Will CNH Learn From IH's Mistakes?

Will CNH Learn From IH's Mistakes?

If the new company formed by the merger of CNH Global and its parent company, Turin, Italy-based Fiat Industrial S.p.A., looks familiar to you old timers, it should. The major businesses of the new CNH Industrial farm equipment, construction equipment and trucks are nearly identical to that of International Harvester when it was the big dog of equipment and truck manufacturers.

While we covered the major impacts of the merger a few months ago in our Ag Equipment Intelligence newsletter, it deserves another mention now because CNH Industrial NV officially made its debut on the New York Stock Exchange yesterday. According to Zacks.com, the new company is aiming for an investment grade credit rating to attract more investors and tap the U.S. credit markets for more funds. At the same time, the company expects to lower its interest burden with easy access to the credit markets.

According to the presentation company officials have been making to potential investors during the past week or so, with the merger, CNH Industrial will be the fourth largest capital goods producer worldwide. Some 30 years ago, International Harvester was the market leader in each of the segments that CNH Industrial is now competing.

According to the company, with 24.7 billion ($33.4 billion at current exchange rates) in industrial revenues in 2012, CNH will trail only Caterpillar at €49.1 billion ($66.5 billion), Volvo ($46 billion), and Deere Co. 26.1 billion ($34 billion).

In addition to being #4 overall in capital goods, CNH Industrial says that it will be the global #2 player in ag equipment, global #2 in commercial vehicles and global top tier in construction equipment.

In our earlier coverage of the merger, George Russell, a former CNH executive, who worked both ag and CE sides of the business, and who is now executive partner with Currie Management Consultants, pointed out that for CNH Industrial to succeed, it must avoid the issues that led to the downfall of International Harvester.

He says a useful primer for CNH Industrial executives is the book A Corporate Tragedy: The Agony of International Harvester Company” by Barbara Marsh. It was published in 1985 just before Tenneco purchased International Harvesters ag division and merged it with Case.

Russell points to two excerpts from the book that CNH and others producing capital goods should post on their office walls. There was stiff competition from arch rival John Deere, bad relations with organized labor, and a pervasive, arrogant complacency within the company about its unsurpassable market dominance ... If we can learn from their mistakes, then the story of International Harvester is one of the great business lessons of all time.

Let's hope that CNH does keep IH's mistakes in mind moving forward. I don't know much about the truck market, but I do know that the top ag and construction equipment makers need all the good competition they can get.