Caterpillar's part suppliers are feeling the economic slowdown too

By Money Times

Sep 29, 2015 03:29 AM EDT

The slump business in the mining industry had led Caterpillar to reduce its revenue expectation for this year. The latest revenue projection is $48 billion which is 25 percent lower compared to the last 4 years. The reduction means not only the company will suffer, but its heavy machinery parts supplier is feeling the effects too.

According to Reuters, one of its supplier, J-TEC spokesman said that its company is reducing their projected revenue for this year too due to the slowdown as the company is preparing for its worst year ever. J-TEC also said that Caterpillar had also pushed back some orders for the coming months. Besides Caterpillar, a decline in defense-related order also forced the sales down to 75 percent.

Another big supplier for Caterpillar, Acme Industries is facing the same problem too and it was hit hard since the company is also a big supplier for oil and gas industry. Acme Industries has been reducing its workforce this year to curb the slow demand. Its owner, Warren Young said that a total of 40 workers has been signed off from 240 workers. Both suppliers are looking for an alternative in another sector to increase company's profit.

The New York Times reported that Caterpillar is planning to gradually cut down their workforce starting next year till 2018. The company with 110,000 strong workforces globally is planning to lay off up to 5,000 workers next year and another 5,000 before the end of 2018.

Most of the workers that will be reduced consists of salaried and management workers with a majority of them in the United States alone. The company is also planning to close down up to 20 plants globally as a way to protect company's revenue.

The plunge of commodities prices such as oil and copper means that demand for heavy machinery will decrease. According to Fortune, the slowdown in China and Brazil as the emerging market is another factor driving the sales down. Since the booming of new industries, these two countries are among the biggest exporter of Caterpillar machinery. However, with current economic turmoil lots of orders have been reduced causing investors to grow anxious about the global prospect for the company.

Besides Caterpillar, other heavy equipment and vehicle manufacturer John Deere is being hit hard by the current economic slowdown. Even though China is only the third-largest exporter of the U.S goods, the growing demands in the country help companies to secure projected profit based on future demand. 

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