* Indiana facility will make diesel-electric locomotives
* Company currently assembles locomotives only in Canada
* Move could challenge GE's lock on US commuter rail
(Adds background on other Caterpillar investments, layoffs
By James B. Kelleher
CHICAGO, Oct 29 Caterpillar Inc (CAT.N) said it
will begin building diesel-electric locomotives in the United
States in 2012, a move sure to ratchet up its rivalry with
industry leader General Electric Co (GE.N).
Caterpillar's Progress Rail unit said it will manufacture
the locomotives in Muncie, Indiana at a massive plant that has
been vacant since 1998. The facility will ultimately employ as
many as 650 workers when it opens in 2012, the company said.
Progress Rail will invest about $50 million to update the
740,000 square-foot (68,748 square meter) facility and to build
a test track on the 75-acre (30-hectare) site.
The plant was last operated by a U.S. unit of the Swiss
engineering group ABB ABBN.VX.
Until recently, Progress Rail, which Caterpillar bought in
2006, was focused strictly on repairing and remanufacturing
rail equipment made by others, including GE.
That changed this summer when Caterpillar bought
Electro-Motive Diesel, a locomotive manufacturer spun out of
General Motors, for $820 million from Berkshire Partners LLC
and Greenbriar Equity Group LLC and made it a subsidiary of
EMD's headquarters, engineering facilities and
parts-manufacturing operations are located in LaGrange,
Illinois, just west of Chicago. But final assembly of the
passenger, freight and road-switching locomotives EMD makes is
performed at a plant in London, Ontario.
Assembly in Canada has effectively stopped EMD from selling
its locomotives to many regional commuter rail lines in the
United States, because the lines often require that the
equipment they buy be assembled in the United States.
As a result, the business has gone to GE, one of the
world's largest makers of locomotives, which has a locomotive
plant in Erie, Pennsylvania.
In a statement announcing the plan, Indiana Governor Mitch
Daniels said the facility would position EMD to participate in
future transit rail projects.
Over the past four years, Caterpillar, which is also a big
maker of diesel engines and gas turbines, has spent about $2
billion in the rail sector, half of it acquiring Progress
This was an industry that was viewed as important but dull
until last year, when Warren Buffett's Berkshire Hathaway Inc
(BRKa.N) (BRKb.N) bought Burlington Northern Santa Fe Corp for
It was Buffett's biggest acquisition in the 44 years he has
run Berkshire, and one he characterized as "an all-in wager on
the economic future of the United States."
Locomotives have been an underperforming business for GE
lately. Profit at the unit slid 62 percent to $242 million in
the first nine months of the year, as revenue dropped 27
percent to $2.34 billion.
Caterpillar's investment in Muncie is the latest in a
series of U.S. plant openings and capacity expansions that the
Peoria, Illinois-based company has announced this year,
including a new hydraulic excavator plant in Texas, a new
mining truck component factory in North Carolina and a new
engineering and design center in South Dakota.
In addition, Caterpillar has announced capacity expansions
at two of its Illinois plants in order to increase production
of mining trucks and to bring back a popular mining shovel that
it had discontinued.
Caterpillar, which laid off more than 30,000 permanent and
contract workers worldwide in 2008 and 2009 as it scrambled to
cut production in the face of the worldwide recession. So far
this year, Caterpillar has added back 6,200 full-time employees
worldwide and another 9,000 part-time, temporary or contract
(Reporting by James B. Kelleher; Additional reporting by Scott
Malone in Boston; editing by Dave Zimmerman, John Wallace, Ted
Kerr and Carol Bishopric)