Caterpillar Gets a Lift News that the construction equipment maker is discussing a plan to buy most of Shin Caterpillar Mitsubishi Ltd. helps boost the shares Updated: 7:00 p.m. ET Feb 19, 2007 Caterpillar (CAT), known for its yellow bulldozers, could be called a trailblazer in Asia. The Peoria, Ill.-based construction equipment maker has been moving much of the business overseas and investors are finally noticing. Shares of the compnay rose 2.5% to $67.82 on Feb. 15 on news that Caterpillar executives are discussing a plan to buy most of Shin Caterpillar Mitsubishi Ltd. [SCM]. The company's global expansion started way back in 1963, when Caterpillar and Mitsubishi Heavy Industries Ltd. formed Caterpillar Mitsubishi Ltd., one of the first joint ventures in Japan to include partial U.S. ownership. They eventually renamed their shared construction and mining equipment making business Shin Caterpillar Mitsubishi. Now Caterpillar and Mitsubishi have signed an agreement to complete a new plan under discussion, in which Caterpillar would own most of Shin Caterpillar Mitsubishi's shares while Mitsubishi has the rest, according to a statement released from Tokyo on Feb. 14. Caterpillar says it wants to integrate Shin Caterpillar Mitsubishi employees, dealers and suppliers into its global business. "Caterpillar's success in the Asia Pacific region is a critical part of the company's long-term strategy, both in terms of the importance of this region to our global manufacturing operations and because of the enormous growth opportunity represented by the vast number of customers in the region who are using our machines and engines," said Stu Levenick, Caterpillar group president with responsibility for Asia Pacific, in the press release. This news hits after a slowing housing market in the U.S. sparked fears on Wall Street about Caterpillar. When the company said in October that its earnings per share for 2006 would amount to between $5.05 and $5.30, down from a previous forecast of $5.25 to $5.50, investors unloaded Caterpillar stock. The company's reduced forecast had even reignited worries that the overall U.S. economy may continue to show tepid growth for much of next year [see BusinessWeek.com, 10/20/06, "Slower Housing Puts a Dent in Caterpillar"]. But market commentator and "Mad Money" host Jim Cramer pointed out Feb. 14 that 48% of Caterpillar's sales and over half of its manufacturing plants are overseas now, according to a summary of the program published on the website Seeking Alpha. Caterpillar's business "is cyclical, but not totally levered to the U.S.," Cramer said. "It is the year people will recognize that Caterpillar is more than a housing play," wrote Seeking Alpha. Caterpillar is indeed continuing to further grow its business overseas. To name a few examples, in 2006 the company's subsidiary Caterpillar Logistics Services, Inc. opened a new parts distribution center in the Lingang Industrial Area in Shanghai. In November, Caterpillar announced that it finished acquiring a former joint venture engine operation in Mathagondapalli, Hosur, India, which had been originally formed in 1988 as Hindustan PowerPlus Limited and has been renamed Caterpillar Power India Private Limited. The company is also planning to build a new manufacturing facility in the Suzhou Industrial Park in China's Jiangsu province in early 2007. And during the late 1990s, the company had expanded into Europe with acquisitions of engine makers like the U.K.-based Perkins Engines and of Germany's MaK Motoren. Normally Caterpillar uses its cash mostly for things like these types of acquisitions and other expenses, but it also returns its remaining cash to stockhoders through its buyback programs. The company announced on Feb. 15 that it plans to buy back $7.5 billion of stock; timing will depend on market conditions and alternative uses of cash. Caterpillar expects to complete its current stock buyback program, valued at $6.4 billion and approved in Oct. 2003, within the next few months.
I'm surprised more at the fact that the Japs have allowed a foreign company to assume majority control of what is essentially a Japanese concern. In 1963, the Japs would not allow any foreign company to operate, 100% foreign owned, in Japan. The only way Cat could get into what they saw as a future lucrative S.E. Asian/Oceania equipment market, was via a Joint Venture with a Japanese company. Mitsubishi was the company that was chosen to go into 50/50 partnership with Cat, in the formation of Caterpillar Mitsubishi Ltd. The dealership arm was Shin Caterpillar .. and the factory and dealerships were amalgamated later, in line with many large corporation's planning aims, of having dealerships fully owned by the manufacturing company .. instead of being owned by independent companies and partnerships. Enter the global corporation, with a total grasp of everything from factory manufacturing, to total ownership of sales and parts divisions. This new move essentially gives Cat Inc, more power, to make long range planning decisions, on a stand-alone basis .. rather than having to consult with, and gain approval from Mitsubishi. The eventual aim of Cat, along with most of corporate America .. is to move as much manufacturing offshore, and reduce the U.S. to little more than a head office, with planning and decision making, being the primary operation. The problem with this long range plan, is that it leaves America with little, in the long-term, by way of serious manufacturing capability .. and leaves the country exposed to the whims of distant countries leaders and decision makers .. and revolutions. When China realises it holds all the aces, it will be .. "Pay all the way, guys .. we've got the worlds major manufacturing centres .. and you can't do a thing without us .. ". That's about the stage, you'll all realise .. you've all been sold down the drain, by corporate and shareholder greed ..
This has been occurring in the automobile industry for quite some time. I agree with the rest of your post however and have the same concerns about our losing our manufacturing abilities. Our national defense will suffer if our heavy manufacturing fades away and that frightens me. It will be interesting to see how this pans out. Will Cat be able to control quality in an effective manner? Will they be able to guarantee overnight parts delivery as they are now? I'm aware that some of Cat's equipment is already Asian built, but this is a big endeavor and will take some serious thought to pull it off successfully.
Cat have 13 factories in China, 3 of which I think, are fully owned, and the other 10 are JV's. They state they employ 4300 people, which is not what 13 factories would employ. There is an interesting speech in the following link, to a Senate Committee, in year 2000, given by Cat's CEO of China, regarding normalising WTO relationships with China in that year. The speech speaks glowingly of Cat's operations in China, and the benefits of dealing with the Chinese. Since that time, Cats operations in China have expanded exponentially .. and continue to do so. They initially aimed at just providing for the local market .. now Cat's plan is to provide large amounts of manufacturing input, into a very large % of Cat products .. including products sold into Western countries. We are already getting genuine Cat parts with "Made in China", stamped on them .. However .. nowhere of course, is there any mention in the speech, of any downside to the cosy deal. Like a marriage, things are just fine, until the parties start to see faults in each other, and the hostility starts. In the cosy glow of the money-making fire, that is currently burning well, everything looks great. Unfortunately, China is still a totally Communist country, and I'm young enough to remember that, in very recent times, China went through the throes of a Peoples Revolution .. which turned every sensible thought, practice, belief, and any form of education .. on its head .. and practically took the country back 2000 years, in a few short years. There's nothing to say that can't happen again. American business is wise to tread carefully in China, and make contingency plans for any revolution that might happen again at a moments notice .. and that contingency plan doesn't involve moving the majority of a companys operations into China .. and relying on every single manufacturing plant they use to produce goods .. being located there. That is the likely, eventual logical outcome, of the headlong rush into China, by large Western Corporations, that has happened in the last 15 years or so .. http://www.businessroundtable.org/newsroom/document.aspx?qs=5306BF807822B0F1FD250D46BFC5B280986