Hybrid technology, politics, the stymied Keystone XL pipeline, and the upcoming struggle for a new transportation bill were all on the docket as Construction Equipment senior editor Frank Raczon sat down for one-on-one interviews with Caterpillar chairman and CEO Doug Oberhelman, Deere & Company chairman and CEO Sam Allen, and Mario Gasparri, brand president, CNH Industrial Construction Equipment (Case Construction Equipment).
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Senior editor Frank Raczon reports on other issues discussed with these leaders in his Big Iron blogs.
The heads of North America’s traditional “big three” market share leaders were well prepared by their handlers (CE shared only general topics, not questions, beforehand), but were still forthcoming about issues they’ve faced, past and present. We also set out to ask about situations unique to each of their companies.
Each man has different thoughts on leadership and the particular backgrounds that guide them. (Gasparri has moved elsewhere within CNH, but since he was Case brand president during Conexpo, where these interviews took place, his opinions remain relevant in context.)
Customers versus stockholders
Caterpillar’s Oberhelman is known for his accessibility. In the Cat booth at Conexpo, he shook hands and posed for photos with multiple customers. Considering his penchant for interaction, we asked him how he handles customer desires that may clash with stockholder demands.
“Oh, it’s really a balance,” Oberhelman says. “Leading a company like Caterpillar is essentially juggling, or trying to get the three legs of a stool equal. The three legs of the stool are customers, shareholders and employees. So we are constantly dealing with trade-offs between what’s good for employees, what’s good for customers, and what’s good for shareholders.
“This manifests itself in benefits, and pay, and work environment for our employees versus dividends, buybacks, and returns to shareholders, and then R&D and the things we have to do to invest for customers,” he says. “If we get one [leg] out of whack, we know pretty quickly, because customers start to complain, share price goes down, or employees complain.”
Deere’s Sam Allen is noteworthy for being the first president of its Construction & Forestry Division (C&F) to ascend to the big seat in what is often perceived as an agriculture-dominated company. He was quick to point out he’s held senior leadership responsibilities in every company division, including Ag & Turf, but believes the C&F experience gave him a unique perspective.
“If I had grown up in just John Deere Construction, a lot of the organization wouldn’t have known me, so the idea of having both [an Ag and C&F background] was real positive,” Allen says. “I think the second thing, quite frankly, is in Construction, it’s the ‘little engine that said it could.’ It’s the one that keeps wanting to get bigger and bigger, better and better, and I think that’s helped me in terms of understanding the need for speed and understanding the need for taking risks. More than anything, it was the can-do cadence of Construction that was really a positive for me.”
Allen also cites the customer panels and “deep customer understanding” efforts he saw on the Construction side, which involve customers helping the company design machines, as powerful tools to bring to the rest of the organization.
Mario Gasparri of CNH, perhaps the least known of the three executives to the equipment-buying public, jumped at the chance to talk about his experience with the differences between doing business in Europe and North America, and their current climates.
“I think the first difference is that Europe is much more complex, because you have 30 countries, and despite the fact we talk so much about the European Union, it’s not yet really a union,” Gasparri says. “It’s very fractionated, with each country having its own dynamics, requirements, and languages. It’s much more difficult to operate in Europe.
“The other thing is that the European economy has not been able to recover from the 2008 collapse. There is some difference between the north and the south. Some countries, like the U.K., have been a little more positive in the last months, but generally most economies are still struggling. Even in Germany, which is often called a train that pulls the European economy, the construction business was pretty depressed last year,” Gasparri says.
He also points out that while North America suffered a major collapse, too, the economy has shown “some reaction” with a “quite important rebound” in 2013. “The market for the heavy line is much stronger here,” Gasparri says, “so our dealers have to be equipped here to be much more professional in providing assistance to larger customers with more complex machines than we have in Europe.”
Brand merry-go-round
When CNH was formed in 1999, and for a time afterward, much was made of the strengths of its multibrand strategy—several brands of construction equipment (Case, New Holland, and eventually Kobelco) under the same umbrella. The red flag, of course, was that they were brands that played in many of the same categories and markets.
Today, New Holland has exited the heavy side of the business in North America to focus on compacts only, and Kobelco is no longer part of CNH. But Gasparri refuses to look at these developments in a negative light.
“I don’t think it was something that went less than positively,” he says. “Especially in this market, it was a natural evolution of the presence in the different segments of the market. I think the decision in 2011 here to shift the focus of New Holland into the compact business was driven mainly by the importance, for instance, of the market in the agriculture sector, and landscaping; both are very relevant in North America.
“We could then focus better on the heavy line, which is something we are increasing, especially this year with programs and so on, on the Case brand. It has become the main, construction full-line brand [for CNH],” Gasparri says. Indeed, Case has stepped up in size with its product offerings, its marketing, and its advocacy (the Dire States infrastructure awareness campaign).
As for Kobelco’s separation, Gasparri again refers to market forces. “When you start the partnership you have a certain direction and certain goals,” he says. “The partnership lasted 10 years, but in 10 years the world had changed completely. There were changes in the market. The balance of the market, the industry between Asia and the West, changed completely—dramatically. It was clear that for us, if we were staying in the same type of relationship, it would have been doing nothing in the growth area of Asia Pacific. So that was one of the reasons to move in this direction.”
