“Management will generally save themselves into bankruptcy rather than marketing themselves into prosperity…”

While last month’s column focused on some of the ups and downs that afflicted the agricultural equipment industry over the past 40 years, this column will take a look at what one can expect over the next several years. But first, it should be apparent after reading the previous column, that one of the primary drivers for the demise of manufacturers during the aforementioned time period was their feckless hiring of top management that were either devoid of pertinent and relevant experience, or their background was from the financial side of the business. Concerning the latter, when that is the case, management will generally save themselves into bankruptcy rather than marketing themselves into prosperity.

As I have written previously, one has only to look at the management trajectory for the industry leaders in both the agricultural and construction equipment industry to ascertain why they have been successful and others have failed. In both cases, their top management arrives at their positions after years of “field” experience where the rubber meets the road. While there is no mistaking that they are bureaucrats, they nevertheless assume their position knowing the nuances of dealership management as well as the vicissitudes of corporate bureaucracy. Going forward, dealers should be concerned about any vendor they represent whose top management team is not built on years of direct management and marketing experience.

It is estimated that approximately 50% of the dealers went out of business between 1980 and 1990. While the economy may have been the ostensible reason for such massive dealership failure, the “real” reason in many instances was the dealer’s inability or unwillingness to make the requisite financial and operational changes necessary in an economic downturn. The same will be true going forward.

The downturn presently afflicting the agricultural equipment industry is going to be worse than originally expected and last longer than originally thought. Dealers must, that is MUST, have a plan in place to reduce inventory, especially used equipment, as well as a concomitant plan to significantly reduce dealership expenses.

What makes expense reduction particularly vexing is that 55-65% of dealership expenses are payroll related and many dealers are reluctant to let employees go. But reality dictates that if sales and margins are decreasing, then expenses have to decline as well. Exacerbating the problem is the fact that the biggest decline in sales over the next 24 months will likely take place in new equipment sales, and as a result, the dealership’s other income, or volume bonus, will decline precipitously requiring an even greater reduction in dealership expenses. Dealers unwilling to reduce expenses in a market of declining sales should seek an exit strategy immediately.

The same is true with manufacturers. Over the next few years, there will be a plethora of shortline manufacturers either closing their doors or merging with others to achieve the necessary economies of scale. Likewise, one of the major manufacturers will cease to exist in its present form as they neither have the management talent nor the financial wherewithal to weather a sustained downturn. This future sale or merger will follow the same pattern that was seen in the mid-90s when one conglomerate spun off their interest in their agricultural and construction entities. After a short time of being publicly traded, they then sought another buyer to deliver them from the quagmire of ineptitude where they had found themselves ensconced. The purchaser of this soon to be sold entity will be either one seeking an improved channel of distribution or one seeking to broaden their product line.

On a personal note, going forward, I plan on dedicating 100% of my time working with my present and future clients and seeing that they survive and prosper during these turbulent times. As such, “The Business of Selling” column comes to an end. In the very first column that I wrote for this magazine exactly 5 years ago I made the following pledges as it related to the column:

  • A pledge to never condescend to the reader;
  • A pledge never to patronize the manufacturer;
  • A pledge to write openly and honestly foregoing theory and sophistry; and
  • A refusal to “dumb down” the articles.

After 5 years and 40 columns I will let the reader decide if I have been true to my pledge. In the meantime, however, I would like to thank the staff of Farm Equipment as well as the readers of this column for their support and comments over the years. It has been a pleasure and an honor, to not only write this column, but also the other nearly 225 columns in other industry magazines dating back to 1993. Going forward, I wish each and every equipment dealer and their staff Godspeed on their journey to prosperity and tranquility.