Construction and mining equipment maker Caterpillar plans to lay off 10,000 workers — or more — in a bid to save $ 1.5 billion a year in operating costs, it announced Thursday.
And nearly half of those job losses — 4,000 to 5,000 salaried and management employees — will come before the end of 2016, with most completed this year and a “significant” proportion in Illinois, the company said.
Caterpillar refused to say how many of the 21,600 people it employs in Illinois are at risk, but company spokeswoman Rachel Potts said a “large portion” of the initial 4,000 to 5,000 workers let go will be in Illinois. The rest of the layoffs will be completed by 2018 and will also hit overseas, she added.
Caterpillar employs about 3,200 workers in downtown Peoria, where its global headquarters was built in 1967. Plans to develop a new headquarters campus have been delayed indefinitely.
Doug Oberhelman, CEO of the Peoria-based firm, blamed the job cuts on “challenging marketplace conditions” in the energy and mining sectors, as Caterpillar, one of Illinois’ biggest employers, revised downward its sales projections for 2015 by $ 1 billion, to $ 48 billion.
The company noted in a news release that this 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.”
Early Thursday afternoon, the company’s shares were trading down more than 6 percent to around $ 65.85 a share, helping push down the Dow Jones industrial average by about 200 points.
Caterpillar had already reduced its workforce by 31,000 to 126,800 since 2012 and closed or consolidated 20 plants. It now plans a “restructuring” at 20 more of its 103 plants worldwide that will involve some closings, a move that will cut its total manufacturing space by about 10 percent, it said.
Plants in all three of its manufacturing groups — construction, resource industries, and energy and transportation — are under threat. That includes eight manufacturing plants in Illinois: Aurora, Decatur, East Peoria, Joliet, LaGrange, Mossville, Mapleton and Pontiac. But the majority of Caterpillar’s plants are overseas, in Asia, Europe and South America.
“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,” Oberhelman said in the news release.
He added, “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.”
Analysts agreed that Caterpillar had to act in the face of tough market conditions. Those include low oil prices, which have reduced demand for Caterpillar engines and equipment used on oil rigs, and to pump and transport oil, as well as a “hangover” in the mining industry, which has excess capacity after years of heavy investment, according to Mircea Dobre, an analyst with Robert W. Baird.
The long business cycle in the mining industry means it will be a long time before orders for Caterpillar equipment in that sector pick up, Dobre said, adding that though Caterpillar has done well in the U.S. construction industry, recessions in Brazil and Russia and the slowdown of the Chinese economy have all hit the firm hard.
“They were basically forced by a very harsh business environment,” he said.
In February, Caterpillar said that it would stay in Peoria and develop a 31-acre campus over the coming decade, a development hailed at the time by Gov. Bruce Rauner and Peoria Mayor Jim Ardis.
In an op-ed published in the Peoria Journal Star on Thursday, Oberhelman wrote: “Our vision and plans for a new headquarters in downtown Peoria still stand, although given current conditions we can’t say when the project will begin.”
Speaking Thursday morning, Ardis said he had not been given any more specific information about job losses in Peoria.
He placed the coming layoffs in the context of recent major manufacturing job losses across Illinois. “Our state is hemorrhaging manufacturing jobs, and it has been for some time,” he said. “We’ve lost 300,000 manufacturing jobs since 2000.”
Still, he said, he believes Caterpillar has “a good handle” on the steps it needs to take, adding that he was “very confident” that Caterpillar will rebound.
“The upside is that this has not impacted their decision to build their new world headquarters here, which is reassuring,” he said.
Rauner spokeswoman Catherine Kelly described Caterpillar as “an important economic engine in Illinois” and said the planned job losses underscore “the need to help improve the state’s economic climate.”
Caterpillar says it believes demand for its equipment will return as the world economy improves in coming years.
kjanssen@tribpub.com
Twitter @kimjnews
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