New Head at Caterpillar Faces Slow Growth

Caterpillar, the US-based global market leader in the machinery and engine industry, announced that new leadership will take over in January when Doug Umpleby, a longtime Caterpillar executive, succeeds Doug Oberhelman as the company’s CEO.

He’ll have his work cut out for him.

Caterpillar sales are tied directly to worldwide demand for construction and mining, with products such as wheel loaders and excavators. Those businesses have been yielding less revenue because of slumping demand for heavy machinery—itself the result of low commodity prices, distressed mining projects and economic slowdowns in emerging markets.

The new Caterpillar CEO is expected to pursue a financially prudent management plan to counterbalance his predecessor’s aggressive expansion, which has been criticized for overextending the company. Umpleby, who currently leads the profitable engines division, may need also to better diversify the company and prepare for the next commodity cycle boom.

Adding to Caterpillar’s challenges are slackening growth in China’s credit and construction industries; emerging competitors in the heavy machinery space and overinvestment. Future growth is unclear for China’s mining industry.

“China will continue to be crucial to the prosperity of the mining industry,” researchers for PwC noted recently in its Mine 2016 report. “Representing approximately 40% of global demand, China cannot be ignored.” At the same time, the report cautions against undue dependency, as the nation seeks to transition from a manufacturing-based economy. “As this transition gains momentum,” PwC warns, “China’s rampant demand for raw commodities seen during the boom will not be replicated.”

With Umpleby’s promotion, Caterpillar also will change its boardroom structure to have a separate CEO and chairman. Dave Calhoun, a private equity executive, will serve as the new chairman.

Caterpillar’s decision follows a slow-growing trend toward separating these roles. According to the Spencer Stuart Board Index report, 48% of companies in the S&P 500 have separate chairmen and CEOs; a decade ago it was 29%. In 2005, 9% had independent chairs; last year, it was 29%.