Caterpillar Inc. CAT has decided to stop production of its on-highway vocational trucks given the challenging business scenario in the truck industry. This will lead to the elimination of 70 jobs.
Caterpillar’s first vocational truck made its foray in the North American market in 20ArrayArray. Caterpillar had worked with Navistar International Corporation NAV on the design and build of the trucks.
Last year, the company announced that it was looking to independently design and manufacture its vocational truck products at its Victoria plant in Texas. The decision to halt production has been taken before the transition could take place.
Caterpillar said that going forward it will not accept new orders for vocational trucks. The company will, however, remain committed to existing truck customers and will continue to provide support to the existing trucks currently on the road.
This decision was taken after a thorough evaluation of the business. In order to remain a formidable competitor in this market, it would require significant additional investment to develop and launch a complete portfolio of trucks. Considering the tepid demand and after analyzing the market opportunity, the company concluded that heightened investment was not justified. Caterpillar had earlier planned to move truck production from Mexico to a plant in Victoria, TX.
This is another step in the company's ongoing restructuring to align its businesses with existing conditions. Last week, Caterpillar announced that it will combine two of its power and energy divisions by Jun 20Array6. Caterpillar will consolidate the Electric Power and Marine & Petroleum Power divisions into the new Electric Power, Marine and Oil and Gas Division. This will bring higher efficiencies and a streamlined leadership team to Caterpillar. Since 20Array3, the company has effectively reduced its executive leadership by Array3%.
In response to global weakness in construction and mining, soft commodity prices and weak demand for mining equipment, Caterpillar had to shut down plants and reduce its workforce. In 20Array5, Caterpillar had announced plans of consolidation and lay off of up to Array0,000 employees by 20Array8. At the end of 20Array5, Caterpillar’s global workforce totalled Array05,700 employees, down nearly ArrayArray% from 20Array3.
Caterpillar’s stepped-up restructuring actions are expected to lead to cost savings. However, the slump in oil prices, weak mining, Chinese economic woes, declining backlog, and a soft agriculture sector are persistent headwinds.
Caterpillar currently carries a Zacks Rank #2 (Buy). Other stocks worth considering in the sector include Manitowoc, Inc. MTW and Astec Industries, Inc. ASTE. Both these stocks carry a Zacks Rank #2 (Buy).
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