First published June 15, 2010
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A more apropos reference for this group may be “specialty equipment” dealers — or as they like to be called, “independent” dealers.
Maybe they prefer to be called “independents” because at some point, all of them were linked to one of the full-line machinery manufacturers — AGCO, Case IH, John Deere, New Holland. But for reasons very clear or not so clear to them, the bond was broken. Either the dealer walked away from the relationship or had to have the major’s sign wrestled from his hands. In most instances, it was a painful separation.
The full-line manufacturers have made it abundantly clear that they are, and will continue, consolidating their distribution channels. There will be fewer, but larger, dealership groups serving farmers across North America.
At the end of 2009, the number of dealer terminations by John Deere alone demonstrates how dramatically the rate of cancellations have escalated. There are no indications that the trend will slow down or level off any time soon. More dealers will be looking at life after the majors.
As in any squabble, there are two sides to the dealer-consolidation story. These have been examined time and again in the pages of Farm Equipment.
Top Challenges of Running An Independent Dealership
- Financing Sources (41.6% report major difficulty)
- Manufacturer Selection (34.7% report major difficulty)
- Lost Parts & Service Revenue (29.2% report major difficulty)
- Advertising Promotion (16.7% report major difficulty)
- Administrative Resources (MIS, website, etc.),(12.5% report major difficulty)
- Employee Training (8.6% report major difficulty)
The purpose of this special report is not to examine the “whys” of dealer consolidation, but to layout the “hows” of moving on after the breakup. The aim is to show dealers that are — or will soon be — confronting this circumstance, that there can be life after the majors.
For this report, Farm Equipment editors interviewed several dealers who have been through the cancellation process — from receiving “the” letter to taking old signs down and hoisting new ones. We spoke with dealer consultants who specialize in guiding dealers in the development of business plans and executing exit strategies.
We surveyed shortline-only dealers to get their take on what their colleagues should expect as they move into the new world of retailing specialty farm equipment without the support or benefit that the full-line brands may offer.
Even one dealer association executive weighed in with his insights for Farm Equipment readers.
This report is built around a few fundamental, but essential questions that need to be asked — and answered — to set a course toward being a successful “independent” dealership. These include:
- What are the most difficult challenges farm equipment dealers will face in “going it alone,” and how will they navigate these challenges?
- What is the greatest mindset shift that must occur with dealer-principals and their employees as they move to an independent business model?
- What trends might be ahead with independent farm equipment dealerships in the years ahead?
As it all came together, it confirmed much of what we already knew about independent dealers. First, it demonstrated that this group is a tenacious lot, intent on succeeding.
“Right now we wouldn’t be interested in carrying any of the majors. Our philosophy is that you can’t handle 2 or 3 similar products and do justice to any of them. We’re dedicating ourselves to giving our all to our Kubota and the Vermeer lines,” says Jason Lane of Tri-County Power Equipment.
Second, they are adaptable to a rapidly changing business environment.
Stan Jackson of Jackson Consulting, with 40-plus years in the ag machinery business, may have described these dealers best. He says, “Those dealers who survive in a short-line mode are amazingly resilient people. They have my full admiration.”
And while these newly independent dealers, and those soon to be, may believe the grass is greener, redder or bluer on the other side of the fence, Jackson notes: “It’s fascinating that dealers who supposedly win at consolidation and purchase more locations have as much trauma as those who lose their major brand. It’s an interesting paradox that we end up posing almost the same questions you’re asking of independent dealers to those who are expanding.”
Following is what we’ve learned from the dealers who have and are going through the transition from selling one of the major brands of farm machinery to handling specialty equipment — and succeeding at it.
How Determined ‘Shortline-Only’ Dealers are Making It
These former mainline dealers offer practical advice to those who are starting over without a major equipment supplier.
Every farm equipment dealer who has experienced that face-to-face warning meeting with his or her major supplier or received “the” letter informing them their contract is being terminated, knows the feeling. Those of who have been through it describe a whole array of emotions, from rage to ambivalence. From, “I don’t deserve this,” to “Let’s get it over with.”
Regardless of whether having a supply contract cancelled was a surprise, expected or welcomed, it can be difficult for a dealer who wants to stay in the retail side of the ag machinery business.
If nothing else, those who have experienced it admit that, at some level, their pride took a pretty good hit. But the most resolute among them learned to put their egos aside quickly and move on to “Plan B.”
