A NEW SERIES: ONE 2 ONE WITH SOME OF THE MOST INTERESTING PEOPLE IN THE BUSINESS

Better Roads Staff | September 7, 2011

Doug Oberhelman

Talks to Editor-in-Chief John Latta

The chairman and chief executive officer of Caterpillar joined the giant company in 1975. He held posts in finance and planning positions in South America and Japan, and was elected a vice president in 1995, serving as chief financial officer. In 1998, he became vice president with responsibility for the Engine Products Division. Oberhelman was elected a group president and member of Caterpillar’s executive office in 2002. In October 2009, he became vice chairman and CEO-elect, leading a team that developed the company’s future strategic plan. He was elected CEO and a board member in July 2010, and chairman November 1, 2010.

If you assess the economy-infrastructure connection, what do you see today and tomorrow?

The underlying problem is the amount of unfunded liability the government has racked up over the past 20 years. That pressure, as it manifests itself in the next 10 years, will mean pressure on discretionary government spending – primarily entitlements, which are going to have to be curtailed greatly before it’s all over with. But the pressure on everything else, in the meantime, really is going to force a hard look at what little money is left for this country to invest in infrastructure. The amount of funding for all of that [infrastructure] . . . is going to get squeezed greatly. So what it will do is pressure the political people to rally priorities around infrastructure.

Meanwhile – and I’ve spent a lot of time talking to Congresspeople about this – while we are constricting our infrastructure investment in this country, actually making us less competitive, the major trading forces in the world are increasing their investment in infrastructure like we used to do years ago when we were strong. And it’s not just China; it’s India, it’s Brazil, it’s just about everywhere where there is money and debt available. They’re making themselves more competitive. That worries me for American manufacturing jobs. Part of the reason we had such a long run as an economic superpower was because every part of our economy was competitive, from states to companies to the country, the whole works. And we’re going backwards while others are going forward. I’ve been trying to really sound that alarm in Washington, but what you get there is, “Doug, you’re here in Washington and you want us to spend money on infrastructure, but yet in the next breath you tell me to cut the deficit.” Correct! Because I remember when we got it all done. We prioritized infrastructure strongly enough and paid people unemployment and Social Security and stuff, and did everything else that you do to make your country competitive. What’s happened is that we’ve skewed the spending so badly in the past 25 years that there’s nothing left to make us competitive.

So America doesn’t think big enough any more?

I’ll give you an example. I was just in Amsterdam … the Dutch have decided they are going to increase the size of their harbors, so they are dredging an eight-mile-long, deep canal to harbor ships bringing trade out of Europe because they see that as a core business of Holland … they want to be the most competitive port in Europe. That’s the comparison I’m talking about. Nobody here is thinking that big.

Are we on course for a Japanese economic model?

No. No. I don’t think so, or a European model. The unbelievable wonder about the American economy and the system is its dynamism. The 2010 election was a first step in a massive changeover in how this country thinks about itself and thus elected political leaders in a way that made big changes. If we are in this debate in the next year going into the 2012 election, this country will do it again. This is not the worse crisis we’ve had in this country and we’ve always flourished afterwards … I’m convinced we’ll do it this time. The problem is – there are several problems – one is that we have had a 25-year tailwind in interest rates and a 25-year-plus period on a tailwind of government spending via debt … going forward we are not going to have that big structural drop in interest rates that we’ve seen since the early ‘80s and we’re going to have government debt to pay back.

Are we on course for a new industry economic model for transportation infrastructure industries?

It’s a different period coming up, but it doesn’t mean that this country can’t be strong. What does all this mean for better roads? I mean my better roads, not yours. It’s going to be tough, but I am convinced that with the industry that is left after this, whether it is one year or five years, we’re going to see the most competitive set of roadbuilders and infrastructure suppliers that this world has ever seen. And we’re going to see the ability to do whatever the metrics are – miles per day or tons per mile – in numbers we’ve never seen before … this prolonged recession for this contractor base is forcing them to really be efficient and to consolidate, and those that come through this will really be good. There is a tremendous pull from today’s contractor base on sustainability. Hot mix to warm mix, warm mix to cold mix, jobsite management of fleets, everything to reduce fuel and to reduce the CO2 footprint … reducing fuel reduces owning and operating [costs], which is a huge piece of the contractor’s cost structure, and they are going to force it back on us.

If you owned a construction company, how you would you proceed today?

You know, I’ve had more contractor and customer calls who have asked me that question than you can imagine. I have been surprised, and my advice is sort of consistent with what we’ve done here: cost, cost, cost; growth, growth, growth. And that usually means consolidation in the case of growth … the contractor base can consolidate and handle cost and get growth, but you can’t leave any fat on the bone; it’s all got to be lean muscle, which is similar to what we’ve done and are trying to do here at Caterpillar. I really believe the contractors who come through this will be lean and mean, and it will be good for our industry.

