- By Region
Doug Oberhelman is generally an optimist, but these days he sounds a lot less confident about his optimism.
“I think the glass is half-full, but it could be half-empty,” says Caterpillar’s chief executive. “I think 2013 will be better than 2012, because of all the easing and stimulus we’ve had. But there are political events that none of us can foresee that could derail everything.”
Some investors have been left confused by this hedged outlook. In its quarterly earnings call last month, Mr Oberhelman said the global economy would “definitely get better” in 2013 and the company raised its 2012 profit forecast. On the other hand, Caterpillar also lowered its sales guidance for 2012 and emphasised that it could cut jobs quickly if necessary.
“I can paint an optimistic picture and I can paint a pessimistic picture,” Mr Oberhelman says. “But what we worry about at Caterpillar is: what’s the base case? What do we think will happen? I think we’ll muddle through, hopefully with no political cataclysms and 2013 should look slightly better than 2012. But it’s not going to be a lot better.”
Europe is the region most likely to provide a catastrophic economic or political upset to the global economy, but it is the slowdown in China that has most surprised Caterpillar, a company that has invested heavily in the country and other emerging markets and makes two-thirds of its revenues outside North America.
The manufacturer warned in April that it had overestimated Chinese demand for construction equipment, saying its inventories in the country were so high it would export 2,300 excavators from China to other developing countries.
Nevertheless, Mr Oberhelman says that while Caterpillar has reduced some capacity in China and slowed its expansion plans, he believes the company’s long-term future depends on sticking to its programme of building new factories to serve the country’s construction market.
“We’ve been reluctant to disinvest in China, even through this monumental slowdown,” he says. “I’ve seen China every time for the past 30 years come roaring back. We can’t be caught short on capacity and inventory to sell when that happens.”
China, Mr Oberhelman points out, is still massively “under-excavated”, by which he means that per capita excavator usage in the country is much lower than other big economies. “They’re way under-excavated,” he says. “You have to take a long view there. We are staged for a decade down the road and longer.”
As far as the US is concerned, he says partisan politics are deterring investment. “Until we see some clarity from Washington, most businesses are going to be fairly conservative with their cash,” he says. “That will hamper growth. The US wants to grow. Housing has bottomed. But right now there’s too much uncertainty.”
So will the US general election in November dispel the uncertainty? He is not confident of that, either. “I don’t see a clearing of dysfunction and gridlock with a new term, whoever the president is. That will mean continued uncertainty for business and continued caution for our customers.”
Mr Oberhelman notes, however, that there have been less-publicised recent examples of bipartisanship on Capitol Hill on economic issues, such as the passage of the highway bill and trade agreements with South Korea, Colombia and Panama.
In any case, he says the industries he serves have cut back so much that lower levels of growth will feed through quickly. “Our business, our dealers and our contract base around the country have staged ourselves cost-wise for a very low level of business,” he says. “We’re still less than half of the construction-equipment activity from the peak of 2008.”
“In the six, seven years of downturn we’ve seen in the housing market, all of that equipment has aged or left,” he notes. “So as jobs come along, those orders are flowing through either to new inventory or new orders.”
Ultimately, Mr Oberhelman says, in this time of great uncertainty, his job is to prepare Caterpillar for the unexpected. “We’re prepared to be nimble,” he says.
“We’ve got our hands on all the levers – forward, back and stop. Whatever we need to do, we’ll do.”