Few of the farm equipment dealers who were interviewed for this report were really surprised when the “letter” finally arrived informing them they would no longer be selling the full line of equipment their dealership handled for years, decades or maybe even generations. That is if they hadn’t already walked away from their dealer agreement with their major supplier.
Schmitt Implement in Holy Cross, Iowa, is now a Versatile tractor dealer after Deere & Co. nixed its contract recently with the longtime dealership. “Any problems that we have are taken care of,” says owner Willis Schmitt (left), pictured with his son Jack.
But Terry Townsend and his partner at Panhandle Implement, Brian Farney, were genuinely caught off guard when they found out officially in September 2008 they would no longer be selling Case IH equipment.
Interviewed for this Report: Terry Townsend
Panhandle Implement Co., Perryton, Texas
Full-line History: Case IH dealer until cancelled in September 2008.
2009 Revenues: $2.6 million ($1.8 million wholegoods, $630,000 parts, $200,000 service, $17,000 other).
Employees: 11 (soon to be 12)
Shortlines: Kubota, Woods, Vesatile, Equipment Technologies, Rhino and Sunflower.
“We were enraged at first, but in time we looked at it as a blessing,” says Townsend. Like many dealers who have been cancelled in recent years, Townsend said market share was cited as the reason for canceling the Perryton, Texas, dealer’s contract.
“We received no prior warning, just the letter that said our contract with Case IH would not be renewed. They wouldn’t even give us a parts contract that would allow us to take care of our customers. We were doing between $100,000-$200,000 a year in parts and the next closest Case dealer was 49 miles away,” he says.
The company did give them a year to phase out of the business, Townsend says. “That helped but it didn’t do much for our pride.”
Failure to achieve a prescribed level of market share was also the reason New Holland gave to Tri-Country Power Equipment of Jefferson City, Tenn., when it was dropped.
Interviewed for this Report: Jason Lane
Tri-County Power Equipment, Jefferson City, Tenn.
Full-line History: New Holland dealer until
cancelled in 2008.
2009 Revenues: $4.1 million ($3.4 wholegoods, $525,000 parts, $200,000 service, $12,000 other).
Shortlines: Kubota, Pug, Woods, Simplicity
Jason Lane, president of Tri-Country, says the manufacturer did give them a heads up, but he believes it was only a courtesy call.
Despite being one of New Holland’s top-producing hay tool dealers in the state, the manufacturer was only concerned about tractor sales, Lane says.
“It was 2008 and one of the best hay tool sales years we ever had, but they didn’t take any of that into consideration. They gave us a year of what they called ‘cure’ time to improve our market share for tractors.
“We sat face to face with them and they asked us what they could do to help get our market share up,” Lane says. “We told them, but that’s as far as it went. We could see the writing on the wall. They became very hard to do business with and their product reliability was slipping anyhow, so we just decided to move on. We were also selling Kubota tractors and we knew we could make it with them.”
Interviewed for this Report: Doug Spillman
Hanson Equipment Co., Lockhart, Texas
Full-line History: Originally a White Tractor dealership. Acquired by Doug Spillmann in 1996, cancelled by AGCO in 2004.
2009 Revenues: $1 million plus (30% wholegoods, 50% parts, 20% service)
Shortlines: SAME Deutz-Fahr, Bush Hog, Gehl, Rhino, Vicon, Zetor and Durabilt.
The biggest hit the dealership took was losing the parts business. “There’s a lot of old Ford product out there. That was our biggest loss from the cancellation.”
The story was much the same for Doug Spillmann, owner of Hanson Equipment of Lockhart, Texas. The dealership has been around since 1947 and handled White tractors before it became an AGCO dealership. Spillmann became the third owner of the business when he acquired it in 1996. AGCO cancelled his contract in 2004 for reasons still a mystery.
“Actually, I really don’t know the reason they cancelled me,” he says. “I guess it might have been for performance. It was a real vague letter they sent and I didn’t care to question them about it.”
By the time Hanson Equipment received its cancellation notice, it was also carrying Deutz-Fahr and Zetor tractors, which had become a much better fit for his rapidly changing customer base, he says.
Spillmann called the split from AGCO “a breath of fresh air” because it allowed him to return a lot of obsolete parts that he would probably never have been able to move. “There’s been an enormous customer shift in our area during the last 10 years or so from big row-crop farming to hobby farms and cow/calf operations,” he says.