Dive Brief:
- Caterpillar laid off 120 temporary workers at a hydraulic excavator facility in Victoria, Texas, on Nov. 1, Reuters reported. Caterpillar did not immediately respond to Supply Chain Dive's request to confirm the report.
- A spokesperson for Caterpillar told Reuters the decision to lay off workers was related to "market conditions."
- On Caterpillar's third quarter earnings call two weeks ago, executives cited "lower-than-expected demand from end users" and said they are "taking steps to reduce production to match dealer demand."
Dive Insight:
"We believe dealers reduced inventory due to uncertainty in the global economy resulting from trade tensions and other factors," Caterpillar CEO James Umpleby said on the third quarter earnings call in October.
Large equipment manufacturers have taken significant hits to the balance sheet as a result of the ongoing trade war between the U.S. and China. In the second quarter of 2019, Caterpillar paid $70 million in tariffs. CFO Andrew Bonfield previously said he expects the OEM will pay $250 million to $350 million in tariffs for the year.
Yet the trade war impact stretches beyond the monetary impact of paying tariffs.
On the call, Umpleby noted "caution being displayed by our dealers and customers due to uncertainty in the global economic environment." The cautious attitude toward business investment curtails demand for OEMs, resulting in a 6% drop in sales and revenue for Caterpillar in the third quarter.
Executives stated multiple times on the call they would cut production to meet demand and be ready to scale back up once demand rises. And while they did not mention layoffs on the call, workforce reduction is a natural side effect of production cutbacks.
John Deere faces a similar conundrum in the current economic climate amid global trade tensions. The OEM laid off 163 workers at two manufacturing plants, also citing slowed demand.
The U.S.-China trade war has particularly tarnished sentiment in the agricultural industry as China seeks lower-tariffed, alternative sources for farm products and U.S. farmers lose business from one of their biggest export markets.
