Heavy Equipment Giant Looks to Small Guy

Caterpillar Inc. has always thought big.

Big as in earth-movers that crawl across the ground like Titans and are used to gut mountains. And big as in sales contracts that take a government appropriation to pay.

But now Caterpillar, the world’s biggest maker of heavy equipment, is thinking small. That is small as in equipment that can be carried in the back of a pickup truck, rented for a day to dig a trench in the back yard.

In May, the Peoria-based manufacturer began shipping a new line of compact equipment--inexpensive machines geared for small jobs and a market dominated by independent contractors. To reach those landscapers, electricians and plumbers, the company is hoping to rent them the machines--a cheaper way to introduce the line--through a host of Cat Rental Stores opening around the country.

It’s a radical shift away from Caterpillar’s traditional business. But it is also a move into a market Caterpillar estimates to be worth $4 billion a year globally.

Even if the construction economy cools off, both industry and Caterpillar analysts expect the small-equipment market to continue to thrive, partly because of changes in the culture of labor and the increased popularity of these tools.

“They are replacing manual labor. It is getting more difficult to find people willing to stand in a trench and put their hands on a pneumatic drill,” said Bob Briggs, general manager of the plant in Sanford, N.C., where some of the equipment in Caterpillar’s compact line is made. “So you put a hammer on the front of a mini-excavator, and the guy sits back in the cab.”

The trophy of the Caterpillar line is the multipurpose skid-steer, a machine roughly the size of a small car, operated from a one-man cab. The skid-steer is considered the “Swiss Army knife” of contractor equipment for the wide range of tools that can be attached to its front--from pumps to grinders to drills.

Caterpillar took four years to develop the line, with 13 models of mobile equipment and 60 different types of “work tools”--those attachments that make one loader useful for multiple jobs, such as cutting concrete, planting trees or loading pallets.

The average cost of $30,000 for a piece of compact equipment is far below the typical price of a Cat (the small Caterpillar D-6 tractor goes for about $165,000), so the company hopes to see volume make up for a slimmer profit margin.

But Caterpillar has competition from Ingersoll-Rand subsidiary Melroe Co., which sells about half of all skid-steers, said Frank Manfredi, a heavy-equipment market analyst based in Mundelein, Ill. Melroe’s best-known compact equipment is the popular Bobcat excavator.

“Melroe has publicly stated they won’t be underpriced in this market,” Manfredi said. “I expect Cat to be competitive in its pricing, but probably put more emphasis on its service and features.”

That’s exactly what the company plans to do, Briggs said, with machines serviced by Caterpillar-trained mechanics and the variety of Caterpillar work tools available in the Cat Rental Stores.

“There is a certain expectation from the [Caterpillar] name. Just because this is a new machine, and a smaller machine, we could not dilute the brand’s expectation,” Briggs said.

Emphasizing rentals is a big step for Caterpillar.

“We’ve got to get into this business and be responsive in a way that is different from our traditional way of business,” said Bob Barrows, vice president of operations for Wagner Equipment Co., a Caterpillar dealer based in Aurora, Colo.

The Cat Rental Stores are key to reaching the contractor market. Owned by independent dealers, the stores are designed for contractors who expect to walk out with what they need--a far cry from the sales contracts for the bigger machines that could take weeks or months to put together.

Other machines--like the Melroe Bobcat--have long been available for rent, but mostly through chain-operated rental yards like Hertz, where no brand is exclusive and the machines aren’t maintained by company-trained workers.

With its own logo, its own sign and often its own location, the Cat Rental Store is meant to carry the compact equipment out of the shadow of the giant equipment yards where equipment managers for mining companies and state highway departments do business.

“There’s such a huge customer base out there that doesn’t own our equipment,” said Mark Filipitch, supervisor of the Rental Services Division at Caterpillar.

“They just want to use it for a couple of days or a week. . . . We knew if we developed this new product, we had to develop this new distribution system.”

Wagner, which has five “traditional” Caterpillar sales yards, has opened 12 Cat Rental Stores, all fully stocked with mini-excavators, aerial platforms and skid-steers. Barrows said location is key to success.

“With the Cat Rental Stores, you need more facilities, you need to be close to the customer,” Barrows said. “These guys don’t want to drive 100 miles to rent a piece of equipment for a day.”

Of 70 independently owned Caterpillar dealers in the nation, about 60 have signed on to build about 190 Cat Rental Stores. Caterpillar also hopes to open 25 Cat Rental Stores in Latin America and 80 in Europe.