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USA - Why Caterpillar stays in Illinois

Caterpillar makes its biggest mining truck two stories tall, capable of hauling 400 tons of earth and selling for roughly $5.5 million in Decatur and nowhere else.

Volume is low, particularly now, given the company's prediction of an unprecedented five-year sales trough. But margins are good. The same holds true for Cat's largest bulldozer, selling for around $2 million and manufactured only in East Peoria.

Caterpillar's top brass has never made a secret of its distaste for Illinois' business climate. Former CEO Doug Oberhelman once sent former Gov. Pat Quinn a packet of letters from other governors who had tried to persuade the mammoth manufacturer of construction and mining machinery to move. The company employs 34 percent fewer people in Illinois than in 2006, and work once performed at its plant in Joliet will eventually be done at a new factory in Monterrey, Mexico.

Still, when new CEO Jim Umpleby finally announced Jan. 31 that the company would uproot its headquarters from Peoria, it chose to stay in the Land of Lincoln. Its footprint continues to sprawl across the state, and the products made in Decatur and East Peoria remain among its most profitable.

Caterpillar has a "massive" investment in Illinois in both its trained workforce and the facilities needed to build these huge  machines, says Harry Moser, president of the Kildeer-based Reshoring Initiative. "It would cost you billions for buildings and equipment to replace it," he says. "It would cost you 10 to 20 years to train the workforce somewhere else. To me, it's unthinkable."

It would be challenging to replace Cat's footprint in Illinois, which has taken decades of capital expenditure to build and is the company's single most significant concentration of employees, says Cat spokeswoman Corrie Scott.



Cat came to Illinois in 1909, when one of its two corporate predecessors moved from California. It now has operations in 23 locations around the state, from the global research and development center in Mossville to a lobbying office in Springfield, to the Mapleton foundry that molds iron into engine blocks, heads and liners, to the rail recycling center in Galesburg. Cat's primary factories are in East Peoria, Decatur, Aurora and Pontiac.

To be sure, some companies do leave home. Boeing moved its headquarters to Chicago from Seattle in 2001 to distance its top executives from its commercial plane division after a rocky merger with defense contractor McDonnell Douglas, and to take advantage of O'Hare International Airport's better travel connections. (Cat also cited O'Hare as a big reason it will move to the Chicago area later this year.)

Cat's headcount in Illinois has dropped, from 26,200 in 2006 to 17,400 last year. The company worldwide by 2018 as sales have slumped from a peak of $65.88 billion in 2012 to $38.54 billion for 2016. The Joliet factory that makes cylinders, gear pumps and valves for large mining trucks is slated to lose that work. Cat also has floated moving work away from Aurora, where the company manufactures large and medium-sized wheel loaders, compactors, and powertrain and tube components.



CEO Jim Umpleby

Some of that work could go to Arkansas. But the bulk of it would move to Decatur, according to Cat's previous statements. The company also plans to transfer some component manufacturing there from Winston-Salem, N.C.The products built in Illinois are high-value, says Joshua Lewer, an economics professor at Bradley University in Peoria who helps run a training program for Cat executives. They're made here because the state has the workers to pull off the job. "It's passed on, that tribal knowledge of how you make something," he says. "Our workforce here is highly productive, and that's to our advantage. We can overcome some of the structural issues with the state of Illinois."Scott says the workforce is one factor executives weigh when deciding where to locate operations.

While there are fewer Cat jobs in Illinois now, the ones remaining seem to pay better than average. According to the U.S. Bureau of Labor Statistics, in second-quarter 2016, employees working at private manufacturing companies in Illinois averaged $1,222 a week. Workers in Cook County averaged less, at $1,187. In Peoria County, workers received $1,495, making it the state's sixth-highest-paying county.Umpleby has called Peoria Cat's "hometown," no matter where headquarters is. The thing about hometowns is you don't get to choose them.

Source: chicagobusiness.com

 

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