures in Japan (with Mitsubishi), Russia (with AMO-ZiL and with Kirovsky), and China (with Shanghai Diesel and with Xuzhou Construction Machinery Group). New dealerships were also established in Vietnam and the Shanghai region of China in 1994.

On the heels of the firm’s improving results came the longest and most bitter strike to hit Caterpillar yet. After sporadic wildcat walkouts following the 1991–92 strike, a full-scale strike began in June 1994 with 10,500 UAW workers honoring picket lines while about 4,000 workers stayed on the job. The issue that precipitated the walkout was Caterpillar’s firing of union workers, but the dispute quickly evolved into one concerning a new contract. As with the 1991–92 strike, Caterpillar again shifted managers onto the assembly lines but it also hired temporary workers to fill in. As the strike dragged on into 1995, it was beginning to affect Cat’s inventories and operating efficiencies, but its impact was mitigated by the decreasing number of union workers at the company. Caterpillar had been locating its new plants in right-to-work states and foreign countries, and had shifted some production to other manufacturers through outsourcing. While UAW workers made up 45 percent of Cat’s workforce in 1980, by 1995 UAW workers numbered only 28 percent.

In early 1995 the two sides agreed to federal mediation for a new round of contract talks. As Caterpillar continued to post record profits and revenues, the company clearly had the upper hand. Even though workers voted to reject a contract offer in early December, the UAW promptly called off the strike and sent the workers back to their jobs without a contract. The rejected contract terms began to be implemented by the company unilaterally, including a two-tier wage system and no overtime pay for days longer than eight hours. Similar to the aftermath of the 1991–92 strike, Cat placed restrictions on what workers could say or display and by early 1996 at least 50 workers had been suspended or fired for violating what the company called its “standards of conduct.” Meanwhile, Caterpillar’s board voted to reward Fites for his handling of the strike and for the company’s performance with a 1995 compensation package of $3.09 million, an increase of 75 percent over the $1.76 million he received in 1994.

The bitter strike behind it, Caterpillar announced more record results for 1995, with profits exceeding $1 billion for the first time ($1.14 billion) on sales of $16.07 billion. The firm planned to continue to grow internationally and aggressively pursue emerging markets in Asia, Latin America, Africa, the Middle East, and Eastern Europe. Caterpillar appeared likely to continue to maintain its industry-leading position for the foreseeable future.

Principal Subsidiaries

Advanced Filtration Systems, Inc. (50%); Advanced Technology Services Inc. (91.29%); Anchor Coupling Inc.; Balderson Inc. (82.5%); Carter Machinery Company, Inc.; Caterpillar Americas Co.; Caterpillar Asia Pacific Holding Inc.; Caterpillar Capital Company, Inc.; Caterpillar of Delaware, Inc.; Caterpillar Financial Services Corporation; Caterpillar Industrial Inc.; Caterpillar Insurance Services, Inc.; Caterpillar Investment Management Ltd.; Caterpillar Logistics Services, Inc.; Caterpillar Paving Products Inc.; Caterpillar Risk Management Services Inc.; Caterpillar Services Limited; Caterpillar World Trading Corporation; Engine Service Specialists, Inc.; Solar Turbines Incorporated.; Caterpillar of Australia Ltd.; Caterpillar Commercial N.V. (Belgium); Caterpillar Insurance Co., Ltd. (Bermuda); Caterpillar Brasil S.A. (Brazil); Caterpillar of Canada Ltd.; Caterpillar Commercial Services Ltd. (Canada); CONEK S.A. de C.V. (Mexico); Tecnologia Modificado S.A. de C.V. (Mexico); Caterpillar Financial Services N.V. (Netherlands Antilles); Caterpillar Commercial A/O (Russia); Caterpillar Asia Pte. Ltd. (Singapore); Caterpillar Overseas S.A. (Switzerland); Caterpillar Export Limited (Virgin Islands).

Principal Divisions

Asia/Pacific Division; Building Construction Products Division; Caterpillar Overseas; Component Products Division; Construction & Mining Products Division; Corporate Auditing and Compliance Division; Diversified Products Division; Engine Division; Financial Products Division; Human Services Division; Latin America Division; Logistics and Product Services Division; North American Commercial Division; Parts & Service Support Division; Technical Services Division.

