The merger of CNH Global and its parent company, Turin, Italy-based Fiat Industrial S.p. A., goes beyond simply streamlining an unwieldy conglomerate. Post-merger, the newly formed company would be the world's third largest capital-goods company, according to Zacks.com. "The successful integration of both the businesses would fortify the combined entity to compete at the highest level in the capital-goods sector with adequate flexibility to pursue inorganic growth at opportune times."
The merger is also likely to sow the seeds of a similar endeavor by serving as a "technical blueprint" for the combination between Fiat and its Chrysler division in the U.S., according to Zack's.
"The prospectus for the new company does not make clear who CNH considers its number one or two capital goods competitors might be," says George Russell, a former CNH executive, who worked both ag and CE sides of the business, and is now executive partner with Currie Management Consultants.
"But the prospectus identifies the targets as 'U.S. capital goods companies.' We assume this means Caterpillar with $66 billion in 2012 revenues and Deere & Co., which had revenues of $36.2 billion last year. Combining all of its 2012 revenues, including farm and construction equipment, trucks and engines, CNH Industrial approaches Deere's level with about $34 billion in revenues."
A ranking global player competing in CE, trucks and engines is Volvo with $47 billion in revenues.
Strong Ag Position
With the combined sales of its Case IH and New Holland branded equipment, CNH is clearly established the second largest manufacturer of farm equipment in the world with $15.7 billion in revenues for year ended December 31, 2012. This still places it more than a few steps behind number one Deere, which reached $27.1 billion for fiscal year ended October 31, 2012. Nipping at both their heels is AGCO Corp. with $10 billion in ag machinery sales for the year ended December 31, 2012.
In his assessment of CNH's "longer view" approach, Russell says, "Overall, CNH Industrial has the scale and breadth to provide resources and diversity for long-term sustainability."
"Deere is the global market leader in farm equipment and continues to earn a predominant share of its returns from North American ag. Its CE business is basically only in North America where, in order to compete successfully, they are heavily invested in distribution through the Nortrax organization. Its components business is a good contributor to the bottom line," he says.
AGCO, on the other hand, "is a pure ag play and has deepened its commitment to this sector with the GSI acquisition in grain handling."
Emphasizing Market Share
Based on what Ag Equipment Intelligence is hearing from green and red dealers, Deere and Case IH are currently engaged in a knockdown, drag-out battle for market share in North America, in some cases sacrificing profit margins for unit volume. With the continuing boom in big farm machinery - both row-crop tractors and combines - the two are attempting to further increase machine population in all major ag regions in anticipation of a slowdown that will eventually impact the overall industry.
Jim Walker, vice president of Case IH North America, confirmed the push for increasing market share in an August 2011 interview with Ag Equipment Intelligence. At the time he said that Case IH would continue pushing its dealers to focus on increasing their machine population along with market share. "We'll continue to emphasize the importance of building machine population," he said. "The more they can get out there from the standpoint of product range, the more they'll put themselves in a position to improve absorption rate and to handle any downturn in new equipment sales."
Walker said building machine population and market share go hand in hand in strengthening a dealer's position in his sales area. "Machine population is the consistent buildup of machines year after year, which increases a dealership's total penetration. Market share represents a point in time during a defined period.
"Market share is important because that's how a dealer builds his accumulation of product and population," he said.
Overall, says Russell, CNH Industrial is has a better spread of business activities globally. "With the exception of trucks in North America, the new company has significant footprints for all products in all regions and a more diverse product portfolio, which includes farm, construction, truck, engines and powertrains.
Its business model of portfolio management says that when one business is down, another well performing business will continue to fund growth and development. So, for the long term, dealers should expect that CNH Industrial should be competitive in all segments whether their industry and market is up or down," says Russell.
Reducing Dual Branded Stores
He also adds that dealers can expect growing pressure to reduce the number of "dual branded" Case IH and New Holland dealerships. "The organization changes that occurred in 2005 when Sergio Marchionne arrived and created the global brand presidents position will continue in the new CNH Industrial organization," says Russell.
In its prospectus, the company says, "Consistent with its brand promotion program, CNH generally seeks to have dealers sell a full product range. Typically, greater market penetration is achieved where each dealer sells the full line of products from only one of the brands [Case IH or New Holland ag and CE] ... Exclusive, dedicated dealers generally provide a higher level of market penetration."
CNH's push to minimize dual branded dealerships was also acknowledged by Walker in that 2011 interview. "We certainly are not going to disrupt current business that's out there with our dealers who happen to have dual brands in the same building," he said.
"New Holland and Case IH have distinct drivers in the marketplace, and there's more product range differentiation every year between the brands. As we go forward, we would like to see individuality of our dealers in pushing those products and those brands."
The full report appears in the July 2013 issue of Ag Equipment Intelligence.