16 November 2001

GIANT MERGER FORCES PACE

The past few years have

seen unprecedented

changes throughout the

farm tractor and machinery

manufacturing industry.

Peter Hill charts the

progress of the big players

most involved in the

changes so far

OF ALL the mergers, take-overs and marketing or manufacturing agreements that have taken place over the last few years, none are having as much impact as the merging of two of the worlds largest players – New Holland and Case Corporation.

As separate companies, both realised they would be too small in the long term to compete with Deere in agriculture and Caterpillar in construction. Combining them to create a new entity, CNH Global, has put them firmly on the tail of these sector leaders.

The process is proving a long and, at times, painful one. First, the new company had to cope with the demands of authorities in North America and Europe that required factories and product lines to be sold to prevent CNH gaining too great a share of key markets.

That resulted in Buhler Industries acquiring the Versatile tractor plant in Canada, Landinis parent buying the Case Doncaster factory and creating the McCormick Tractors International business, and AGCO acquiring full ownership of its hay tools joint venture with Case.

Only after these moves could CNH set about restructuring its remaining facilities to improve efficiencies and cut costs. In North America it has set about that with gusto, consolidating New Holland and Case skid-steer loader, combine harvester and grass machinery production.

Won agreements

After speculation that the plant would close, CNH won sufficient financial and union agreements to continue making MX Magnum and MX Maxxum tractors in Racine, Wisconsin – its headquarters city – and in a new, more efficient plant than the sprawling factory used at present.

In Europe, where CNH has duplicate combine harvester lines and production facilities in Belgium and Germany, and tractor component and assembly operations in Britain, Italy and Austria, restructuring has so far been limited to disposal of the St Dizier transmissions plant to McCormick and a transmission components facility in Doncaster to an Italian specialist manufacturer.

The focus in Europe has been more on moulding back-room administration into a leaner, more cost-efficient organisation, while trying to convince customers and especially dealers that Case and New Holland distribution will remain separate, even though the products are to come together under the much-heralded common platform policy.

So far, this has yielded New Holland big square balers and TX combines in Case-IH colours and, in North America, Case Steiger tractors in New Holland blue. But there is a lot more to come, including an MX Magnum-based replacement for the New Holland Series 70 (now a Buhler Versatile product) and, likely as not, New Holland-based replacements for the MX Maxxum and CX lines currently built for Case by McCormick.

Hell for leather

McCormick itself is now going hell for leather to drum up sales of the CX and its Perkins-engined Maxxum, the MTX series. Having secured the Doncaster plant for the new venture, Landini consolidated its position by buying the factory in France that makes all transmission sets for Doncaster products.

Much effort has also gone into wooing national Case-IH distributors and dealers throughout Europe. This has not been entirely successful at distributor level as, in all instances so far, the company has appointed importers new to the range and, in the case of the Benelux countries, an importer new to tractors.

Nonetheless, McCormicks rapid introduction of new and improved models has encouraged distributors in all major markets to sign up to the new venture – and not just in Europe.

Servicing staff

In France and the UK, sales and service operations are handled by McCormick companies, while in Germany, Italy and Spain, these functions are performed by dedicated McCormick staff attached to Landini companies.

There are new distributors throughout Scandinavia, the Benelux countries, Switzerland and Portugal, as well as in New Zealand and Australia. Moreover, McCormick is confident of entering the vast US market before long, as well as Japan and some other Asian states.

In Canada, where McCormick tractors are being sold through the local Landini company, the fledgling Buhler Versatile operation at New Hollands former Winnipeg plant has been having a harder time of things.

Shortly after acquiring the business, the company decided changes in employment terms and working practices were needed to improve cost-effectiveness in todays increasingly competitive tractor market. Predictably, perhaps, the strong union faction within the workforce objected, and the result was a nine-month strike-cum-lockout.

Revenue losses

This not only cost the new business a lot of revenue from tractors it was supposed to be supplying to New Holland but also a substantial contract to build New Hollands TV140 Bi-directional tractor. It also cost Buhler some $23m in fines and compensation when a Manitoba labour tribunal ruled that the company had negotiated with its workforce in bad faith.

With its unionised labour having lost their jobs in return for a compensation package, Buhler Versatile is now starting again with a clean sheet and a fresh workforce. Output is slow as training and initial assembly experience are gained but will soon be ramped up as the company prepares to launch the ex-New Holland Series 70 and 82 4WD tractors in Versatile red and cream.

North America will be the first target but potential distributors in Europe and other parts of the world are already beating a path to the Winnipeg plant. Options are open, including going dealer-direct in some markets rather than teaming up with an international partner.

Just as CNH Global has been busy consolidating its North American operations, so AGCOs acquisition of the Hay & Forage Industries plant where Hesston balers and other grass equipment are made has provided an opportunity to centralise production and save costs.

Plant closures

Three far-flung plants have been closed and production of implements, US-market 4WD tractors and combines brought to the one location. From next year, AGCO will save more than $25m/year as a result.

In Europe, where AGCO makes 50% of its sales, the corporations tractor plant in France has won production of six-cylinder tractors destined for North America under the Massey Ferguson and Agco brands, while the Banner Lane plant in Coventry has been given $7m (£5m) for product development and a new research and development facility.

This will have come as a relief following speculation about Banner Lanes future in the face of high £ values against the euro. AGCO is easing the pain of manufacturing tractors in Europes most expensive location by sourcing more components from companies on the Continent that trade in euros.

The new R&D facility is very advanced, featuring hot and cold climate chambers to recreate the extreme temperatures in which tractors have to work, a stress testing centre and a vibration test rig that can shake the largest Massey Ferguson 8200 Series tractors to simulate a lifetimes work in the field.

Fendt is also central to AGCOs future sales, not only in Europe where the marque continues to vie with John Deere for leadership of its German home market but also in North America. Here, the Vario stepless transmission range has been introduced as a premium product for discerning farmers.

And the message is getting through. Although numbers are modest, AGCO says it is selling tractors at a 15-20% premium over Deere prices.

Capitalisation

Deere, meanwhile, has been making every effort to capitalise on the disruption and uncertainty surrounding the New Holland-Case merger. Advertising and promotional campaigns have emphasised the lack of mergers, major take-overs and name changes in its long history.

The result has been some substantial market share gains which Deere hopes to build on with its biggest product introductions covering tractors, combine harvesters, telescopic handlers and grass equipment.

It is also laying plans for future growth by increasing research and development spend while improving production efficiencies to cut costs. This will be the net result of a $127m programme of tractor production facility updates at Deeres Waterloo works in Iowa.

Moreover, Deere intends to hit competitors where it really hurts by getting into the spurious spares business. Having purchased Vapormatic, a UK-based world-wide distributor of replacement tractor and implement parts, Deere and its dealers can now sell spares to fit competitor tractors and implements and so eat into one of the remaining areas of true profitability in agricultural equipment sales.

Above: John Deere is stepping up development work on new products to increase commercial pressures on its rivals, while investing in North American factories to cut costs.

Left: AGCOs $7m (£5m) investment in new R&D facilities is a vote of confidence in the Massey Ferguson plant at Coventry. Facilties include extreme temperature rooms and rigs for vibrating and twisting 250hp tractors.

Below: The Doncaster tractor plant now operated by McCormick Tractors International continues to make Case-IH tractors for CNH Global.

McCormick also assembles four- and six-cylinder tractors carrying its own name at the Doncastor plant and (inset) has purchased the French factory that makes all the transmission and transaxle assemblies it needs.

New Holland Series TM tractors produced at Basildon look set to form the basis of a new generation Case-IH Maxxum with cab and technical features distinguishing the two lines.