Further Reading

Bremner, Brian, “Can Caterpillar Inch Its Way Back into Heftier Profits?.” Business Week, September 25, 1989.

Century of Change: Caterpillar Special World Historical Edition, Peoria. 111.: Caterpillar Inc., 1984.

Dubashi, Jagannath, “Cat-apult: The Cheap Dollar Helped, but Caterpillar’s Turnaround Was Engineered in Peoria.” Financial World, November 23, 1993, p. 34.

Elstrom, J. W., “Cat, Union Crawl toward Settlement: Weary Workers, Pressed Managers Tire of the Fight,” Crain’s Chicago Business, January 16, 1995.

Franklin, Stephen, “Questions Linger as Vote Nears on Caterpillar Pact: Was Strike Worth It? Will Anger Fade?,” Chicago Tribune, November 27, 1995.

Kelly. Kevin, “Cat Is Purring, but They’re Hissing on the Floor,” Business Week, May 16, 1994.

Slutsker, Gary, “What’s Good for Caterpillar . . . ,” Forbes, December 7, 1992, p. 108.

—Wallace Ross

—updated by David E. Salamie

Caterpillar Inc.

also known as: cat

founded: 1925

Contact Information:

headquarters: 100 ne adams st.
peoria, il 61629 phone: (309)675-1000 fax: (309)675-4457 toll free: (800)228-7717 email: [email protected] url: http://www.caterpillar.com http://www.cat.com

OVERVIEW

Caterpillar Inc. manufactures construction, mining, and agricultural machinery. It also manufactures diesel and gas engines for trucks, locomotives, and ships, as well as electrical power generation systems. Caterpillar is a top manufacturer of earthmoving machinery, construction equipment, natural gas engines, and industrial gas turbines. The company also provides financial services for its customers. Caterpillar's focus on quickly bringing new products to market and expanding its clientele has helped increase company profits.

Chairman and CEO Donald V. Fites has stated that the "fundamental building blocks for continued success and future growth are in place." These building blocks consist of modern factories, new technology, an effective organizational structure and culture, and new products to reach expanding markets. The financial results from 1993 through 1997 demonstrate the effectiveness of the company's strategy: sales grew 63 percent, profit increased 155 percent, and profit per share increased 176 percent. Caterpillar exported a record $6.12 billion worth of products during 1997, marking an 11-percent increase over 1996. Caterpillar anticipates sales growth to customers outside the United States to increase to 75 percent of total sales and anticipates sales and revenues to climb to $30 billion by the year 2010.

COMPANY FINANCES

Profits for 1996 totaled $1.36 billion, or $3.54 per share of common stock, compared to 1995 profits of $1.14 billion, or $2.86 per share. Revenues for 1996 were $16.52 billion, which was an increase of $450 million over 1995 revenues.

Caterpillar reported that 1997 was a "record setter" for the company. Revenues for 1997 were $18.93 billion, up 15 percent from 1996. Profits were $1.67 billion, up 22 percent from 1996. Profit per share of common stock was $4.44, up 25 percent from 1996 and recorded as the best ever in Caterpillar's history. This reflected the impact of the higher profit and the company's ongoing share repurchase program.

The second fiscal quarter of 1998 was the company's second-best quarter ever for revenues and profits. Revenues totaled $5.6 billion and profits reached $446 million. As of second quarter 1998, the company had recorded profits in 16 of the previous 18 quarters.

ANALYSTS' OPINIONS

Some financial analysts have expressed surprise over Caterpillar's financial success in the late 1990s. The 11-percent sales increase in 1996 was achieved with only a 2-percent increase in prices. However, some analysts have cautioned investors to remember that they closely link Caterpillar's financial success to the health of the economy.

Other analysts and investors have expressed concern over the labor issues at Caterpillar in the late 1990s. Labor strikes by the United Auto Workers (UAW) and legal action taken against the company for various workers' rights issues have plagued Caterpillar. The dispute ended in March 1998 with a six-year ratified agreement that gave UAW represented employees some of the best wages and benefits in the industry.

Another area of possible concern is Caterpillar's $1.8 billion capital-investment program. The company has been investing in new equipment in order to increase the flexibility of its manufacturing operations. While this may be a wise strategic move, some say such an expenditure is risky and the company could feel a negative impact if the health of the economy takes a turn for the worse.