You are suggesting governments will have to change the way they approach infrastructure management.

The great good that is coming out of this fiscal mess where there just aren’t funds is that government at all levels is going to be forced to be efficient … never would have had that if we are not in crisis. The longer that crisis goes on, the more efficient government is going to be. Shut the funding off, and there are smart people at all levels of government, they’ll figure out ways to be efficient but there hasn’t been that hot torch on government until now to force them to do it. Change … is coming.

Infrastructure doesn’t seem high enough on the public or political agenda.

It’s hard to say. I can see one path out … the U.S. does decide that infrastructure is a priority and we put investment back into it and things happen pretty quickly and that’s kind of the traditional approach. But it will be a lot more selective, I think. If there is one thing that killed the reputation of infrastructure, it was the “bridge to nowhere.” That has done more to harm our industry than anything else. That leads right into a discussion on earmarks and are those jobs, those projects, really necessary. I have been very surprised in my role here when I talk to political leaders how, in many cases, infrastructure has gotten such a bad name because of the bridge to nowhere and because of pork barrel projects that don’t reach the national priority … one of the nice things about this fiscal situation is that it will weed that stuff out, too, because there’s just not money to do it. But the bridge to nowhere in its broadest – not just the bridge in Alaska, necessarily – but the concept of the bridge to nowhere really hurt this industry. Our industry was the innocent bystander victim of that … it was the politicians who brought us these kinds of things and funded them without the cost benefit and really without the national priority or investment priority they needed.

So we need more public awareness, more public support?

Yes. When I was a kid, a lot of the projects had a sign saying, “Your tax dollars at work.” I remember them, it was a positive image, and you felt good about your tax dollars at work. Everybody felt good about it, because you were getting a new road or a new curb or a new this or that. Well, we just saw a year ago your Stimulus dollars at work and the country came apart over it. Now, it was a ridiculous thing. So what has happened in that 30-year period? I don’t know, but something has.

As an OEM, what do you see immediately ahead in equipment?

The next horizon is the very efficient use of technology at the jobsite level. My favorite example is a 25-acre parking lot. With a grade, without a grade, with bumps, without bumps, whatever. One pass being very fine GPS setting, one pass being very fine gradations at the ground engagement point. Imagine doing that in one pass with a bulldozer, a motor grader. Can we do that in one pass with technology? It’s being done … not every day, but it’s out there. Imagine the fuel economy and CO2 footprint with that kind of efficiency, compared to the old days of cut-and-fill with stakes. Or you take 2 or 3 inches at a time and resurvey. Imagine doing it with one pass on that parking lot. That’s an easy kind of over-simplified example, but I think it makes my point that the technology we are about to embark on will be a breakthrough, and it isn’t so much centered around what the machine can do as what you have to have incorporated at the jobsite. The pull from customers for this is huge.

Efficiency will improve, dramatically?

Yes. You can’t go back to the $1 million a mile, or whatever, we want it at $700,000 a mile, or whatever … because this is all there’s going to be, so figure it out. And we will all do that collectively.

It sounds as though it’s not new technology alone that we need, but better ways to employ what we have on the jobsite?

Even broader. Let’s take another example … let’s use a simple one, say a new country road cut through to two small communities, where the county specs come out only digitally; the latitude, longitude and altitude are already provided in there to the millimeter. So you bid the job that way, you enter it into your machine and you stand back and watch it go. Think about the fuel efficiency and CO2 footprint on something like that. That is happening today. We are on the edge of this. But when you multiply it out, think what can happen. Here’s another message for contractors: Imagine the early adopters of this – they’ll blow everybody away because you won’t be able to compete with them when you’re cutting three times. There’s a tremendous pull for this and we are spending a lot of time and money on it; we are on the verge of it and using it already on some jobsites today. This is coming, and it’s sooner rather than later.

How physically damaged is the infrastructure that we have?

I am not one who believes our infrastructure is past the point of no return. I do believe our infrastructure is too antiquated to be competitive in many cases and most ports are in that category, most airports are in that category, our river system is certainly in that category. The Interstate highway system is, while probably not adequate for the amount of traffic we have, not as bad. Having said that, I don’t think that matters, because if we want jobs in this country, we’ve got to look at our competition … because if we are not upgrading and competing, it’s not going to matter if you are one lane behind or two. In this competitive world, if you are not going to lead, you are in trouble.

Will transportation infrastructure still be a job-intensive industry?

Oh yeah, definitely. We will get fewer labor hours per mile. That’s been a long-term trend, but it’s still a fairly intensive industry. When you go upstream in the supply chain to aggregate producers and cement producers and steel producers, it’s a pretty labor-intensive industry. It will be more efficient, but it will still have a lot of labor content.

You are an optimistic thinker about our future?

I am. I’ve got to be in this job.

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