Caterpillar rebounds, but struggles with UAW

Caterpillar Tractor Company is crawling back to profitability. After three disastrous years, the Peoria, Ill., maker of construction equipment has restructured itself and expanded into the smaller end of the market. The next step in its recovery -- contract negotiations with the United Automobile Workers (UAW) -- is proving difficult.

``Caterpillar is going to have to be tough,'' says Larry Hollis, vice-president and head of the machinery group at Robert Baird & Co.

``They probably could sustain a strike -- if that occurs -- for a pretty long time,'' adds Frank Manfredi, publisher of an industry newsletter in Los Altos, Calif.

Twice the company and union have extended the deadline for a contract settlement. Approaching the current Thursday night deadline, both sides report that they remain far from agreement on some key issues.

Job security is one issue. Since 1981, when the recession began eroding sales in the US and abroad, the company has lopped off 44 percent of its US work force. A $1 billion-plus modernization plan could mean more layoffs if sales don't pick up, a spokesman says.

``It's still not that stable,'' says an official with UAW Local 974 in Peoria. From 24,000 members working at Caterpillar in 1979, the local now has 9,100 on the job he says. The UAW represents some 16,600 Caterpillar workers in the US.

The cuts were needed, analysts say. In the period from 1982 to '84, the company lost just under $1 billion. Last year, the company posted a modest profit, although it's only this year that its bread-and-butter manufacturing operations should begin to show real profits.

``It took them an inordinate amount of time,'' Mr. Manfredi says, but ``they seem to have come back with a vengeance.''

``It's in the process of rebounding,'' a company spokesman says of profits.

Neither side wants a strike, says Jack McEowen, agribusiness specialist at Michigan State University's cooperative extension service. ``When things are going well . . . manufacturers tend to bargain much more easily.''

On the other hand, Caterpillar's emerging rebound is a far cry from the fat years of the late '70s. Japanese and other competitors are making inroads into the market. Sales of the company's largest machinery -- used in mining and other large-scale operations -- reflect the slump in natural-resource industries.

``I think Caterpillar realizes they are going to have to be world cost competitive,'' says Mr. Hollis. ``And I think the union realizes what the long term is.''

Historically, the UAW has used settlements at Caterpillar as a pattern-setter for Deere & Co. and vice versa. But Deere, the huge farm-equipment manufacturer in Moline, Ill., is still mired in the depressed farm-machinery industry. It lost $67.8 million in the first six months of its current fiscal year. Unlike construction, the depressed farm-machinery industry continues to consolidate.

Although Deere's contract with the UAW was originally scheduled to expire with Caterpillar's contract on June 1, the union and Deere have agreed to extend the current contract until Oct. 17.