Will 1984 bring machinery sales upturn?
WASHINGTON, D.C. - More
combines, tractors, and other farm
machinery are expected to roll off
the lots and into the fields this
year. Analysts are anticipating the
first sales upturn in five years,
according to a recent issue of the
Agriculture Department's
"Farmline” magazine.
Since 1979, the industry’s record
sales year, business has gone
steadily downhill. So far, the farm
machinery industry has remained
basically intact through it all, and
conditions should improve as sales
volume picks up.
However, some manufacturers
and dealers are still struggling to
survive, and the entire industry is
going through a difficult transition.
In the years ahead, further ad
justments in production capcaity
and greater specialization by farm
machinery manufacturers will
probably be necessary.
The industry’s financial dif
ficulties over the last 4 years are
reflected in the earnings
statements of Deere & Co., In
ternational Harvester, and
Massey-Ferguson, the three major
full-line manufacturers of farm
equipment. The figures suggest
that the effects of the prolonged
slump may linger long after a
pickup in sales.
On the other hand, it’s worth
noting that Deere & Co. showed a
profit throughout the 1980-83
period, and the firm remains
sound International Harvester
and Massey-Ferguson suffered
Farm Machinery Sales Take a
Dramatic Downhill Turn
Source Farm and Industrial Equipment Institute annual raports
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losses after 1979, but prospects tor
both firms look better than they did
a year or two ago Operations have
been restructured, assets sold,
management improved, and debts
refinanced
Financial records
A review of financial records
published by the three companies
i eveals that
—Deere & Co, earnings (net
incop le after expenses) slid from
$3lO million in its 1979 fiscal year to
just $53 million in 1982. In 1983,
earnings fell another 56 percent to
$23 million.
—lnternational netted $369
million in 1979 on sales of more
than $7 billion. Since then, losses
have totaled around $2.9 billion,
including a $1.6-bilhon net loss in
its 1982 fiscal year. By 1982’s
standard, the 1983 earnings
statement wasn’t bad - it showed a
net loss of $485 million.
—Massey-Ferguson posted a loss
of $4l million through the first 9
months (February 1 to October 31)
of its 1983 fiscal year-the best
news for the company in 4 years.
Net losses from 1980 to 1982 added
up to $833 million. In 1979, its last
profitable year, earnings were
reported at $37 million
The sales receipts of the major
manufaclureres didn’t drop as
precipitously as net earnings,
largely because of higher
machinery prices. Prices for
tractors and other self-propelled
machinery increased 9.8 percent
between 1979 and 1983. Prices for
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othei mathineiy and farm im
plements i ose 9 3 percent
These price increases were
i datively modest compared with
increases of prior years, but the
moderation was not enough to
stem the plunge in sales volume
Meanwhile, profits were caught in
the squeeze between rising fixed
costs and weakening demand
Between 1979 and 1983, unit sales
ol farm machinery declined
dramlically tractors, down 51
percent, combines, down 63
percent, forage harvesters, down
76 percent, hay balers, down 54
percent.
Backlog trimmed
Until recently, inventories were
mounting, but a wave of rebates
and sales incentives, coupled with
reduced factory production, has
trimmed the backlog. During the
past few years, manufacturers
have shut down plants or
eliminated shifts, slashed capital
expenditures, refinanced loans
from creditors, and temporarily
laid off workers. International
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Harvester, possibly the most
severely shaken of the major
manufacturers, now employs
fewer than half as many workers
as it did in 1979.
International, Massey-Fergus
on, and Alhs-Chalmers reduced
capital expenditures by 54 percent,
38 percent, and 65 percent,
respectively, in recent years. In an
effort to belter cope with the
situation, some companies ahve
reportedly discussed joint venture
and joint manufacturing
agreements To date, only
marginal changes have resulted
from these discussions, such as the
sale of certain divisions to other
companies.
There are several reasons for the
current financial plight in the
industry One is the depressed
slate of the agricultural economy
over the last few years
Historically, farmers make
machinery purchases out of net
cash income, whether current or
anticipated. Disappointing returns
from farming, growing debts.
BRAND
rising product urn expenses, and
lughei costs of living have kept
many farniei s m a precarious cash
How position, unable or unwilling
to lake on additional debt
Meai. (h'Hmmg land
values, higher inteiest tales, and
lighter credit have made it m
expensive and, in many cases,
more difficult to obtain the
financing needed to purchase big-
Hckel items, such as tractors and
combines.
Farm debt has continued to
climb, while real farm equity
dropped for 4 consecutive years. In
1982, farmers' income return on
equity capital fell to Us lowest level
in 50 years. One result is that
farmers have been delaying real
estate improvements and
machinery purchases, as
evidenced by a 43-percenl drop in
the ratio fo annual capital for
mation to net cash income from
1979 to 1983.
Acreage reduction programs to
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