Pictured Above: Farm Equipment took Paul Wallem (l), 88, on a trip to Racine, Wis., and down memory lane. He was an executive at International Harvester before becoming a 2-store dealer himself for 17 years (his business survived a couple of years after the merger with Case in 1984). Wallem’s visit to the Racine Experience Center was his first visit back to the manufacturer since a “rough meeting” back in 1986.
Paul Wallem, Former International Harvester (IH) Executive (1956-98) & Retired Dealer-Principal (1969-86)
Scott Harris, Vice President, Case IH North America
Paul Wallem: I see many similarities between the early 1980s and today’s ag economy. There are valuable lessons to be learned from past unfavorable ag cycles.
Scott Harris: Some dealers went through these tough times, or their fathers did, so there’s a lot of value in understanding what took place. I keep in touch with several guys who led this organization through challenging times. We’re better prepared to come through the difficult cycle today because of what we learned from the past.
Wallem: I’ve walked into dealerships recently and couldn’t find anybody to talk to me. The parts man has his head in a service manual, no salesman was on the floor and I’ve had to walk out to the shop to find somebody to talk to. A prospect’s first impression is extremely important when they walk in the door. Dealers must remember that the customers are the reason for success — don’t get upset with interruptions. A prospect gets his first impression of the operation when he walks in the front door.
Harris: For sure. I understand you’d worked for IH and then became a dealer. Tell me about those days...
Wallem: Inventory control was one of the shortfalls of the disastrous IH strike. The company kept the factories going full blast from November 1979 until April 1980. This inventory buildup hit dealers hard as we didn’t need the equipment. Sales started plummeting in January 1980 when interest rates soared past 20%, the grain embargo with Russia hit and IH just kept on building more equipment. Once the strike was over, IH pushed us to buy more wholegoods because the company couldn’t afford to finance them. Over the next 4 years, I sold new tractors that were forced on me and I sold some at a $6,000 loss just to get rid of them. That was a huge IH mistake and it hurt dealers for a long time.
Harris: The decision to keep producing wholegoods and load up the dealer network wasn’t the right thing to do. Today, we look at both new and used inventories when forecasting retail needs. I think we’re doing the right thing for the right reasons to come through this current tough cycle, and to be prepared when the ag economy turns around.
“We’re better prepared to come through the difficult cycle today because of what we learned from the past…”
Wallem: Another thing from back then. Unlike many dealers, we did lots of equipment leasing and renting in the 1980s. When equipment came back to the dealership, our detail man spent a week making 2-3 tractors look like new. I look at dealer lots today and some quarter million-dollar trade-ins look terrible; doesn’t look like they’re reconditioning or cleaning up the used machines. When you were running the car dealership, Scott, I’m guessing you detailed most used cars?
Harris: Nearly all of them — except cars that didn’t clean up well, and those went right to auction.
Wallem: When I see dealer lots filled today, with $300,000 used combines, I’m glad I’m no longer a dealer. The risk is super high when dealers carry expensive used equipment that can just sit here and deteriorate.
Harris: Used equipment sales are a bigger issue in Canada now than in the U.S, but it’s improving everywhere. We keep a close eye on equipment inventory and sales, as they indicate the health of our dealerships, the industry and market potential. Some farmers who aren’t yet on board with the latest know-how can buy late model used machines equipped with fairly new technology.
Wholegoods sales are still important, but product support is the life blood of dealer profitability. We provide programming support for used equipment as well as support for reconditioning of used equipment. It’s important to move used equipment through the cycle to make room for the latest models ...
Wallem: Right, or else new equipment sales will stop.
Harris: More dealers are recapitalizing and investing in their facilities. Do you know where most of today’s enhancements are being made?
Wallem: In the shop ...
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Harris: Yes. Much of the new investment is going for expanding and improving service facilities.
Wallem: I never fell into the trap of laying off any of our 17 mechanics even in bad times, since the best service we could offer was critical for any chance of success. Other dealerships eliminated mechanics to cut costs; a move that killed their businesses.
Harris: Paul, you talked about your background in engineering, mechanics and the technical side of the business and then going to IH. There are dealers who’d hire you on the spot to be a service tech due to today’s technician shortage.
Wallem: That and the excellent relationships we had with our farmers were so important at our dealerships. We worked on handshake agreements in those days and treated them well.
Harris: At the end of the day, it’s the relationship between dealers and producers that gets it done.
Wallem: Another thing that was key. A farmer would send his wife into the dealership for a part and sometimes all the detail she came in with was “I need some kind of part for a tractor axle.” We had to be ready to figure it out and send her home with the right part.
Harris: A lot of big-ticket equipment is sold based on the service offered by the parts personnel. That support is critical.
“I think you guys are doing a better job relating to your dealers than your competition does. That’s your strong suit…”
Wallem: One of my good friends went 60 miles away from his neighboring dealer to buy a new combine. I asked why and said that their local dealership staff never carried heavy parts to the car for his wife. She didn’t like that. The other dealership always did take care of it, and guess what? They got the new combine order.
Harris: Little things matter, and it goes back to the relationships built in this business. If you do the right things for the right reasons in both good and bad times, you’ll be prepared to take advantage of the market upside when it arrives.
Wallem: Back to the motor vehicle world, I have friend who is both a GMC truck dealer and a Chrysler dealer. He hates talking to the GMC folks, but says Chrysler is much better when it comes to listening and dealing with his concerns.
Harris: We like to think we’re close to our dealers and also approachable.
Wallem: From visiting with dealers around the country, I think you guys are doing a better job relating to your dealers than your competition does. One thing I don’t think Deere is doing as well as you are developing relationships with those staff people within the group dealerships. That’s your strong suit.
Harris: I appreciate that; it varies from market to market. With new advancements in technology and sophisticated equipment, we must provide exceptional product support for the success of the producer, dealer and ourselves.