Agco Revamps US Dealer Structure; Downgrades Small Operators
August 11 2009 - 12:37PM
Dow Jones News
Agco Corp. (AGCO), the farm machinery maker, is restructuring
its North American dealer program in an effort to boost business in
a market where it has struggled to make a profit.
The U.S. company has created a three-tier dealer system to
reduce its dealer-support costs, a move that could also help avoid
the messy battles that U.S. auto makers have had in trimming their
own dealer outlets.
Agco recently notified its 1,000-strong North American dealers
that they have been designated as platinum, gold or silver
dealerships, based on their historical sales.
"The way we used to deal with every dealer is we didn't
differentiate between the dealer doing $200 million a year with us
and the one doing $1 million with us," said Greg Peterson, director
of investor relations.
Agco won't say how many dealers are in each category, but
platinum and gold members will continue to receive in-person visits
from Agco's sales staff and more intensive training and support
services.
Silver dealers will be relegated to Agco's in-office sales
staff. Most of Agco's contact with these dealers will be conducted
over the phone, cutting costs to service lower-volume
dealerships.
The approach also avoids a potentially costly and lengthy battle
with dealers if the company had tried to cull its dealer network. A
variety of state laws protect franchise agreements, effectively
blocking companies that grant franchises from quickly rescinding
them.
Agco was assembled from a series of acquisitions during the
1980s and 1990s, leaving the company with a patchwork of dealers in
the U.S., some with overlapping sales territories.
Its dealers typically sell other manufacturers' farm or
construction machinery as well. The company's Challenger brand, for
example, is sold exclusively through dealers for construction
machinery manufacturer Caterpillar Inc. (CAT).
Agco is the world's third-largest farm equipment company by
sales, -behind Deere & Co. (DE) and CNH Global NV (CNH),
selling Massey Ferguson and Challenger tractors, Gleaner combines
and White planting implements.
Most of its income and sales come from Europe and South America.
North America has traditionally been its weakest market,
representing just 1.2% of operating income in 2008, despite
accounting for 21% of total sales.
Agco has been expanding its product line recently in North
America with more high-horsepower tractors in a bid to market more
higher-margin products. Industry analysts said Agco's performance
should be helped by concentrating on dealers with the ability to
purchase and sell large volumes of equipment.
"They definitely need better [dealer] distribution if they want
to do anything in the U.S. ," said Lawrence De Maria, an analyst
with Sterne Agee & Leach Inc.
But Lincoln Fraley, a Massey Ferguson dealer in Rushville, Ind.,
considers Agco's dealer strategy short-sighted. He said Agco
appears willing to sacrifice sales from small dealers instead of
making meaningful reductions in the company's overhead
expenses.
"They've got a car company mentality," Fraley said, referring to
the deep cuts in the number of dealers for General Motors Co. (GM)
and Chrysler Group LLC. "The dealer that sells one tractor to one
customer at a time is just as important as a dealer that sells 200
tractors."
Fraley, president of Fraley Truck & Implement Sales,
described his business as a small-volume dealership, but said he
did not know what designation Agco has assigned to the
business.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com