Bloomberg News

Caterpillar to Close Canadian Locomotive Plant Due to Costs

February 06, 2012

(Updates with comment from ministry in last paragraph.)

Feb. 3 (Bloomberg) -- Caterpillar Inc., the largest construction and mining-equipment maker, plans to close a Canadian locomotive plant that employs about 800 people after failing to reach an agreement with locked-out union members.

“The cost structure of the operation was not sustainable and efforts to negotiate a new, competitive collective agreement were not successful,” a subsidiary of Peoria, Illinois-based Caterpillar, said in a statement today.

Caterpillar acquired the Ontario plant in 2010 when it bought Electro-Motive Diesel to expand its share of the locomotive market, competing against companies such as General Electric Co. North American demand will increase in the next two years as companies buy locomotives before emissions rule changes, according to a Nov. 13 Goldman Sachs Group Inc. report.

The company’s lockout began Jan. 1 after discussions broke down with the Canadian Auto Workers union, which represents more than half of the plant’s workers. The company was proposing cutting wages and benefits in half, the union said today. Caterpillar’s subsidiary said the plant was at a competitive disadvantage because of costs and it will shift work to other factories.

“We are totally devastated,” Ken Lewenza, president of the union, said in a telephone interview today. “We find the decision unconscionable.”

Caterpillar Profit

About 475 employees represented by the union and 300 salaried employees work at the plant, Lewenza said. An additional 1,200 jobs are supported in the surrounding community by the plant, he said.

Caterpillar will see profit rise on increasing heavy equipment demand in Canada as the mining and oil-sands industries expand, Lewenza said. The union has asked for support from the federal government.

The company last week reported 2011 sales for Electro- Motive Diesel rose by $861 million, while profit declined by $7 million. Caterpillar forecast a 25 percent rise in per-share earnings this year, to about $9.25 from a record $7.40 in 2011 as demand rises for shovels and trucks used in mines.

Caterpillar began producing locomotives at a plant in Muncie, Indiana, last year and in July said it planned another factory in Sete Lagoas, Brazil. Locomotives are the engines that pull railcars.

‘Stand Up’

Lewenza said he will meet with the union bargaining committee to explore alternatives to closing the factory and discuss agreements that give workers some economic support.

Prime Minister Stephen Harper should “stand up and fight” for workers at the plant, said Ralph Goodale, a lawmaker for the opposition Liberal Party in Canada.

“The government owes the workers here a substantial amount, because there were particular incentives and advantages offered to this company,” Goodale, a former finance minister, told reporters today in Ottawa.

“We sympathize with the workers,” Richard Walker, a spokesman for Canadian Industry Minister Christian Paradis, said in an e-mail today. The federal government has tried to protect the manufacturing sector by cutting corporate tax rates, eliminating tariffs on machinery and equipment by 2015 and extending work-sharing agreements to protect workers.

--With assistance from Andrew Mayeda and Paul Badertscher in Ottawa. Editors: Tina Davis, Charles Siler

To contact the reporter on this story: Shruti Singh in Chicago at ssingh28@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net


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