HISTORY

In 1904 Benjamin Holt sought to create a machine that moved over dirt easily. He altered a tractor by replacing its steam engine with a gas engine and replacing its iron wheels with crawler tracks. He called his invention a "caterpillar." During World War I, the British armed forces imitated these adaptations when they designed their armored tanks.

Holt merged his operation with Best Tractor in 1925, and in 1928 the company was renamed Caterpillar. Its headquarter was located in Peoria, Illinois. In an effort to expand, the company sought foreign markets in the 1930s and formed an international dealer network. Caterpillar continued to grow in the 1940s, and the company supplied its earthmoving machinery to the U.S. Army during World War II. Sales more than tripled at this time. Even after the war, the company continued to enjoy large profits and increasing demand for its machinery. The company's first overseas plant was established in the United Kingdom in 1951. By 1963 Caterpillar had also established a joint venture with the Japanese giant, Mitsubishi.

By 1981 Caterpillar's sales had reached nearly $9.2 billion. However, the company's 50-year span of ceaseless profits ended when it racked up $953 million in losses between 1982 and 1984. Demand for the company's products had fallen while the level of foreign competition had risen to an all-time high. Caterpillar expanded its product line in order to remain competitive with such global players as Japan's Komatsu, and in 1987 Caterpillar launched a $1.8 billion program to update its factories.

STRATEGY

Chairman Fites has put in place a strategy designed to make Caterpillar globally competitive using predominately United States-based manufacturing operations. One element of this strategy includes implementing a six-year capital-investment program aimed at cultivating more flexible manufacturing operations. Another strategic ingredient is a focus on new product development. Also, the company is a strong supporter of the General Agreement on Tariffs and Trade (GATT) and the North American Free Trade Agreement (NAFTA), which stands to reason since a large portion of Caterpillar's revenues come from its exports to foreign countries. Through these international trade agreements, governments define their rules for exporting and importing products to and from foreign countries. The ultimate goal is to reduce or eliminate government restrictions on imports and exports.

Caterpillar has also expanded its operations by acquiring other companies that strategically fit into its own line of business. One such move was the acquisition of Perkins Engines—Perkins is one of Caterpillar's major suppliers. Caterpillar acquired Kato Engineering from Rockwell Automation in 1998, which will further Cater-pillar's growth in the electric power generation business. Since 1991 Caterpillar has entered into 38 acquisitions and joint ventures ranging from partial to 100 percent ownership.

To emphasize its focus on customer needs, Caterpillar began offering financial services to its customers in the late 1990s. Caterpillar Financial Services now serves customers in 60 countries. The company has instituted profit centers as well. These aim to mold the company into a more flexible organization that is able to do whatever is necessary to meet customer demands.

INFLUENCES

Caterpillar's upward climb to success dates back to World War I, when Benjamin Holt's track-type tractors were in high demand since they could pull artillery and supply vehicles through rough terrain. The company's profits and recognition grew tremendously during this time, as well as during World War II.

The company's expansion into foreign markets began in the postwar period. In 1950 Caterpillar Tractor Co. Ltd. was established in the United Kingdom, marking the first of many operations abroad. By choosing strategic locations around the world for its manufacturing operations, the company was less disadvantaged by tariffs, foreign exchange deficiencies, and import restrictions.

FAST FACTS: About Caterpillar Inc.

Ownership: Caterpillar Inc. is a publicly owned company traded on the New York, Pacific, and Chicago Stock Exchanges in the United States and on stock exchanges in Belgium, France, Germany, Great Britain, and Switzerland.

Ticker symbol: CAT

Officers: Donald V. Fites, Chmn. & CEO, 63, 1997 base salary $3,356,650; Glen A. Barton, Group Pres., 57, 1997 base salary $1,116,299; Gerald S. Flaherty, Group Pres., 58, 1997 base salary $1,119,600; Richard L. Thompson, Group Pres., 57, 1997 base salary $920,233

Employees: 65,947

Principal Subsidiary Companies: Caterpillar Inc. has operations and subsidiary companies around the world. Caterpillar's chief subsidiaries include: Balderson Inc., Caterpillar Financial Services Corp., Caterpillar China Investment Co., Caterpillar Inc. Engines Div., Caterpillar Insurance Services Inc., Caterpillar Investment Management Ltd., Caterpillar Paving Products Inc., Caterpillar World Trading Corp., Engine Service Specialists Inc., Solar Turbines Inc., and Caterpillar Logistics Services, Inc.

