Expect big slide in 2009, following years of record growthBy Peter A. Buxbaum, AJOTThe paradox could not be more dramatic. On January 26, Caterpillar Inc. announced record sales and revenues of $51.324 billion for 2008, up 14% from 2007, representing the company’s sixth consecutive year of record sales and revenues. Yet on the very same day the Peoria, Ill.-based heavy equipment manufacturer also announced that it was slashing its payroll by 16% and announced buyouts, wage freezes, and work stoppages. The company said that a total of 15,000 permanent and temporary jobs, out of 125,000, would be eliminated and an additional 5,000 would be trimmed by the end of March, all in an effort to decrease its production capacity by 25%. The company also reported record fourth-quarter sales and revenues of $12.923 billion, six percent higher than the fourth quarter of 2007. But the fourth quarter sales successes were overshadowed by lower profits thanks to shrinking machinery sales and increased costs. It was the fourth quarter results, and what led to them, combined with a gloomy outlook for 2009, which led to Caterpillar’s deep slashes. US heavy equipment manufacturers enjoyed robust sales in 2007 and 2008, despite the beginnings of an economic slowdown in the US and thanks largely to exports, fueled by a weaker dollar and robust infrastructure spending in emerging economies such as India and China. But Caterpillar saw the handwriting on the wall toward the end of 2008 and took action. While the company believes that government economic stimuli could help revive its markets, it is also concerned that stimulus legislation will also include protectionist measures that could hurt US exporters in the long run. “We were whipsawed in the fourth quarter as key industries were hit by a rapidly deteriorating global economy and plunging commodity prices,” said Caterpillar’s chairman and chief executive officer, Jim Owens, in a conference call. “In anticipation of lower demand we encouraged dealers to align inventory with declining volume, and they responded with significant order cancellations, particularly in December.” Owens hinted that Caterpillar’s economic challenges actually began to emerge earlier in 2008. “Through the first three quarters we experienced booming demand from key global industries, notably mining and energy, and most emerging market countries,” he noted. “Delivery times for many products were extended, and we were focused on increasing production and expediting shipments to meet customer needs.” Caterpillar’s moves at the beginning of 2009 reflected the gloomy outlook of the North American heavy equipment industry as a whole. Foreign purchases of US goods plunged 5.8% in November, according to numbers published by the US Department of Commerce, declining for the fourth consecutive month. Commerce blamed the fall on a contracting global economy with simultaneous recessions in the US, Japan, and Europe. A survey conducted by the Association of Equipment Manufacturers, a Milwaukee-based international trade group representing the off-road equipment manufacturing industry, showed declines in the construction equipment manufacturing industry of 8.6% in the fourth quarter of 2008 and a forecast of flat growth in 2009. These results were compiled before the latest round of global recessionary news. “The overall slowdown of the past year or so, after record expansion, accelerated this fall with a worsening housing market and collapse of major financial institutions in the US,” stated Dennis Slater, president of AEM. “The continued financial turmoil is affecting commercial projects as well. While the strength of the global economy has spurred equipment export growth, we now face a slowdown here as well.” The US equipment manufacturing industry depends on exports, Slater added, and urged the administration and congress to continue pass pending free trade agreements. “Eliminating high tariffs provides greater market access and a more level playing field, thus increasin