Caterpillar Inc.

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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).