Chief Competitors: Primary competitors include: AGCO; Allied Products; Case; Core Industries; Cummins Engine; Daimler-Benz; Deere; Ford; Krupp; Hitachi; Hyundai; Ingersoll-Rand; Isuzu; Komatsu America; Penske; Peterson Tractor; Rolls-Royce; Stewart & Stevenson; Terex; Thermo Power; and Volvo.

Caterpillar's overseas success reached new heights when the company signed an agreement with Mitsubishi in 1963 to conduct joint manufacturing operations in Japan. This joint venture, renamed Shin Caterpillar Mitsubishi Ltd. in 1987, has grown to become the number-two manufacturer of construction and mining equipment in Japan and one of the most successful United States-Japanese joint ventures to date. However, not all of Cater-pillar's overseas ventures are so successful. Caterpillar's joint venture with China's Shanghai Diesel Engine Company Ltd. lost $3.6 million in 1996. By the end of 1997, Caterpillar was considering pulling out of the venture.

The economic recession and globally competitive environment of the 1980s forced Caterpillar to cut costs. The company cut jobs and analyzed how to restructure itself in order to avoid similar economic impacts in the future. In 1987 the company underwent a $1.8 billion modification program aimed at making its manufacturing plants flexible enough to produce various types of products. By doing so, the company could offer double the amount of products offered a decade earlier.

CURRENT TRENDS

One of Caterpillar's strategic moves is its trend toward setting up more joint ventures and acquisitions, particularly involving foreign markets. Among these joint ventures is Caterpillar's involvement with the Asian Strategic Investments Corporation (ASIMCO) and CITIC Machinery Manufacturing Incorporated (CMMI). Initiated in early 1997 and located in Ahanxi Province in north central China, this joint operation, called Shanxi International Castings Co., Ltd., produces engine-related castings for medium- and heavy-duty diesel engines. Caterpillar provides its casting technology and expertise, while ASIMCO and CMMI provide the funding, operation sites, machines, supplies, and staff.

In response to growth in the agricultural equipment industry, Caterpillar has established a joint venture with a German company, Claas KgaA, to manufacture and sell combine harvesters and rubber-belted agricultural tractors in Europe and North America. The manufacturing facility for this venture is under construction and set to be completed in 1999. By combining their products and efforts, the two companies seek to better serve the growing need for efficiency on large farms.

Another foreign venture for Caterpillar is its acquisition of the Swedish manufacturer, Skogsjan AB. This company manufactures forestry machinery and supplies that compliment Caterpillar's line of forestry equipment. Skogsjan markets its products in Sweden, Norway, Germany, Austria, Switzerland, and the United Kingdom.

PRODUCTS

The mining industry also plays an important role in Caterpillar's business—Caterpillar is the world leader in sales of mining trucks. The company is designing a greater-capacity mining truck and plans to introduce the first mechanical-drive mining truck with a capacity of more than 150 tons.

A joint venture between Caterpillar and Finland's Tamrock Corp. was established in March 1998. The new company, Caterpillar Impact Products Limited, is located in Slough, England. According to Seppo Karkkainen, managing director of the partnership, "By combining Tamrock's hydraulic hammer expertise with Caterpillar's position as a world leader in construction and mining equipment, they will ideally position the new company to develop new business and new products." Also in early 1998, Caterpillar introduced a new line of compact construction equipment at a trade show in Germany.

CHRONOLOGY: Key Dates for Caterpillar Inc.

1904:

Benjamin Holt invents the first Caterpillar by modifying a tractor

1915:

British armed forces imitate his track designs in creating their armored tanks

1925:

Holt merges his company with Best Tractor, renaming the company Caterpillar Tractor Company

1942:

Caterpillar equipment and designs are used in the M4 tanks during World War II

1961:

The first Diesel Sixty tractor rolls off the assembly line

1950:

Establishes the first overseas plant in the United Kingdom

1963:

Mitsubishi and Caterpillar form a joint venture

1981:

Caterpillar Financial Services Corporation is formed to offer equipment financing

1997:

The company acquires Perkins Engines and becomes the world leader in diesel engine manufacturing

CORPORATE CITIZENSHIP

In the late 1990s Caterpillar assisted the Pines of Carolina Girl Scout Council with repair costs incurred by Hurricane Fran. The Clayton Caterpillar plant is near the Girl Scout camp that suffered almost $200,000 in damages, and Caterpillar donated $10,000 for repairs.

