Caterpillar Expands Its Remanufacturing Business

Caterpillar Inc. CAT wants to sell engines—again and again, expand its remanufacturing business to boost sales and sustainability efforts, writes The Wall Street Journal.

Every day, old, beat-up, and broken-down engines from mining trucks and compactors return to a factory to be inspected, taken apart, and rebuilt again as new.

The effort, which took in an anticipated 127 million pounds of equipment to be reprocessed in 2021, is part of Caterpillar’s efforts to satisfy environmental goals while also increasing revenue from services, which Caterpillar claimed might offer the business an advantage over competitors.

“It’s taking a product which is towards the end of its life, refurbishing it and basically putting it back in service and extending the life,” stated Caterpillar financial chief Andrew Bonfield. “From a customer’s perspective, effectively they get a refurbished machine, almost as good as new, at a lower cost.”

Investors have pressed Caterpillar on the environmental impact of its plants and machines. Last year, 48% of voting Caterpillar shareholders approved a resolution to boost climate disclosures, which the board of directors opposed. After failing to fulfill a previous sustainability objective, Caterpillar decided to increase remanufacturing income by 20% from 2013 to 2020.

This year, Caterpillar’s board is supporting a similar shareholder resolution. The company, in 2021 made the remanufacturing operation into its division and named its first chief sustainability officer.

Caterpillar aims by 2030 to increase its remanufacturing revenue by 25% above 2018 levels and wants to double services revenue to $28 billion by 2026.

Remanufacturing engines at Caterpillar plants and rebuilding entire excavators through dealers will help the company meet the growing demand for more environmentally friendly products among construction companies and builders while also allowing Caterpillar to underprice competing products with remanufactured ones.

Price Action: CAT shares are trading higher by 0.83% at $208 during the premarket session on Tuesday.