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The manufacturer’s view from the cab

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Published: March 30, 2009

Negotiating the economic fluctuations of the last few years in manufacturing has been like driving a combine on hills. The tops can be sparse, turning is tricky and sometimes you just try not to flip the damn thing.

Six months ago, equipment manufacturers couldn’t keep up with orders. Employee hours, overtime, facilities and suppliers were stretched. “Basically we were bursting at the seams,” says Jim Walker, vice-president of Case IH North America. “No one had the capacity to produce at 50 to 60 per cent increases for two years.”

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To make matters more stressful, two years of unnatural growth and accelerated input costs were followed by last fall’s uncertainty. “In my 30 years in the industry, I’ve never seen such volatility,” says Walker, who has also worked for John Deere and AGCO. “Right now we –farmers, equipment manufacturers and dealers — better be flexible thinking and make maximum use of our business skills to take advantage of the situation… and to survive.”

Those are heavy words after record sales last year for Case New Holland, which owns Case IH and is owned 89 per cent by Fiat. In 2008, CNH sold $825 million. That’s up 48 per cent from the previous year.

The greatest growth was in sales of higher-horsepower tractors and combines. For the rest of 2009, Walker is predicting new sales to remain flat and used sales to increase, although he expects higher-horsepower tractor and combines sales will continue strong into October. These sales were booked last summer and delivery was delayed due to short supplies.

Relative to the rest of Fiat’s manufacturing divisions — luxury cars, trucks and construction — agriculture is an excellent place to be. “This year, Case IH agriculture has been a driver for CNH and Fiat globally,” says Walker.

Created in 1999 through the merger of New Holland N. V. and Case Corporation, CNH is supported by 39 manufacturing facilities in Europe, North America, Latin America, China, India and Uzbekistan. Global scale ownership helps Case IH leverage international resources for suppliers, dealers and buyers. CNH construction and agricultural equipment is sold in 160 countries through more than 11,000 dealers and distributors.

The cost of materials in 2008, driven by escalating steel prices, forced most manufacturers to increase list prices up to 10 per cent the next year. In Canada, the exchange rate has driven year-over-year prices of manufacturers up an additional 15 per cent. Compared to last year, pricing in Canada has increased up to 25 per cent on non pre-sold products.

Creative financing

“We’re all suffering from the sub-prime fiasco,” says Walker. “But, our customer base (for Case IH agriculture) has the strongest balance sheets — both farmers and dealers.”

However, financing for manufacturers has become more difficult as lenders have more and more hedges and as short-term money becomes tight. Subsequently, equipment manufacturers have had to look for new sources of money.

At Case IH’s sales strategy meetings this winter, some of the discussion revolved around exactly how long to offer 0 per cent financing. “Do we have to offer it for 48 months, or 72?” asks Walker. “That’s incredible.” The downside to offers like this is that trade-outs become unattractive. Then the companies have to offer brand enhancements or new technology to make the next sale.

“Leasing takes hold when there’s a demand for used equipment,” says Walker. “Manufacturers drive the residual volume of equipment.” So if there’s a shortage of used equipment, leasing becomes a more attractive option. Some farmers lease equipment for tax reasons but low interest rates right now are making purchasing more attractive.

Technology thrust

Adapting technology will be the next most significant step in equipment innovations, including global positioning systems, predicts Walker. In the last year, in response to that demand, Case IH created an Advanced Farming Systems Group to manage GPS sales and service, including product development and support staff.

Retrofitting equipment with auto-steer systems has become common and variable rate technology popularity is growing. Soon, Walker says, all tractors will be pre-wired for GPS.

In the future, technology from other industries will be incorporated into farm equipment. For example, some transport companies use monitors to analyze their fleet and drivers. Information such as fuel efficiency or equipment diagnosis is collected and used to manage the fleet more efficiently. With this technology, a farmer would be able to monitor a combine crew from one central location, getting information on their travel speed and yields, or if they’ve been doing doughnuts in the middle of the quarter. More significantly, monitors will be able to diagnose potential mechanical problems before they stop harvest.

Case IH’s connection to Fiat’s truck division opens the door to dispatcher-monitoring system for farm fleets. This corporate

About The Author

Maggie Van Camp

Contributor

Maggie Van Camp is co-founder and director of strategic change at Loft32. She recently launched Farmers’ Bridge to help farm families navigate transitions and build their businesses with better communication. Learn more about Maggie at loft32.ca/farmersbridge

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