Caterpillar was named 1996 Employer of the Year by the Industry-Labor Council. The award recognizes the company for its efforts to integrate disabled workers into its workforce. Caterpillar was cited for its "barrier-free, cost-effective initiatives to return injured workers [to the job], and active outreach to recruit workers with disabilities."

GLOBAL PRESENCE

Caterpillar is the leading U.S. exporter in its industry. With about half of its sales coming from outside the United States, Caterpillar is highly dependent upon international markets. The markets in developing countries are especially important to the company—they accounted for 36 percent of Caterpillar's 1997 sales. The machinery and equipment that Caterpillar manufactures are used by these developing countries to improve their infrastructure and industrial capacity. In the Asia/Pacific region, Africa, and the Middle East, combined sales rose 37.7 percent in 1995.

Caterpillar continues to have a strong presence in Australia, Belgium, Brazil, China, France, Germany, Hungary, India, Indonesia, Italy, Japan, Mexico, Poland, Russia, and the United Kingdom. The company has 197 dealer networks that together service almost every country in the world. Caterpillar is one of the world's top three manufacturers of diesel engines. The company also ranks as a leader in many of its other businesses, including construction and mining machinery, natural gas engines, and gas turbines.

EMPLOYMENT

Caterpillar values teamwork among its employees. The company's many divisions (engineering, manufacturing, marketing, distribution, finance, product support, and customer service) operate on a "pay for performance" philosophy. In other words, rewards are given to those who do outstanding work. The company hired more than 200 college graduates in both 1996 and 1997 to fill full-time positions in such areas as engineering, information services, accounting, and marketing.

However, discord between Caterpillar and its blue-collar workforce has had a negative impact on the company. Between 1992 and 1996 the National Labor Relations Board (NLRB) found Caterpillar to be guilty of unfair labor practices a total of 230 times. This stemmed from a long-term labor dispute between the United Auto Workers (UAW) and Caterpillar. The union and the company eventually hammered out a new agreement, which is effective until April 1, 2004.

In 1996 the Occupational Safety and Health Administration (OSHA) recommended that Caterpillar be fined $27,125 for health and safety violations. According to UAW Vice President Richard Shoemaker, Cater-pillar's top management had been "putting production and other considerations before the lives and the health of workers."

SOURCES OF INFORMATION

Bibliography

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"caterpillar and claas announce intention to form large agricultural equipment joint venture." caterpillar home page, 13 february 1997. available at http://www.caterpillar.com.

"caterpillar announces sponsorship for the nascar winston cup series in 1997." caterpillar home page, 7 september 1996. available at http://www.caterpillar.com.

"caterpillar, asimco and cmmi announce joint venture in shanxi province, china." pr newswire, 3 april 1997. available at http://www.newsalert.com.

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"caterpillar exports set new record in 1996." caterpillar home page, 28 february 1997. available at http://www.caterpillar.com.

"caterpillar inc." hoover's online, 28 may 1998. available at http://www.hoovers.com.

"caterpillar leaders cite record 1995 performance, preview significant worldwide opportunities at annual stockholders' meeting." caterpillar home page, 10 april 1996. available at http://www.caterpillar.com.

"caterpillar provides $10,000 for girl scout camp repair." pr newswire, 31 march 1997. available at http://www.newsalert.com.

"caterpillar selected as 1996 employer of the year by industry-labor council." caterpillar home page, 1 october 1996. available at http://www.caterpillar.com.

"caterpillar strategy ensures long-term profitability." pr newswire, 9 april 1997. available at http://www.newsalert.com.

"caterpillar to expand forest products business." pr newswire, 24 february 1997. available at http://www.newsalert.com.

"caterpillar to supply $36 million of equipment to russia's largest diamond producer." caterpillar home page, 11 september 1996. available at http://www.caterpillar.com.

"caterpillar today." caterpillar home page, 28 may 1998. available at http://www.caterpillar.com.

elstrom, peter. "this cat keeps on purring." business week, 20 january 1997.

"a good place to work." caterpillar home page, 28 may 1998. available at http://www.caterpillar.com.

