AGCO says it’s “late to the party,” but like the other major ag equipment makers, it’s urging its North American dealers to grow their network of stores.
In an interview with Ag Equipment Intelligence on June 7 during the grand opening of its newly expanded tractor plant in Jackson, Minn., Martin Richenhagen, chairman and CEO, and Bob Crain, senior vice president and general manager, AGCO North America, said they have begun urging dealers to grow their operations by becoming multi-store organizations.
Referring to the efforts by competitors Case IH and John Deere to consolidate their dealer network to fewer owners, not necessarily fewer locations, Crain says, “As a rule of thumb, it’s happening and we’re pushing it. It’s the way the North American industry is headed. I’ll have to say that we’re late to the party. Some of our competitors started this 15 or 20 years ago. We started really having intense discussions with our dealers about a year and a half ago. By intense, I mean these have been difficult, emotional discussions, as you can well imagine. I truly believe, especially here in the heartland, from a long-term perspective, dealers will need be multi-store operators to not only survive, but to survive and prosper.
“I believe some single-store operations are sustainable. I know firsthand in the southeast and some other areas single stores can succeed. But in pure play agricultural markets, like the Midwest and western Canada, it’s a fact; our dealers need to step it up,” Crain says.
Richenhagen explains that when Crain joined AGCO from New Holland five years ago the equipment manufacturer had between 1,600 and 2,000 dealers. “Our strategy back then was to add 200 new dealers to our network each year because we believed it would create some initial business. What we did by that was to inflate our franchise value. One of the most important initiatives we handed Bob was to reorganize and develop stronger dealers,” says Richenhagen.
“Today, we have about 800 dealer-principals, and we reduced the total without any noise or major legal issues, which is different from some of our competitors who went to court in almost every case.”
Crain says AGCO decided not to take a strong-arm approach in its dealer consolidation efforts. “I truly believe in having very direct, transparent discussions — big boy, big girl discussions — with our dealers on why we need to have a much larger network of multi-store operators, a higher level of professionalism and better capitalized dealers than we’ve had in the past.”
Five years ago, Crain says, AGCO had about 1,600 North American dealers producing $1.2 billion in sales. In 2012, the company is expecting to bring in $2.1 billion with 800 dealers.
“Do the math,” says Crain. “We’re trying to help our dealers to be much stronger, professional and profitable than what they were in the past.” He clarified that while AGCO’s current footprint includes 800 dealer-owners, they operate far more stores.
Crain says AGCO has initiated discussions with dealers in regard to consolidation. Among the criteria for determining the best fits, he says, are market density, AGCO’s coverage in individual states and sales territories, dealer capitalization, market share and succession plans.
At the same time, he says, dealers have approached AGCO communicating their desire to grow their networks. “They’re being proactive and saying, ‘Help me grow AGCO.’ So we’re approaching neighboring dealers for them and working with them to facilitate initial discussions. And we’re part of those discussions. At the end of the day, it’s the dealers who have to put the deal together. But, again, we are absolutely not strong arming them into doing anything.”
Optimal Dealer Size?
Crain says questions about what’s optimal for dealerships, in terms of number of locations, is impossible to answer. But in terms of annual revenues, he says, to be sustainable going forward, the minimum for dealerships to be viable, dealers will need to reach $25-30 million per store.
“Our dealers are getting close to this, but in the medium term, we’ll be looking at $50 million per store in the next 3-5 years.”
When it comes to the kind of market share numbers the red and green guys are pushing, Crain says AGCO is not in a dominant position.
“It’s not negotiable, we have to grow, but we’re not necessarily pushing market share.”
“We’re not the number one or number two player in the North American market, but we have to grow and to do that is a simple thing called market share. But we’re not stressing market share per se. It’s about growing the business, if that equates to market share, that’s great. But how we’ve been successful the past few years is we sold 10 of these units last year, we’re going to sell 15 this year, and than 20 the next year,” says Crain. “It’s not that our market share on that unit is 10% and we’re going to grow it to 12%. This isn’t the way we’re approaching it.”