For the past 2 years, observers of the farm equipment industry have been saying that a shakeout among compact tractor makers in North America is not only necessary, but is on the way.
But besides the trauma caused by Farmtrac’s hasty retreat from the market in 2008, little has changed in this increasingly overcrowded segment of the ag equipment industry, despite the fact that unit sales of compact and utility-sized tractors have continued to decline every year since 2005.
While equipment dealers see a pick up in sales for 2010, no one expects a return any time soon to the phenomenal growth of small tractors in the 1990s through ’05.
At the same time, new players, like the South Korean brand, LS Tractor, have jumped into the fray, adding to the glut of manufacturers trying to claim a piece of the rural lifestyle market.
One tractor industry executive feels the small tractor market is primed for a consolidation or reduction in the number of players, with Branson, Montana and McCormick currently facing the most uncertainty and TYM, Case IH, LS Tractor, Kubota and Kioti dealing with their own financial or marketing challenges.
“The bottom line is that the industry is 60% of what it was 18 months ago. I continue to be surprised that everyone is hanging in there, plus the new entrants,” the executive said.
Consolidation Delayed. It appeared that joint-venture discussions between Montana Tractors and Branson Tractor’s parent company, Kukje Machinery of South Korea, would be a major step toward consolidation. But those were called off in January, with both sides blaming economic conditions in the U.S.
Newly appointed Branson Tractors President Young Nam said a new management team would be appointed to boost sales and improve customer service in North America as Branson starts its “new beginning.”
Montana announced last fall that it signed a supplier agreement with Kukje. This month, Montana would not comment about the status of that agreement, or the company’s intentions, except to say Montana and Branson “will continue moving forward individually.”
One industry observer says Montana and Branson stood to gain from working together, but separately, they face a tough road ahead. A large portion of small tractor sales comes from the rural lifestyle market and is based on discretionary income, which has disappeared with the recession.
“A marketing agreement with Montana could have given Branson a much needed expansion of its dealer base,” the source says. “Properly structured, Montana could have enhanced Branson’s position in the market. But under the circumstances, it would not be surprising if there are discussions with other parties.”
Falling Sales. Sales figures from the Assn. of Equipment Manufacturers (AEM) shows that compact tractor sales in North America (under 40 horsepower) have declined every year since 2005. And sales of utility tractors (40-100 horsepower) have fallen each year since 2007. Through 2009, sales of compact tractors and utility tractors in the U.S. were down 19.8% and 28.4%, respectively, compared to 2008. In Canada, sales of compacts were off 23.6% last year, compared to ’08, and utility tractors were down 18%.
After its annual survey of ag machinery manufacturers, AEM predicts “continued weakness” in North America for tractor sales in 2010, but the decline is not expected to be as steep as that seen in 2009. A rebound in unit sales of compact and utility equipment is forecast for 2011 and expected to continue into 2012.
For tractors in the 40-100 horsepower range, U.S. sales are expected to decrease 6% in 2010 and then gain 9% in 2011 and 8% in 2012, according to AEM. Canadian sales in the 40-100 horsepower range could drop 4% in 2010, but increase by 6% in 2011 and 7% in 2012.
Sales of under-40 horsepower tractors are expected to decrease 8% in the U.S. and drop 15% in Canada in 2010. For the U.S., 2011 growth of 8% and 2012 growth of 11% is predicted, and for Canada, gains of 4% in 2011 and 10% in 2012.
Dealers appear more optimistic about the timing of a sales recovery. In its 2010 Dealer Business Trends & Outlook report, Rural Lifestyle Dealer, a sister publication of Ag Equipment Intelligence, found that dealers believe that prospects for unit sales this year are much improved for compact and utility tractors.
More than 90% of North American dealers believe unit sales of utility tractors will be as good or better in 2010 than in 2009. Some 88.3% are projecting a recovery in the sales of compact tractors.