"new college graduate hires at caterpillar to number over 200 in 1997." caterpillar home page, 24 september 1996. available at http://www.caterpillar.com.

"nlrb judge rules caterpillar bargained in bad faith; violated union members' rights." news from the uaw, 31 october 1996. available at http://www.uaw.org.

osenga, mike. "caterpillar buys perkins-wow." diesel progress north america edition, january 1998.

quintanilla, carl. "caterpillar's profit surges 33%, exceeding analysts' forecasts." the wall street journal interactive edition, 16 april 1997. available at http://interative6.wsj.com.

"uaw blasts caterpillar for pattern of repeated health/safety violations." news from the uaw, 5 december 1996. available at http://www.uaw.org.

"u.a.w. members back contract with caterpillar, first since '91." new york times, 23 march 1998.

yatsko, pamela. "rethinking china." far eastern economic review, 18 december 1997.

For an annual report:

on the internet at: http://www.cat.comor telephone: (800) 228–7717 or write: secretary, caterpillar inc., 100 ne adams st., peoria, il 61629-7310

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. caterpillar's primary sics are:

3272 concrete products manufacturing, except block and brick

3511 turbines and turbine generator sets manufacturing

3519 internal combustion engine manufacturing

3523 farm machinery and equipment manufacturing

3531 construction machinery and equipment manufacturing

3537 industrial truck and tractor manufacturing

3563 air and gas compressor manufacturing

5082 construction and mining machinery wholesaling

CATERPILLAR INC.

Caterpillar Tractor Company (the original name for Caterpillar Inc.) was formed in 1925 through the merger of companies founded by Daniel Best and Benjamin Holt. After arriving in California in 1859, Best observed that many farmers transported their grain to special cleaning stations to make it suitable for market. Best thought there was a way to clean grain by machine at the same time as it was being harvested to avoid the costly step of transporting it to another site. By 1871 Best had patented his first grain cleaner, which he manufactured and sold with great success. By the 1880s Best owned manufacturing centers in Oregon and Oakland, California.

Holt arrived in California in 1863 and with his brothers operated the Stockton Wheel Company, which manufactured wooden wheels. It marked the firm's first experience with the vehicular products that would be the company's strength in the years to come. In the 1880s inventors were tinkering with the combined harvester and thresher, known as the combine, which revolutionized grain farming through its ability to cut and thresh, and later to clean and sack grain in vast quantities. It accomplished these processes in far less time than was previously needed. The Holt brothers' Link Belt Combined Harvester, developed in 1886, advanced agricultural technology further by using flexible chain belts rather than gears to transmit power from the ground wheels to the working parts of the machine. This innovation cut down on machine breakage.

Near the end of the nineteenth century the major bottleneck in the progress of agricultural technology was the need for animal power. The combine had made large farms profitable, but the cost of housing and feeding large horse teams and the men who drove them cut into earnings. Both the Holts and Daniel Best were interested in solving this problem by using steam-driven engines to supply tractor power.

The Holts built a steam-driven tractor that could haul 50 tons of freight at three miles per hour. The Stockton Wheel Company was then incorporated as Holt Manufacturing Company in 1892. In the same period Daniel Best refined his steam-engine tractor into one of the finest available during this period. Throughout the 1890s steam-powered tractors were used for hauling freight and plowing fields, as well as for harvesting grain.

In the early 1900s the Holt brothers turned their ingenuity to another farming problem. The land around Stockton, California, where the Holt Company was headquartered, was boggy and became impassable when wet. To overcome this limitation the Holts produced the first "caterpillar"-style tractor, or crawler. It was built on tracks instead of wheels, and the "Cat" could negotiate any terrain short of a swamp. It soon allowed farmers to reclaim thousands of acres of land previously thought useless. In 1906 a steam-powered crawler was perfected, and caught on quickly because of its ability to work on ground that all but swallowed other machines.

In 1908 the engineers who were building the 230-mile Los Angeles Aqueduct used a gas-powered crawler to transport materials across the Mojave Desert. The machine worked so well that 25 more tractors were purchased for further work on the aqueduct, thus giving the Holt tractor credibility with the public and a substantial boost to sales. Also in 1908 Daniel Best sold out to the Holts, after decades of individual success. Best's son, C. W. Best, was taken on as company superintendent, but after two years, formed his own company and advanced the state of tractor technology even further on his own.

