Caterpillar Inc

I. Statement of the Problem

Even though Caterpillar, Inc. responded to the challenges and made unprecedented changes, the company still recorded losses in recent years. In fact, there was a time when the company’s profits declined steadily.

II. Definition of the Problem

After a record year in 1988, Caterpillar’s profits declined steadily, culminating in a $404 million loss ($4.00 per share of common stock) in 1991. The loss was attributed to a number of factors, including prolonged global recession and one-time charges associated with facility closings, consolidation, and employment reductions. The company came close to bankruptcy due to sharp downturn in product demand as competition with Japanese rival Komatsu, with the motto “Encircle CAT”, heated up. The results were layoffs and massive labor union strikes, primarily by the United Auto Workers against plants in Illinois and Pennsylvania. On April 23, 1992, Caterpillar announced a $132 million loss for the first quarter. Although a strike by the United Auto Workers had disrupted production for the entire quarter, management attributed the loss solely to lower sales. Some of Caterpillar’s financial problems during the early ‘80s were a result of management’s failure to react to the changing world environment. In addition, slow growth in the industrial equipment market is projected for the short term because of continued global recession. Furthermore, environmental issues are affecting the demand of industrial equipment. Demand for products used primarily in large mining operations will be most affected by the increased awareness of environmental issues. The world’s recent focus on the environment has forced many existing mining operations to downsize, and in some countries, mining projects which would utilize industrial equipment are not being approved.

III. The Restraining and Driving Forces that Affect the Company

The restraining forces that affect the company are:

• Expansion. Caterpillar...