Due to new stricter U.S. locomotive emission standards, freight train manufacturers are facing pressure to update their product lines by January 1. The result of the new legislation may lead Caterpillar (NYSE:CAT) to fall far behind GE (NYSE:GE) in the race to produce locomotives that comply with the new standards.
Caterpillar's famous Electro-Motive Diesel unit announced that its freight trains will not be ready until 2017, paving a clear path for GE to obtain an increased market share.
GE is already testing locomotives that conform to the new regulations, and is looking to snatch Caterpillar's customers during its two-year absence from the market. GE already has an estimated 60% to 70% of the domestic freight train market.
The concerns don't particularly bother Caterpillar, which expects companies to delay buying new locomotives until the technology is perfected. "History indicates that the railroads are slow to adopt new technology until it is fully proven in the field," says a Caterpillar spokeswoman. Caterpillar will also have overseas sales, which reached $2.5B last year, to make up for the time it will be locked out of the U.S. market.