"These are very uncertain times, and it’s imperative that we focus Team Caterpillar on dramatically reducing production schedules and costs in light of poor economic conditions throughout the world," Caterpillar chairman and chief executive officer Jim Owens said.

"While it's painful for our employees and suppliers, it’s absolutely necessary given economic circumstances."

The company says its headline figures belie the true state of its situation.

While revenues were up 14pc from 2007, profit after tax was $US3.5b - flat with that of 2007.

"While 2008 was our sixth consecutive year of record sales and revenues, it was an extraordinarily challenging year," Mr Owens said.

"Through the first three quarters we experienced booming demand from key global industries, notably mining and energy, and most emerging market countries.

"Then we were whipsawed in the fourth quarter as key industries were hit by a rapidly deteriorating global economy and plunging commodity prices.

"In anticipation of lower demand we encouraged dealers to align inventory with declining volume, and they responded with significant order cancellations, particularly in December."

Fourth-quarter profit of $US661 million decreased $US314m as significantly higher machinery and engines operating costs, and a sharp decline in profit related to financial products bit hard.

"Fourth-quarter profit was disappointing, particularly in light of record fourth-quarter sales and revenues and a significantly favourable tax adjustment," Mr Owens said.

"It is now clear that we need to sharply lower our production and costs, and aggressive actions were triggered in December."

The company is forecasting an even tougher 2009 as global economic conditions and key commodity prices continue to decline and financial markets remain under stress.

The company is planning for 2009 sales and revenues to be in a range of plus or minus 10pc from $US40b.

At $40 billion in 2009 sales and revenues, the company expects to achieve profit of $US2.50 per share, excluding redundancy costs.