Heavy fuel

Heavy equipment from as far away as Spain is sold at auction in Dubai.

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When the worldwide economic recession began to bite in mid-2008, new machinery sales in the construction and mining industries felt the pinch.

Even major players weren’t immune: Caterpillar and JCB – two of the biggest names in the heavy vehicle industry were hit with the double whammy of a declining market and a hike in the cost of raw materials required to make their machines.

News was fairly bleak. JCB axed at least 500 staff in the UK as its European sales slumped 20% by July 2008 and, while emerging markets like the Middle East, Russia and Brazil were still reasonably buoyant, figures only partially offset the fall in European sales.

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Caterpillar was also struck by the crisis. The company had been enjoying escalating year-on-year machinery sales increases since September 2004 in its Europe, Asia and Middle East – the second largest combined market after the Americas – but July 2008 stopped them dead in their tracks. The company equalled its year-on-year figures that month, but it preempted a 22 month decline in sales.

Caterpillar’s EAME operations reflected a general global trend for the company. Its worldwide sales slumped from $51.3 bn in 2008 to $32.4 bn for 2009, while sales in machinery dropped 43% from $31.8 bn to $18.1 bn.

The company’s stock price suffered too; Caterpillar’s annual report states stock prices based on the last day trading of every year and, according to these statistics, prices dipped to a four-year low of $44.67 in 2008.
However, of late, things have started to look up for the company. While revenues for the first half of the year were down on those posted in 2009, year-on-year monthly sales sheets for June and July have risen for the first time since 2008.

By the time CW closed for press this week, the company’s share price was listed at $70.08, almost reaching pre-financial crisis levels (2007: $72.56). Caterpillar senior executives feel that the pick-up in local and global sales seen in June and July is a sign that the market is in recovery.

“During the second quarter, portfolio quality began to show signs of improvement as economic conditions around the world continued to improve,” said Kent Adams, Cat Financial president and vice president of Caterpillar Inc.

“Our focus in 2010 has been in three key areas: serving our Caterpillar customers and dealers, managing the portfolio and ensuring we have ample liquidity. While there are still economic concerns around the world, we are well positioned to support our customers as the recovery gains momentum,” he added.