Lessons From Caterpillar's London, Ontario Exit
I scoured the news media to find a balanced article on Caterpillar’s exit from London, Ontario. What did I see? I saw several stories about the business villain ripping off the workers. I read about the government's absolute disregard of Canadian workers. I noticed the unions forcing the government to get jobs' guarantees from companies that get tax breaks.
My favorite is this piece from a union leader: "As Prime Minister, it is Stephen Harper's role to defend Canadian jobs and our standard of living.” Sadly, he thinks the Prime Minister can defend private-sector jobs. How will this union guy ever know that's what the market does? Will he understand why businesses need declining cost profiles? Will he and his union mates look at reality and stop this unneeded anti-business rhetoric? Then again, I need to ask: is this in their best interest?
His statement mentioned Caterpillar’s record profits and increased output.
However, Caterpillar’s consolidated results show 2010 was better than 2009, but less than the three earlier years. Even so, these are absolute measures that mean nothing in isolation.
I am not defending Caterpillar. I am asking the media to be less ignorant and try to understand how to interpret financial results. We must look at "record profits" and 20% rise in production in the context of earlier poor results, and an unsustainable cost structure. Besides, Caterpillar made a mere less than 5% return on capital employed, and has a high debt to equity ratio.
When will the media and unions get it that they must look at profits over time, and assets used to earn it? Do they have a plan to demonize business? Do they have an interest in looking at Caterpillar's cost structure? That’s what the company indicates is a problem. I know the effects of unsustainable cost platforms. As well, I am familiar with damage of a strong Canadian dollar to certain businesses.
Union rhetoric and threats will not solve these issues. We need constructive dialogue with people with open minds. You cannot start negotiations with job guarantees on the table. Sadly, higher productivity usually means fewer jobs.
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