Global recession dumps on Caterpillar

WASHINGTON -- When the global economic storm began to howl last fall, one of the country's top manufacturers got soaked.

"As late as September, we were still optimistic … Around Thanksgiving, we started getting major cancellation of orders," Owens told a Council on Foreign Relations luncheon Thursday.

This year, Caterpillar expects sales around $35 billion, down from last year's $51.3 billion. The company laid off 22,000 workers in January. "We had hired through September, then had to radically downsize," Owens said.

Earlier this week, Caterpillar reported a first-quarter loss of $112 million, driven in part by $558 million in layoff costs. The company posted a $922 million profit in the same period last year.

Owens said he is "relatively optimistic" about the economy beginning to turn in the second half of this year. But the continuing credit crunch is causing Caterpillar, like other corporations, to hoard cash. The company, which Owens said he traditionally managed "almost cash-less," is sitting on $3.5 billion.

The Caterpillar boss welcomed the U.S. stimulus program, which will fund some transportation projects that require the company's heavy machinery. But he said the government spending would have only a modest impact on his industry, with its major effects felt in the first half of 2010.

One bright spot: China, where an infrastructure-heavy $586 billion economic stimulus program is spurring demand for Cat's excavators and loaders. The company's China business began rebounding in February and now appears set to regain record sales volumes in March and April, Owens said.

Owens, who serves on a White House business advisory panel, warned against moves to restrict trade. "The biggest risk of this very serious recession turning into a three-year depression scenario would be a turn toward nationalism and isolationism," Owen said. "If that happens, it's going to be a very ugly world we live in."