Caterpillar Inc recently announced restructuring and cost reduction actions expected to lower operating costs by about $1.5 billion annually once fully implemented. The cost reduction steps will begin in late 2015 after the company’s sales and revenues outlook weakened in 2015. Sales and revenue for 2016 are expected to be about 5 percent below 2015.
Key steps planned by the company include:
- A permanent reduction in the company’s salaried and management workforce of 4,000 – 5,000 people between now and the end of 2016, with a total possible workforce reduction of more than 10,000 people, including the contemplated consolidation and closures of manufacturing facilities occurring through 2018.
- Slightly less than half of the $1.5 billion of cost reduction is expected to be from lower Selling, General and Administrative costs.
- The remaining cost reductions are expected to come from lower period manufacturing costs, including savings from additional contemplated facility consolidations and closures
“We are facing a convergence of challenging marketplace conditions in key regions and industry sectors – namely in mining and energy,” said Doug Oberhelman, Caterpillar Chairman and CEO. “While we’ve already made substantial adjustments as these market conditions have emerged, we are taking even more decisive actions now. We don’t make these decisions lightly, but I’m confident these additional steps will better position Caterpillar to deliver solid results when demand improves.”
This year is the company’s third consecutive down year for sales and revenues, and 2016 would mark the first time in Caterpillar’s 90-year history that sales and revenues have decreased four years in a row.
“…several of the key industries we serve – including mining, oil and gas, construction and rail – have a long history of substantial cyclicality. While they are the right businesses to be in for the long term, we have to manage through what can be considerable and sometimes prolonged downturns,” added Oberhelman.
Since 2013, Caterpillar has closed or announced plans to close or consolidate more than 20 facilities, impacting 8 million square feet of manufacturing space. The company has also reduced its total workforce by more than 31,000 since mid-2012.
“We recognize today’s news and actions taken in recent years are difficult for our employees, their families and the communities where we’re located. We have a talented and dedicated workforce, and we know this will be hard for them,” said Oberhelman.