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Caterpillar Inc. (CAT) is freeing its compact-construction-equipment business from the company's corporate confines in hopes of making its skid-steer loaders and mini-excavators more competitive and profitable.

Managers for the Building Construction Products division will be able to make decisions about pricing, new product development and purchasing components without the centralized corporate structure used for the company's larger machinery lines. The move is intended to make the construction-products division more responsive to a formidable set of rivals that include U.S. market leader Bobcat Co., U.K-based JCB Ltd., Japan's Kubota Corp., Deere & Co. (DE) and CNH Global N.V (CNH).

"A lot of the other companies around the world that compete in this small end are just focused on those small products," said Caterpillar spokesman Jim Dugan. "The idea is to allow Building Construction Products to be more agile ... and focus on its competitiveness and profitability."

During the first six months of 2009, revenue from the construction-products division fell 68% from 2008 to $584 million. The customer base for the business is largely made up of smaller contractors and landscapers that have been hit hard by the collapse of housing construction in the U.S. in the past year.

Caterpillar, based in Peoria, Ill., expects the division to become more efficient at lowering its costs, allowing the company and its dealers to offer lower prices on compact equipment without sacrificing profit margins. The changes also will apply to Caterpillar's forestry-equipment line, which is part of the construction-products division.

Industry analysts say skid-steer loaders and small excavators often wear out after four or five years of regular use, requiring manufacturers and dealers to obtain the bulk of their profits from the initial sale of the equipment.

"The Cat dealers are used to selling machinery at lower margins and then selling parts for it forever and ever into the future," said Frank Manfredi, president of Manfredi & Associates, a machinery-market consultant in Mundelein, Ill. "The small products don't generate a lot of parts business. They don't lend themselves to major engine rebuilding."

Caterpillar said it has no plans to exit the small-equipment market. The changes in constructions products do not include creating a separate holding company or subsidiary for the division. Construction products will continue to rely on Caterpillar's back office operations, information technology and employee services.

Vice President Mary Bell, a veteran Caterpillar executive who has headed construction products since 2007, will remain at the helm. Management and manufacturing operations also remain located in North Carolina. The transformation of the business is expected to take several months to complete.

Caterpillar's stock on Friday ended down 1.25% at $51.20 a share.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com