JANUARY 2007 :: COVER STORY : ECONOMICS

'All About Bobcat'
Machinery Maker Thrives by Staying Close to Its Roots

By Timothy Aeppel
Staff Reporter of The Wall Street Journal

O n the edge of Gwinner, N.D., an isolated prairie town of about 750 people, a curious-looking machine that resembles a baby bulldozer greets visitors atop a 15-foot pole on the town's official welcome sign.

Literally half the residents here work for Bobcat, the maker of the machines, whose snarling feline logo also adorns the municipal water tower. The Bobcat factory dominates Gwinner. In its two cavernous assembly halls-ancient machine presses alongside the latest robot welders-three shifts working 24 hours a day, five days a week, churn out more than 40,000 machines a year.

"Our identity as a town is really all about Bobcat," says Grover Riebe, the town's former mayor and Bobcat's director of world-wide manufacturing technology. Since 1958, current employees have been mayor all but 11 years.

Can-Do Ethos

W hile many U.S. manufacturers are leaving for greener, and cheaper, pastures overseas, Bobcat, a division of Ingersoll-Rand, has found advantages sticking close to its North Dakota roots to build the little machines that, among other things, are used to clean barns, dig dirt and plow snow. Bobcat has exploited its location to keep a finger on the pulse of its core market of small landscaping and construction contractors, helping it quickly develop and ship products. Also, the company's rural setting, executives say, has bred the kind of culture where problems are solved with the can-do, make-do ethos of the farm.

"There are a lot of barriers any foreign producer has to overcome to give us a real challenge," says Richard F. Pedtke, the president of Ingersoll-Rand's compact-vehicle division.

For example, the company usually can deliver any of the hundreds of attachments it sells for its machines to a customer within four days, a feat almost impossible and certainly costly for any company with long supply lines stretching overseas. And by keeping manufacturing, engineering and marketing closely linked, the company is better able to anticipate how markets are shifting and find new applications for its machines, says Mr. Pedtke.

Three years ago, Bobcat was grappling with how to improve the durability of the rubber-coated steel tracks it puts on some models instead of wheels. A breakthrough came when a group of engineers-shooting clay plates at Gwinner's hunting club-saw a nearby farmer using a large tractor that ran on rubber-coated tracks. The Bobcat engineers began talking about tractors that afternoon and later brought some large ones to their R&D labs, discovering a distinct rubber compound made the tracks last longer in both mud and on pavement.

"Seeing that tractor out in the field stimulated thought," says Oryn B. Wagner, Bobcat's vice president of product engineering. "It made us realize there's a different technology around the bigger equipment that we could adapt."

Bobcat, which operates another large factory in Bismarck, is North Dakota's largest exporter, shipping $550 million in machines to all corners of the globe annually. Meanwhile, the company's steady growth-11% a year for the last decade-helps explain why North Dakota is one of only three states that consistently added manufacturing jobs over the last three years. The other two aren't classic industrial regions either: Nevada and Alaska.

Deep Roots

To be sure, there will always be adjustments in production to respond to changes in demand: The recent slump in home building has sent a chill through all equipment builders, forcing Bobcat to furlough its hourly workers at Gwinner recently. Workers returned to their jobs a week later.

Bobcat is moving to globalize its business. In 2001, the company acquired a manufacturer in Dobris, the Czech Republic, where it now makes machines aimed at the European market. It also builds them in a joint venture in Wuxi, China. The goal is to eventually supply more foreign customers from those plants, but shipping machines back to the U.S. doesn't make economic sense at this time, says Mr. Pedtke.

Bobcat has deep roots in Gwinner, though, where it was founded 50 years ago, by local entrepreneurs who started making a goofy-looking, three-wheeled vehicle for sweeping out turkey barns. The design allowed it to turn on its own axis, which made it ideal for use inside cramped spaces. The problem was, it also tended to tip over, so a fourth wheel was quickly added.

The formal name for these original machines is skid-steer loaders, because the wheels on either side can turn in opposite directions, allowing it to pivot on its own axis. Bobcats are so maneuverable, in fact, the factory used to have a "square dancing team" of drivers who traveled to county fairs and other community events. They still perform on special occasions.

But it's the versatility of Bobcat loaders that consumers love. Bobcat produces 385 different attachments that allow the machines to be used as everything from street sweepers and lawnmowers to post-hole diggers and front-end loaders.

"A friend of mine calls it the Swiss Army knife of the construction equipment world," says Charles Yengst, president of Yengst Associates, a market-research firm.

Mr. Yengst notes that other much bigger equipment manufacturers make similar products, including Caterpillar and Dutch-based CNH Global. But the undisputed leader in the niche for compact loaders remains Bobcat, with global market share in the "high 30% range." This dominance is underscored by the fact that the common term for a skid steer, regardless of brand, is simply "a Bobcat."

The area around Gwinner is sparsely populated, which does pose a recruiting problem-about 1,000 of the factory's workers commute up to an hour a day. "We've pretty much soaked up all the available labor within a commutable distance," says Herbert L. Henkel, chief executive of Ingersoll-Rand, which bought Bobcat in 1995.

But it turns out the people who are available often make very good factory workers. Most were raised on or near farms, where they learned mechanical skills and a no-nonsense work ethic. And since there are few other employers who pay as much in hourly wages in the region, the company commands a high level of loyalty. Hourly pay averages $19 an hour, which is high by even big-city standards. The average hourly wage in North Dakota is $14.83.

Two Hundred Robots

K ris Lien, a 30-year-old punch-press operator, grew up on a farm. When he graduated from high school in 1994, his grandfather, father, and uncle were all still working the land, which meant there wasn't enough land for him to also become a farmer. So he joined Bobcat.

He started driving a skid-steer loader when he was eight, using it to move feed and clean out animal pens. "I've been around big machinery my whole life," he says.

Leading the way onto the factory floor, Dan Antrim points to an example of why he thinks farmers are good in factories. "That press was built in 1913," says the plant manager, gazing up at a two-story-high machine used to stamp sheet metal in various shapes. Bobcat bought the machine second-hand from another factory that was getting rid of it. The massive metal parts in such a device have changed little over the years and would be similar even in a brand new machine.

"But our guys have retooled it with the latest in controls," says Mr. Antrim, saving the company money that could be poured into other, more important machinery, such as 200 state-of-the-art welding robots.

The company has also imported the latest ideas for boosting productivity, such as streamlining the flow of work by bringing operations that put together components closer to the assembly line. On the line that makes the smallest machines, assembly time for a single machine was cut from eight hours to two.

Bobcat's fast growth had put a heavy burden on workers in recent years in the form of forced overtime, but the recent slowdown in home building has cooled demand, defusing that issue.

The company hasn't ruled out further production cutbacks at the plant, casting a shadow over recent negotiations between Bobcat and the United Steelworkers union. Bobcat has about 1,100 hourly workers at Gwinner, up from 750 four years ago.

Randall Edison, treasurer of the union local, says it's always in the backs of workers minds that so many types of manufacturing are moving overseas. "That's why our focus is on keeping it here in North Dakota at all costs," he says.