Caterpillar to build excavator plant in Texas

By Dow Jones Newswires-Wall Street Journal
Posted Aug. 13, 2010 at 7:40 a.m.

Caterpillar Inc., the world’s largest maker of construction equipment, unveiled plans for its fourth U.S. expansion project in two weeks, providing much-needed jobs in a limp employment market while allowing the company to strategically place plants in lower-cost regions.

The new facility, a $120 million plant to make excavator machines in Victoria, Texas, will take on production of some equipment currently made in Illinois and Japan.

The new plants announced over the past two weeks by the Peoria-company are expected to add more than 1,000 jobs at a time when U.S. communities are bidding fiercely to attract employers.

The Texas plant also is part of a long-term shift in U.S. manufacturing production from the Midwest to the South, where unions are less prevalent. Caterpillar already plans to make excavator engines in Texas and has developed a strong supply base in the South.

“It’s a major shift in manufacturing strategy for Caterpillar,” said John Stark, a Chicago-based forecaster for the construction-machinery industry. “It’s all driven by cost reductions. It’s not just labor costs; it’s the cost of shipping; it’s the cost of exporting and attempting to shorten the distance between the supplier base and production facilities.”

Caterpillar said the new plant will create about 500 jobs in Victoria, located about 120 miles southwest of Houston. Meanwhile, excavator production will be phased out at a plant in Aurora, where about 250 workers are engaged in that activity and are represented by the United Auto Workers union. Caterpillar said it doesn’t expect layoffs because the Aurora plant makes other products and will begin producing other mining machinery there. The UAW didn’t return phone calls.

The Victoria plant will also assume production of certain models of excavators — which are digging machines used in construction, mining and landscaping — that are now made in Akashi, Japan, and exported to the U.S. Caterpillar said the move will allow Akashi to better supply booming demand in Asia and cut North American shipping costs.

In the past two weeks, Caterpillar has announced plans for a new plant in Winston-Salem, N.C., to produce axles for mining machinery; expansion of a Sanford, N.C., construction-equipment plant, and a new engineering-design center in Rapid City, S.D. Those moves are expected to create about 825 jobs.

The Texas plant represents a partial return to the U.S. of production that had been shifted overseas — a trend dubbed “re-shoring,” which allows manufacturers to benefit from generous local incentives and lower prices from suppliers sapped by the weak U.S. economy. State and local authorities in Texas are providing 320 acres of land and more than $3 million of cash to Caterpillar, as well as tax breaks.

U.S. manufacturing employment has begun to rise gradually this year after shrinking 10% in 2009. As of July, it stood at about 11.7 million, up from 11.5 million in December 2009.

Most of that job growth has come from reopening of idled auto, machinery and steel plants in recent months, said Dan Meckstroth, chief economist of the Manufacturers Alliance/MAPI, a public policy and economics research group in Arlington, Va. Capacity use at U.S. factories remains very low, he noted, so manufacturers are unlikely to start building large numbers of plants any time soon.

Indeed, other manufacturers have used the prolonged slump to rearrange their production plants with an eye toward consolidating assembly operations.

In June 2009, Navistar International Corp. idled its Chatham, Ontario, assembly plant and moved production of heavy-duty trucks to a plant in Mexico. At the time of shutdown, the Chatham plant employed about 350 people with another 800 on layoff status.

The workers are represented by the Canadian Auto Workers Union. Navistar workers in Escobedo, Mexico, aren’t unionized.

Navistar has proposed reopening the Chatham plant as a regional production site, a move the union says would employ no more than 100 people and make the plant a perpetual target for permanent closure. “If you’re pigeon-holed to producing for a certain region, that doesn’t give you much production,” Said Bob Chernecki, a CAW representative.

Rival truck maker Paccar Inc., maker of Peterbilt and Kenworth-branded trucks, closed a unionized Peterbilt plant in Madisonville, Tenn., in late 2009 and folded production into a Denton, Texas, plant that doesn’t have a union. Paccar also has ratcheted down production at a unionized Kenworth assembly plant in Renton, Wash.

The closing of the Madsonville plant near Nashville followed a protracted standoff with the UAW that included a lockout of employees in 2008. The company maintained that the union resisted attempts to reduce plant costs, while union leaders accused the Bellevue, Wash.-based Paccar of failing to back up its claims.

Paccar recently opened a new engine facility in Mississippi that is a nonunion plant.

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  1. Fortune Teller Aug. 13, 2010 at 8:43 a.m.

    Oct 1, 2010
    Navistar – Melrose Park, Illinois
    Engine production in a union plant to shift to non-union Huntsville AL.

    Navistar – Springfield Ohio
    Truck assembly in a union plant to shift to non-union Mexico

    Navistar – Fort Wayne
    Truck testing and design union plant to shift to non-union at the non-union Warrenville or proposed non-union Lisle HQ ??

  2. jack (me) Aug. 13, 2010 at 9:08 a.m.


    “… providing much-needed jobs in a limp employment market while allowing the company to strategically place plants in lower-cost regions.”

    “The new facility, a $120 million plant to make excavator machines in Victoria, Texas, will take on production of some equipment currently made in Illinois and Japan.”

    Note, those of you who intend to vote for Pat Quinn, that not only is an Illinois based company not expanding in Illinois, it is moving Illinois production. There isn’t going to be any industry left to provide jobs in this state by the time the current regime implements its theory of “economic development.”

    Of course, you can add what Fortune Teller said about Navistar.

  3. jack (me) Aug. 13, 2010 at 9:10 a.m.

    Except that Fortune Teller was wrong on his third point, as the NIMBYs have driven Navistar out of Lisle.

  4. Fortune Teller Aug. 13, 2010 at 2:51 pm

    jack –

    Navistar drove themselves out of Lisle based on their own actions
    … for awhile. They will be back. I am after all a ‘fortune teller’

    Give it another month to emerge from the back room deals. All will be happy and the Dems will get credit for fixign and saving the deal the GOP in DuPage botched.