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Caterpillar CEO contradicts Obama, sees layoffs

President Barack Obama's stimulus plan may be good for Caterpillar Inc., but the company's chief executive says the equipment maker will probably have to lay off more.
/ Source: The Associated Press

President Barack Obama's stimulus plan may be good for Caterpillar Inc., but the company's chief executive says the equipment maker will probably have to lay off more staff before it starts thinking about rehiring any of the more than 22,000 employees it already plans to cut.

Even if a stimulus plan passes, it likely will not have an effect on the economy until late this year or early 2010, CEO Jim Owens said after a town hall meeting with the president and Caterpillar workers at a company tractor plant here on Thursday.

"The reality is we'll probably have to have more layoffs before we can start hiring again," Owens said without elaborating on timing or specific numbers.

Owens seemed to back away from Obama's assertion that the Caterpillar CEO had promised him he would rehire some of the laid-off workers if Congress approves a sweeping stimulus bill. The company has struggled with lower demand amid the global economic downturn.

The severity and swiftness of the recession, Owens said, makes adding jobs back quickly unrealistic.

"We literally (went from) a three-year order backlog coming into November to now having order cancellations to the point where we cannot run at capacity," he said.

When asked to explain the difference between Obama's and Owens' statements, Caterpillar spokesman Jim Dugan said, "perhaps there's some nuance."

Obama told the roughly 280 Caterpillar employees and local officials who squeezed into a corner of the plant that the nearly $800 billion stimulus plan would set off a "wave of innovation, activity and construction," including electricity generating wind-turbine fields, upgraded schools and new and better roads and bridges.

"Think about all the work out there to be done, and Caterpillar will be selling the equipment that does the work," Obama said.

Many Caterpillar employees were optimistic the plan might eventually help, but said the company and the country need action fast.

"There's a lot of people in my building that have been laid off, about 200 out of 700," said 59-year-old Robert Teague, a production worker who has been with Caterpillar for 38 years.

Some of those waiting to see Obama before he arrived said they have already been told their jobs end in April.

"I was just thinking, what I am going to do? Am I going to have to move in with my parents?" said 27-year-old Jennifer Grebinoski, a West Point graduate and veteran of the war in Afghanistan who went to work for Caterpillar less than a year ago.

Her husband, who worked for a Caterpillar vendor, already lost his job.

"We were going to start having kids next year," she said, plans that have now been put on hold.

Owens told reporters that the president's plan is too light on infrastructure spending. Only about 20 percent of it would be devoted to the kind of infrastructure work that would benefit Caterpillar, he said.

The country will need more government spending on the economy, Owens said.

A roughly $600 billion economic package being worked on in China might be of more immediate help to Caterpillar.

"Theirs is even richer in terms of major infrastructure projects that will drive demand for our types of products," he said, noting that about 90 percent of the Chinese money would be used on such work.

Also important for Caterpillar — which generates more than half its revenue overseas — are stimulus plans being considered in Europe and elsewhere, Owens said.

On Jan. 26, Caterpillar reported a lower-than-expected profit in the fourth quarter and reduced its 2009 outlook. At the time, the company disclosed nearly 20,000 job cuts, most of which had already been made.

Four days later the maker of mining and construction machinery announced new layoffs of 2,100 production workers plus 416 support and management personnel at plants in Aurora, Decatur and East Peoria, Ill.

On Wednesday, Caterpillar said it is offering voluntary early retirement packages to about 2,000 production workers, in Illinois, Colorado, Tennessee and Pennsylvania.

Morningstar analyst John Kearney said the stimulus package, and particularly the portion devoted to infrastructure, isn't big enough to propel Cat back to prosperity.

Still, the company would almost certainly benefit from sales of earth moving equipment, pavers and other machinery used to build roads.

And the combination of American and overseas plans could be significant.

"If you add all those up and, assuming everybody is putting a lot of dollars toward infrastructure, that could help," Kearney said.

Caterpillar shares fell 11 cents to $31.02 in trading Thursday. The company's stock price has fallen more than 55 percent in the past year.