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Caterpillar Plans $1 Billion Plant Capacity Expansion in Illinois

Tue June 24, 2008 - National Edition

CHAMPAIGN, Ill. (AP) Caterpillar Inc.’s strength abroad should pay off for Illinois over the next few years under a $1 billion plan the company announced June 12 to expand capacity at five of its plants in the state to meet overseas demand.

The company said decisions about how many jobs will be affected and the scope of any job cuts, additions or shifts of existing positions will be made by the end of 2009. The company employs about 101,000 people worldwide, roughly half of them in the United States.

Even if no jobs are added, as one local economic developer in Illinois said June 12, the plans at least should mean Caterpillar plants won’t cut jobs as the American economy stumbles.

Separately June 12 Caterpillar announced a deal to develop medium- and heavy-duty trucks with Navistar International Corp. that could lead to further shifts in production.

Peoria, Ill.-based Caterpillar, one of the world’s largest heavy equipment manufacturers, said the expansion is necessary to meet demand for machines used mostly in mining and large infrastructure projects, particularly overseas.

“Our company has never been more global,” Caterpillar Group President Doug Oberhelman said in an interview. “Last year 62 percent of our sales and revenue were outside of the U.S., and they’ll probably be higher than that this year.”

Major construction projects overseas and the search for coal, oil and other mined commodities to fuel economic growth in Asia, Latin America and the Middle East helped Caterpillar to a record 2007 even as the American economy stalled.

The investment plan will include capacity increases in Caterpillar’s East Peoria plant for track-type tractors, pipelayers and for off-highway transmissions; large off-highway truck production expansion in Decatur; wheel loaders and excavators manufacturing increases in Aurora and components production increases in Joliet.

Caterpillar said it will pay for the expansion in cash, from operating funds.

The announcement is a solid endorsement of both the potential for continued economic growth overseas and of American manufacturing, analyst Alexander Blanton of Ingalls & Snyder said.

“It means that the production improvements they expect will enable the company to get a good return investing in U.S. manufacturing, which according to some people is not possible,” Blanton said.

Sherman Jenkins, the director of economic development in Aurora, said the expansion plan is insurance that the city in Chicago’s western suburbs can at least hang onto the roughly 3,000 Caterpillar jobs in town.

A quarter century ago, recession pushed local unemployment levels to 20 percent, he said.

“The fact that they’re looking at this additional investment, which can possibly lead to additional jobs or at least no layoffs, is definitely good news for us,” Jenkins said.

In Decatur, about 180 miles south of Chicago, economic development director Craig Coil said that, after talking with Caterpillar officials, he expects the local plant to keep its 4,100 jobs. It’s among the top two local employers, along with Decatur-based Archer Daniels Midland Co.

Cat’s Decatur work force has grown from 1,800 over the past six years, Coil said, almost entirely on the strength of its sales of mining equipment.

“I think it’s encouraging they’re investing the kind of capital they’re talking about in Illinois,” he said. “It kind of reinforces the fact that Illinois is part of the manufacturing core of the company.”

Caterpillar’s plan to partner with Warrenville-based Navistar International also includes plans to develop engines that can be used for vehicles such as school buses and utility trucks.

Caterpillar also said it will no longer supply truck engines to other on-highway truck builders. The company says that it will consider shifting some of its engine production because of that decision.

The engines are mostly produced in Mossville, just outside Peoria, and Greenville, S.C., where the company said capacity is far greater than expected future demand.

Caterpillar is now considering opening a new plant to produce off-highway heavy-duty engines currently produced in Mossville.

The company also is looking for an alternative U.S. location to build a motorgrader production plant to support its expanding off-highway truck capacity expansion. The plant is currently set in Decatur.

To meet expanded capacity in East Peoria, Decatur and Aurora, the company said it is considering moving lower power train production to other U.S. locations.

Caterpillar also says it will probably outsource tube manufacturing for its wheel loaders and excavators produced in Aurora to a U.S. supplier.

The company also is weighing moving some other manufacturing operations into its Mossville plant, and is considering building a new machinery and engine product design center for larger products in the area.

Caterpillar shares rose $1.57, or 2 percent, to $80.50 in trading June 12.

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