Freezing workers’ wages for six years despite record profits is the right way for Caterpillar to stay competitive, former General Motors Vice Chairman Bob Lutz said Tuesday.
“Caterpillar overall is profitable, which is thrown in their face, but I’ll bet you if you look at that specific plant, that plant loses money,” he said on CNBC’s “The Kudlow Report.”
Lutz estimated that the average worker at Caterpillar’s Joliet, Ill., plant makes $50,000 per year.
“The profitability of Caterpillar globally per employee is $39,000, so those workers are diluting the average rather than helping it,” he added.
Caterpillar reported a record $4.9 billion profit last year and $1.586 billion in the first quarter of 2012, as well a $29.8 billion backlog of orders.
CEO Douglas Oberhelman told CNBC in March that he expected 2012 to be “another record year.”
Members of the International Association of Machinists went on strike 12 weeks ago over the proposed freeze on wages and pensions, as well as sharply increased contributions for health care coverage, for most of its 780 workers at the Illinois plant.
The pay freeze plan came as Caterpillar boosted compensation for its executives.
Lutz defended the company’s effort to cut costs.
“This is how outsourcing happens,” he said, adding that there were “plenty of machinists” in China and Korea who could be hired to work for less. “Whenever labor isn’t flexible, a company has no alternative but to outsource.”
Lutz said that the difference between Caterpillar and automaker GM was that the industrial machinery manufacturer was able to create its products at any of its factories.
General Motors, meanwhile, wasn’t able to replace its skilled machinists easily.
But Lutz said that the era of unions was essentially over.
“The old-time industrial wage that, you know, the high-end industrial aristocracy of the extremely highly paid UAW and machinist unit … that’s a thing of the past, and we’re going to have to get competitive.”
"The Kudlow Report" airs weeknights at 7 p.m. ET.
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