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Cat Is Purring, But They're Hissing On The Floor

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These are the glory days for Caterpillar Inc. After recession-plagued years in 1991 and 1992, U.S. demand for its giant earth-moving equipment is soaring, and Europe may soon rebound, too. A $1.8 billion modernization program has the company churning out excavators and bulldozers faster than ever, while a reorganization has held down costs. The result: Cat's earnings should climb 16% this year, to $760 million, as sales rise 7%, to $12 billion, predicts Smith Barney Shearson Inc. analyst Tobias M. Levkovich. He and other Wall Street analysts are bullish on the stock, which they predict could hit 150 next year, vs. 112 today.

There's just one note of discord in all this success: Cat's continued head-butting with the United Auto Workers. In April, 1992, the company squashed a five-month walkout by threatening to permanently replace 15,000 strikers. Workers gave up and went back without a new contract. Despite threats of a plant-floor slowdown by UAW leaders in Detroit, Cat's productivity improved.

TOUGH TALK. Now, though, a grassroots rebellion may be building. With Cat's order book so full that some products are being rationed to dealers, UAW leaders are contemplating another walkout. Larry Solomon, president of UAW Local 217 in Decatur, Ill., warns that a shutdown "is possible in the very near future."

That could be just bold talk by union leaders hoping to recover from the embarrassment of their '92 failure. But it's clear that the rank and file is unhappy. Indeed, workers have staged five spontaneous walkouts since last fall. They shut down the entire company for three days last November, after managers suspended a union official. And on Apr. 26, two of Cat's largest Illinois facilities suffered a one-day strike.

Caterpillar executives blame peer pressure and argue that overall labor relations are good. "Our expectation is that we will continue to serve our customers," says Glen Barton, one of Cat's two group presidents. But others expect trouble. "There's a growing sense that we have a major problem," says one big Cat dealer.

To workers, the problem boils down to job security. Two years ago, when Chief Executive Donald V. Fites refused to grant the same job-security pledges the UAW won from Deere & Co., he argued that he had to hold down costs to compete with tough rivals, such as Japan's Komatsu Ltd.--whose products didn't compete directly with Deere's. When the strike failed, Fites imposed a contract on the UAW and said efficiency measures could eliminate up to 1,500 strikers' jobs.

Cat has fared better than Fites predicted, however. Komatsu has been hammered badly by the strong yen and poorly performing joint ventures in North America and Europe. It led the industry with price hikes of up to 9% last year that cut into its market share. Indeed, Komatsu has lost ground in most product categories, while Cat posted gains of up to 10 percentage points, says industry consultant Frank Manfredi. Cat has done so well that it has rehired all the strikers--and added 1,300 new workers.

Nonetheless, Cat has continued to wage war on the shop floor. For instance, after strikers returned, Cat tried to keep them from wearing T-shirts that urge: "Permanently Replace Fites." It suspended employees who persisted and even fired some. One Aurora-based worker, Janet Kolzow, a 48-year-old grandmother with 27 years at Cat, was dismissed in 1993 for wearing a button that said "Stop Scabs," referring to workers who cross picket lines. The National Labor Relations Board has issued 82 complaints against Cat for such actions. "It's an awful place to work," says one Peoria-based employee.

MIDNIGHT CALL. For that reason, the UAW is quickly winning back workers' loyalty. After the strike's collapse, many members blamed UAW headquarters for leading them into a morass. But the recent walkouts erupted from below. The Apr. 26 strike started when managers told a Decatur shop steward that he could no longer write up employee grievances. Angry workers called the local's president out of bed to open the union hall for a meeting. Today, more than 90% of UAW members are voluntarily ponying up union dues.

UAW leaders may wait to mount a full-scale walkout. Most Cat workers still remember the fear of being replaced. And there's no sense in starting a war if a few skirmishes will get contract talks going. Still, strong demand, a lean front office, and new factories are of little use if nobody is building machines.


-- UAW members are working under a two-year-old labor contract that was imposed by Caterpillar after a strike that lasted more than five months. Labor and management have made little progress on a new agreement.

-- Employees complain of harassment by supervisors and gratuitous suspensions at the company's plants, charges the company denies. However, the National Labor Relations Board has filed 82 complaints against Caterpillar.

-- Workers are unhappy that Caterpillar refuses to grant them the same job-security pledges that the union won at Deere.

DATA: BUSINESS WEEKKevin Kelly in Aurora, Ill.

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