US-based heavy machinery manufacturer Caterpillar announced on Monday that it may have to retrench up to 10 000 workers by 2016 amid a restructuring and cost reduction plan.
The plan, aimed at lowering operating costs by about $1.5 billion annually once fully implemented, will begin in late 2015 and reflect recent, current and expected market conditions.
For 2015, the company’s sales and revenues outlook has weakened, with 2015 sales and revenues now expected to be about $48 billion, or $1 billion lower than the previous outlook of about $49 billion. For 2016, sales and revenues are expected to be about 5% below 2015.
The key steps in the restructuring plan include an expected permanent reduction in Caterpillar’s salaried and management workforce, including agency, of between 4 000 and 5 000 people between now and the end of 2016, with most occurring in 2015, and with a total possible workforce reduction of more than 10 000 people, including the contemplated consolidation and closures of manufacturing facilities occurring through 2018.
The company will also offer a voluntary retirement enhancement program for qualifying employees, which will be completed by the end of 2015.
Caterpillar says that slightly less than half of the $1.5 billion of cost reduction is expected to be from lower selling, general and administrative (SG&A) costs. The reduction in SG&A will largely be in place and effective in 2016 and occur across the company.
Thereafter, the remaining cost reductions are expected to come from lower period manufacturing costs, including savings from additional contemplated facility consolidations and closures, which could impact more than 20 facilities and slightly more than 10% of its manufacturing square footage.
A portion of these cost reductions are expected to be effective in 2016, with more savings anticipated in 2017 and 2018.
“We are facing a convergence of challenging marketplace conditions in key regions and industry sectors – namely in mining and energy,” says Caterpillar Chairman and CEO Doug Oberhelman.
“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.”
“Our strategy is to deliver superior total shareholder returns through the business cycle, and growth is a key element of that strategy. However, 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.
This announcement is in addition to significant actions already taken. 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.