In 1909 Charles Holt, who had been looking for a new manufacturing plant in the eastern half of theUnited States, bought the abandoned but relatively new plant of a tractor company that had failed. After this plant in Peoria, Illinois, opened, Holt continued to improve his tractor and expand its range of applications. He experimented with several different materials for the body to achieve a heavy-duty tractor that was not excessively heavy. Holt knew that his tractors could be used for even more rugged chores than agriculture or hauling freight, and fitted adjustable blades onto his tractors. He then hired them out to grade roads or move soil and rocks at construction sites.

Soon after World War I (1914–1918) broke out, thousands of troops were caught in trench warfare, marked by the lethal combination of sharp-edged concertina wire plus machine-gun emplacements. Observing the futility of mounting attacks in such terrain, a British lieutenant colonel, Ernest Swinton, recognized the usefulness of an armored machine that could resist automatic machine-guns and also negotiate the warscarred battlefield. His requirements resulted in the invention in 1916 of an experimental tank, based on the track-laying tractors designed by Holt and others. A year later the tank was used with such telling effect that it is credited with winning the Battle of Cambrai, in France, for the Allies. Some historians point to this battle as the turning point of the war. Germany had investigated the military applications of the track-laying vehicle well before anyone else and mistakenly concluded that tractors were without military significance.

Holt tractors themselves served the war effort by hauling artillery and supplies. In all, more than 10,000 Holt vehicles served the Allied forces, and the international exposure that the Holt tractor received during the war did much to popularize the tracked vehicle.

In 1925 Holt and C. W. Best's companies merged, this time to form the Caterpillar Tractor Company. The company relocated its headquarters from California to Peoria three years later. By 1931, the diesel tractor engine, which had been used before but not widely, was perfected for common use by Caterpillar. Previously, diesels had been too heavy and undependable for commercial use. The Diesel-60 tractor, however, made the diesel the staple engine for heavy-duty vehicles, as it is to this day.

Caterpillar's contributions to World War II (1939–1945) were many and varied. One was the conversion of a gasoline airplane engine into a dependable diesel engine. In 1942 Caterpillar unveiled the new RD-1820 radial diesel engine, which was used to power the M-4 tank. The company manufactured other engines, as well, and even artillery shells for the war effort. Caterpillar tractors worked in battle zones repairing damaged roads, building new ones, and bulldozing tank traps. Because the Cat was usually seen doing such roadwork with a bulldozer blade attached, the term "bulldozer" came to be used for Caterpillar products.

In the postwar period, Caterpillar experienced enormous growth, because of the massive rebuilding campaigns begun both in Europe and Japan. From the 1950s through the end of the century, the company (which was renamed Caterpillar Inc. in 1986) grew to become the world's largest manufacturer of earthmoving machinery. In addition to its tractors, trucks, graders, excavators, scrapers, and other heavy machinery used in the construction, mining, and agriculture industries, the Caterpillar of the late 1990s also made diesel and gas engines used in medium- and heavy-duty trucks, electric power generation equipment, locomotives, and other industrial equipment. During a long and bitter strike by the United Automobile Workers union during much of the 1990s, Caterpillar successfully resisted the union's demands and "rolled over" its opposition as if the company's labor relations strategy were mounted on tractor treads.

FURTHER READING

Bremner, Brian. "Can Caterpillar Inch Its Way Back into Heftier Profits?" Business Week, September 25, 1989.

Caterpillar Inc. The Caterpillar Story. Peoria, Ill.: Caterpillar Inc., 1990.

——. Century of Change: Caterpillar Special World Historical Edition. Peoria, Ill.: Caterpillar Inc., 1984.

Dubashi, Jagannath. "Cat-apult: The Cheap Dollar Helped, but Caterpillar's Turnaround Was Engineered in Peoria." Financial World, November 23, 1993.

Gibson, Paul, and Barbara Rudloph. "Playing Peoria to Perfection." Forbes, May 11, 1981.

Kelly, Kevin. "Cat Is Purring, but They're Hissing on the Floor." Business Week, May 16, 1994.

Naumann, William L. The Story of Caterpillar Tractor Co. New York: Newcomen Society in North America, 1977.

Weimer, De'Ann. "A New Cat on the Hot Seat." Business Week, March 9, 1998.