Caterpillar Inc. has long been in the forefront of efforts to create flexible factories that can respond to shifts in demand or technology. The Peoria-based company launched a $2.1 billion modernization plan in 1987 designed to save $ 420 million by 1993. Then last year, new CEO Donald V. Fites decided that Cat needed to be faster on its feet. So he decentralized the construction-equipment maker into 17 profit centers.
Now, Fites wants to squeeze flexibility out of his 17,000 unionized workers. In a bruising clash with the United Auto Workers, Cat is trying to eliminate companywide contract provisions covering everything from job classifications to work rules. Instead, Fites wants each profit center to use whatever work arrangement best fits its needs.
BAD QUARTER. The goal, a spokesman says, is to keep pace with archrival Komatsu Ltd. and other foreign producers. (Senior Caterpillar executives wouldn't comment for this story.) Last year, a record $6 billion of Cat's $ 11.4 billion in sales was outside the U. S. And $3.4 billion of that involved products built in the U. S. Industry analysts say that U. S. labor rates could hurt sales if the dollar rises and wipes out the edge provided by its current weakness. The company also says that it can't afford the package the UAW just won at Deere & Co.
In the UAW, Fites may have met an even tougher opponent than the Japanese. The UAW won't easily part with its tradition of a "pattern" agreement for the industry. It put 2,400 members on strike in early November in hopes of pressuring Cat without idling all UAW members there. Cat retaliated by locking out 6,000 more workers. On Nov. 20, it laid off 500. A long conflict seems likely. Declares UAW Secretary-Treasurer Bill Casstevens: "We're light years apart."
The dispute is mauling Cat's bottom line. On Nov. 14, the company conceded that it will lose more than $86 million in the fourth quarter and twice that for 1991. David G. Sutliff, an analyst at S. G. Warburg & Co., figures that the strike accounts for more than half of the yearend collapse. "I don't know what Caterpillar will get out of this conflict that's worth this price," says Sutliff.
Fites seems to believe that suffering now will pay off later. In addition to cost-of-living adjustments (COLA), Deere's new three-year agreement provides for a 3% wage hike, two lump-sum payments equal to 3% each, plus improved health insurance and pensions. Cat's latest proposal would grant COLA and a wage increase of about 3% in the first year, but 3,700 lower-skilled workers wouldn't get the pay hikes. And it would provide only cost-of-living adjustments thereafter. Cat also wants employees to pay more for health coverage.
Cat would get an even bigger payoff from fitting labor terms to each profit center. Take its parts-distribution business, whose four facilities employ 3,000 workers. The company wants to cut wages for unskilled new hires to half the current $15 an hour. But union officials are dead set against two-tier wage structures, which "don't exist anywhere else in the UAW," says Casstevens.
'DIVIDE AND CONQUER.' The UAW has dug in its heels on Fites' decentralization plan because it fears that concessions at one Cat plant might lead to demands for greater concessions at others. Union officials also worry that their locals would be played off against each other. "They would divide and conquer us," says UAW Local 751 President Larry Soloman.
Casstevens argues that Cat should follow Deere and look less to wage savings and more toward voluntary productivity gains. Since 1979, he says, the UAW has helped to cut Cat's unit labor costs by more than 15%. For instance, J. P. Yarbrough, the president of UAW Local 145, says that Cat's Aurora (Ill.) plant has saved some $10 million since 1986, mostly from changes suggested by workers on quality teams. Right now, neither side seems inclined to bend. Analysts say Caterpillar has stockpiled enough inventory to withstand a strike of up to three months more. The UAW has an $820 million strike fund and won't budge as long as Cat tries to buck UAW tradition. For both sides, competing in a global arena is proving a costly proposition.