Gasparri also touts parent company Fiat’s increasing presence in North America as a plus for Case.
“Today, Fiat has a name and a completely new reputation and visibility, even in North America, than it used to have 10 years ago,” he says. “With the merger of the different businesses, we have two companies now, Fiat Chrysler, which is taking care of the car business, and Fiat Industrial, which we created last year, in the capital goods sector—we have trucks, buses, construction equipment, engines, and this is creating a major powerhouse. We are basically the fourth largest capital good company in the world.”
Gasparri says Fiat generates $26 billion Euro, and that Case can only leverage and take advantage of “this muscle” in terms of capacity for investment, synergies from scale, and accessibility to different markets, both mature and emerging.
Some Case dealers and customers used to bristle at the brand’s association with Fiat, but Gasparri feels those days are over. “I think, starting from our own organization and down to dealers and customers, there is more and more recognition of the value of this association with Fiat group,” he says. “I’m sure that even the North American dealer today must be quite happy to be be part of this larger group.”
Equipment dealers, managers, and manufacturers alike are watching the U.S. political and jobs climate warily, as two major issues loom: the next transportation bill and the stalled Keystone XL pipeline.
Transport bill, Keystone XL
“We spend a lot of time, all of us, trying to influence raising the priority of infrastructure spending in this country,” Oberhelman says. “The problem is, we’re living on borrowed money. We’re spending beyond our means as a government. So the question always becomes, how’s it going to be funded? We always have to deal with that, because that’s the practical side of investing. But if we don’t invest, a lot of our foreign competition, countries that are coming at us, are going to be more competitive than we are.”
Oberhelman decries the current political and economic environment in which the transportation bill and the Keystone pipeline must be resolved. “As far as jobs and politics, and where all that’s going, I’m not very optimistic; I don’t think anybody is. It seems our legislature can’t agree on the time of day,” he says.
“We’ve got some big issues to resolve, and it’s an election year, and we have a very divided government,” Oberhelman continues. “We’ve got to find a way to get it done and get back in some kind of policy-making areas where it benefits the country instead of taking it apart, as it’s been for the last decade.”
Allen feels passing a long-term transportation bill is vitally important. “I’ve met with so many contractors who have said, ‘We’ve got this five-year project but they’re funding it year by year, and I’m not going to invest in equipment if I don’t know if they’re going to fund it the second year, third year, and fourth year,’” Allen says.
“What we’ve always tried to do when we meet, whether it’s the House, the Senate, or with the administration—while we’re advocates of certain approaches—the most important thing is to get certainty,” Allen says. “We keep trying to deliver that message, recognizing though that the reality of what’s going on on the Hill makes it difficult at any given point in time to see something coming to fruition, but you can’t give up.
“Every once in awhile the door opens for a second and if you’re not there when the door opens, you might not be able to fully open it and get through,” he says. “We were able to get the farm bill through. I might not like everything that’s in the farm bill now, but what I love is we’ve got a five-year farm bill and we have certainty. We need a highway bill to get certainty, so we can plan around that. But a robust highway bill in the near term is not something that we have a high degree of confidence we’re going to see.”
Technologies
When we asked Cat’s Oberhelman his opinion on the single most important piece of technology for the company’s future, he was momentarily stumped. “I’m not sure there is a single piece I would elevate above the others,” he says.
“I would look at hybrid technology, for example, in our excavator and electric-drive technology in our D7E, and our XE transmission [wheel loaders], as extreme technological advances in our company and our industry,” Oberhelman says. “On the other hand, we’ve got a tremendous amount of information flow coming to us today [through telematics] that should allow us to do all kinds of things for our customers to allow them to lower their owning and operating costs even further. So you kind of have a hardware and a software technology. There’s a little bit of everything in all of the machines, which I like, because we’re bringing multiple things to customers.”
Deere’s Sam Allen quickly cites hybrid electrification technology as “pretty doggone important” to Deere’s future. Its first application is in the 644K and the 944K wheel loaders, the latter with power inverter technology designed and developed by the wholly owned John Deere Electronic Solutions, where the company’s telematics solutions also come from. It’s hard to pinpoint, however, how much more hybrid equipment we’ll see, and how soon.
“The real issue is that you’ve got to get enough scale to drive the price points down on the electrification components to make it cost effective vis-a-vis torque converters or hydraulics,” Allen says. “That will happen over time, but at this point, you see it more on the large equipment where it can be justified; where the equipment is running 20 hours a day and really using a fuel load. If you’ve got 40 percent fuel savings, then you can really justify it.”
Gasparri, whose company has not released any hybrid or electric-drive iron to date, declined to call a single technology the most vital for Case’s future. “We look at the entire machine and the overall productivity and cost of ownership, so it’s not that there is one specific technology area that we need to consider when we develop a new machine,” he says. “Hybrids are something that has been of interest already for a few years, and within our group, in general, of course we are looking at that. It could be something maybe even not specific to construction; it could be something that is important for our other segments.”
