Interview with Douglas Oberhelman, CEO of Caterpillar

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Douglas Oberhelman

Doug Oberhelman, chairman and chief executive officer of Caterpillar Inc., talks during an interview at the East Peoria plant earlier this week. (Zbigniew Bzdak/Chicago Tribune)

A. I don't remember.

Q. You were happy with the list they brought you?

A. The people in charge of that business sit with the consultants, go through the recommendations and do the due diligence. And then the consultants come back and recommend three. And then we get into a deeper set of investigation at the site. Our people go to the site. They'll go to the local college. They'll go to the economic development officials. They'll talk to the mayor, and really get into what do we have here. And then the discussion on incentives begins. Only then does the discussion on incentives from the state begin.

Q. What you're telling me ...

A. You may remember two years ago. We acquired a (locomotive) company called EMD, Electro-Motive Diesel. Their headquarters are in La Grange, near Midway airport. EMD is a company that was owned for years by General Motors. They were sold to private equity in 2005. And in 2010, we bought them. In La Grange, the diesel engine is made for every locomotive that company makes. The final assembly was made in London, Ontario. The engine ships up to Ontario. They assemble a full diesel locomotive, and it is driven right out the door and goes to work for the railroad.

We knew we were going to need additional capacity in 2010. And we wanted to look at Illinois for the obvious reasons: Because La Grange was the headquarters (for EMD) and Caterpillar was here. You can imagine it would have been very nice. We couldn't get past the first screen.

Q. Meaning the consulting firm, we weren't in the firm's first pool of 20?

A. Illinois didn't make the first cut. Look at the basics. The fiscal situation was a disaster, maybe worse than now. Workers' comp was really bad, and we had a tort situation still known for attracting plaintiffs from all over the world. It goes on and on.

What happened was that we found Muncie, Ind. We have two very similar Caterpillar plants: One in Illinois (in the Peoria area) and the other in Lafayette, Ind. It was in 2008 when we did this study, but just pick an injury, say a (torn) ACL. The (workers' compensation) expense to Caterpillar was seven-times higher at the Illinois plant than at the Indiana one. That and the uncertainty around taxation are the two big factors. Are taxes really going to be lower in Illinois? Therefore, the plant ended up in Indiana.

Q. That doesn't mean you can't build a new factory here. It just means you won't. What about the hometown pride factor? Why don't you sit there and say (who cares what the consultants think)? I look at Rockford; 19 percent unemployment at one point. It looks worse than Detroit. Why don't ...

A. I want to do something in Illinois so bad. But my first obligation is to the shareholders of this company. I have not been able to find, even with my bias toward Illinois, a way to do that because the cost in Illinois and the risks are so much greater than so many other states.

Q. But you are expanding here.

A. We are investing in Illinois, and our employment has been flat in Illinois for a decade. We haven't reduced it, but it hasn't grown. While we've grown U.S. employment vastly in the last decade, it has been flat here. We have three huge plants in Illinois ... And I'm on the export council for the governor.

Q. Have you told the governor this? Have you shown him your consultants' studies? That's the light bulb.

A. I haven't. I'm not going to get into the basics of the comparisons. But I will tell you, Melissa, if it was me and my company wasn't competitive, the first thing we'd do around here is to send our people to the best people to find out what they're doing. It's bench-marking. Part of the message I've had to the governor and his chief of staff, both of whom I respect, is just go benchmark. It's a great way to learn.

And I have a plug for the governor. In his budget speech last month, he put the things that needed to be fixed on the table for the first time ever. He got it out. He had the courage to do it. Now it's to the (Illinois) legislature. OK, legislature, let's go.

Q. If I'm a politician and you're trying to get me to change something, the first thing I'd want are those (consultants') studies. I'd want to read them for myself, analyze them myself, and have my staff look at them. And if they hold up, I'm going to say, ‘OK. Let's play ball.'

A. What happens is that most of the states will make you sign a thing that says you can't do that, for obvious reasons. Having said that ... I suspect (the economic development officials) all know this. They know exactly the competitive situation. This is no secret around here. I'll go back to my point. Every federal and state politician, they all know the problems. We just have to get it done.

Q. You're such a large exporter, though. Why would a large exporter build anything in the Midwest anymore, just because we're in the middle and not near a port?

A. That's a fair question. That's certainly a piece of it. No question port and logistics are a piece of it. Then you get into a bigger argument, which is your rail and interstate system, which are pretty darn good in the Midwest ... No other country is more efficient at moving goods inside the country than the United States. That's been a tremendous strength of ours, and it sort of off-sets the obvious advantage of setting up a factory right at a port.

We're setting up a factory in Athens, Ga., because a lot of those machines will stay on the East Coast. But there's a port in Savannah, from where we export a lot to China. And we have to transport (our bulldozers) all the way across the country. The Midwest is a pretty good location.

Q. Well if you're shipping to Asia, you could put a factory in Oregon. Or is that not cheap enough?

A. You can't chase wage rates. That's not going to work in a highly-skilled environment. We're not chasing wage rates at all in the United States. In our case, an investment like (the East Peoria plant we're in) has been 50 years. Just because wage rates go up and down, you can't base it on that. You have to base it on other things. And I would say that wage rates in the United States, with the way things are going today, are not all that greatly different (from state to state).

Q. OK. There was one other topic. Most of the high-tech engineering equipment on the floor of this factory was manufactured in Germany. Their economy is performing, yet they've preserved a social safety net.

A. I go back to bench-marking Germany. There are some big things to be learned in Germany. They value education. We spend a lot of money on education, but we don't value it. That's a big difference. Spending money and value are two different things. Somehow German society still values bettering themselves in STEM (science, technology, engineering and math). They're also great savers ... Society there is very different. There's little consumer debt. Charge cards aren't that popular. But education is the big one, and we've lost some of that.

Twitter: @chiconfidential
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