With Finning International’s acquisition of Kramer this past May, the fraternity of Caterpillar construction equipment dealerships in Canada became even more elite. This move leaves only eight CAT dealers operating 100 locations throughout the entire country. Nearly all of these are owned and operated by only three dealers, Finning and Toromont, both of which are publically held, as well as Hewitt Equipment.

Is what’s happening in Canada with the consolidation of CAT’s dealers — often referred to as the “CAT Model” — a foreshadowing of what lies ahead for farm equipment dealers in North America?

Kramer, which had all of the CAT and Claas business in Saskatchewan, began its exit from the equipment business last year when it announced it would no longer carry Claas farm machinery. The dealer group made the announcement in the spring 2014 issue of Kramer News. “After 2015, Kramer Ltd. will no longer distribute Lexion combines, Challenger tractors, RoGator and TerraGator application equipment and Bourgault seeding and tillage equipment through our dealership network,” it said. The company had carried ag equipment for 15 years. Its decision forced Claas to open its own stores in the province of Saskatchewan, which it announced in June 2014.

This proved to be only a prelude to Kramer’s complete exit from the equipment business. With its sale of its five CAT locations to Finning, Kramer ended its 70 years of selling and servicing construction equipment. Finning paid about $230 million for Kramer, which was generating about $275 million in annual revenue in recent years with 475 employees. The dealership group has parts, sales and service locations in Estevan, Kindersley, Battleford, Regina, Saskatoon, Swift Current and Tisdale in addition to CAT rental stores in Regina and Saskatoon.

Fewer & Fewer

According to a Canada Research report produced by Raymond James, last December, before the acquisition, Finning had 51 Canadian locations: 23 in Alberta, 25 in British Columbia, 2 in the Northwest Territories and 1 in the Yukon. Toromont had 24 locations: 5 in Manitoba, 3 in Newfoundland and Labrador and 16 in Ontario. Hewitt Equipment had 2 in New Brunswick, 3 in Nova Scotia, 2 in Prince Edward Island and 9 in Quebec. The remaining 5 dealers, including Kramer, operated only 9 locations.

In his Canada Research report, Ben Cherniavsky, analyst for Raymond James, asked, “why there couldn’t eventually be just one CAT dealer for all of Canada? In other words, could Finning one day — presumably after they consolidate the West and Toromont consolidates the East — buy Toromont? Or could Toromont possibly one day buy Finning? Speculation about this kind of blockbuster transaction goes back as long as we can remember (i.e., to at least the late 1990s).”

While speculating about a possible scenario that would lead to a single dealer handling all of the CAT business in Canada, Cherniavsky finds the possibility highly unlikely. While there are plenty of precedents for a country the size of Canada to be covered by one CAT dealer (Zeppelin, for example, has all of Germany), the important question to ask about this particular proposition is,” says Cherniavsky, “What’s in it for CAT?”

The scenario would involve folding Hewitt into Toromont and Kramer into Finning, which the analyst says may facilitate economies of scale and resolve some succession issues, “But putting together Finning and Toromont — two public dealers that already rank among CAT’s largest distributors — is a very different matter.

“We think CAT would be very reluctant to see this happen unless the performance of one of these two dealers fell completely off the rails, and CAT needed the expertise of the other dealer to resolve the problems. Given its historical track record, this sort of rescue scenario seems very unlikely for Toromont, in our view. As for Finning, it seems a lot less likely today than it did a few years ago, but again this highlights the importance of management’s ‘operational excellence’ agenda,” says Cherniavsky.

It’s also highly unlikely that the farm equipment industry will follow such a dramatic path even though consolidation of dealers continues at a fairly brisk pace. While construction sites tend to move from site to site, farm fields don’t. As a result, farmers tend to be more sensitive to their dealers’ location. But, then again, you never know.