5 July 2002

MF closure will hit UK hard

By Peter Hill

THE closure of the Massey Ferguson tractor factory in Coventry next year will make a big dent in Britains positive trade balance in agricultural machinery.

As AGCOs biggest manufacturing facility, with more than 85% of production exported, the Banner Lane plant has made a substantial contribution to UK tractor and engine exports, which topped more than £1bn in 1997 and 1998.

These have helped maintain the agricultural engineering industrys position among the countrys leading export earners, with a positive trade balance that peaked at £981m in 1998.

But AGCO says it is paying too big a price for making a large part of its range in the UK, where the strong £ has squeezed margins on products that still have to be priced competitively in world markets against those made in lower cost locations.

In October last year, AGCO chairman and CEO, Robert Ratliff, repeated earlier warnings that the Coventry plant was operating at a serious currency disadvantage, especially against k-based manufacturers.

The factory was already switching from UK to Continental component suppliers to ease this cost and Mr Ratliff held out some hope that more drastic measures would not be needed.

"Remember that in the 1990s, the UK was the cheapest place to manufacture and, hopefully, that will be the case again."

But time and investment funds have now run out, as the AGCO board sees little prospect of a quick decision on the k nor any likely upturn in sales prospects for the size of tractor produced by the factory.

The assembly lines will close towards the end of the year, says AGCO, and production of transaxles will stop by June next year.

The MF4300 series will be replaced by a new range, assembled alongside MF6200 and MF8200 series tractors – plus their AGCO and Challenger branded equivalents – in Beauvais, France. They will be based on a new transaxle from the GIMA drivelines joint venture with Renault.

Production of MF200 series tractors and the many thousands of knock-down kits produced for Massey Ferguson licensees around the world will transfer to an AGCO plant in Brazil where similar tractors are already made.

Apart from its competitive position, shifting sales patterns and an overall decline in tractor unit sales worldwide are also blamed for Banner Lanes demise. For one thing, farmers continue to trade up to more powerful tractors than the Coventry plants 50hp to 116hp models.

Moving production to Beauvais will remove much of the currency exchange burden, bring economies of scale from sharing more components with the 85hp to 135hp MF6200 series, and increase utilisation of the plant to near 100% of its single-shift capacity.

AGCO expects to recoup most of the Banner Lane shutdown costs by selling the site and will thereafter see savings of $20m to $25m a year.

Closure of the Coventry plant, which AGCO says is running at 50% of capacity, completes a worldwide programme to rationalise production facilities in line with current and future demand.

Last year, three plants were closed in North America, with all implement and combine assembly consolidated into the Hesston factory in Kansas. Final assembly of rigid chassis wheeled tractors destined for that market moved to Beauvais.

The loss of export earnings and the cost of importing tractors formerly produced in Coventry, will accelerate the slide in the UK agricultural engineering industrys trade balance, which last year fell 27% to £386m.

Industry experts forecast a drop to less than £200m this year, with the likelihood that Britain will become a net importer of agricultural machinery for the first time once the full impact of the Banner Lane closure is felt. &#42

Massey Ferguson tractor production at AGCOs biggest plant will come to a halt at the end of this year. The Banner Lane plant launched Harry Fergusons revolutionary "Fergie", which became the forerunner of all modern tractors.