Whether or not they agree with the changing business model or if they anticipated the transformation it might bring to their business, veteran farm equipment dealers say they haven't felt the impact of equipment shortages like they experienced this year since the 1970s. And most, like Dennis Jones, see little relief in the short-term.
"This is the worst I have seen in 30 years," says Jones, chairman and general manager of Atlantic Tractor in Queen Anne, Md. "It will end as all trends do, but not in the next year or two."
And even before many dealers digested the full impact of machine shortages during the past year, they're being told to cover their heads for the next round that could be as bad or worse in 2009.
More of the Same
Mark Foster, vice president of ag products for Birkey's Farm Stores, Rantoul, Ill., echoes Jones' memories of the last, big farm equipment shortage as well as his vision for the next few years. "Availability of equipment is the worst it has been since the mid-70s. Tractors and combines are sold out for model year 2008 and we've been told that they'll be on allocation for 2009. As long as prices and demand stay where they are, this will continue for the foreseeable future."
Dennis Wagner, sales manager of MV Equipment of Sterling, Colo., isn't expecting '09 to be any better than this past year. Moreover, he sees the "perfect storm" of economic and market factors that led to the shortages in 2008 only creating more discomfort for sellers and buyers alike. For him, next year is coming on fast.
"It sounds like by the end of August 2008, most major pieces of equipment will be sold out for 2009. Combine this with the shortages of tires and components and manufacturer-promised ship dates continue to be pushed back 2-4 weeks at a crack. It's going to end up putting both the customers and the dealers behind the eight ball," he says.
"I see this trend continuing as long as commodity prices stay high, along with the weak dollar and strong foreign demand."
Despite an exchange rate that favors exporting products beyond U.S. borders, Canadian dealers say they're sharing in the same equipment shortage challenges as their U.S. colleagues.
"It's been 25 years since we've seen shortages like this or such long lead times for equipment delivery," says Tim Young, general manager of Young's Equipment in Regina, Saskatchewan. "The situation will continue as long as we have strong commodity prices and multiple sources of demand for those commodities."
Structural Changes Underway
Even if the current scarcity of equipment ultimately turns out to be a short-term phenomenon, David Watson, president of Watson's Inc., Hermitage, Pa., fully expects the structural changes of how he does business to be permanent.
"The supply of machinery is as tight as it has been at any time since the early 1970s," he says. "Yes it is temporary and yes it is permanent. Suppliers will increase capacity, but they'll do it cautiously because they find lower inventory is profitable even if it costs them a few sales.
"The weakness of the dollar is going to cause them to increase supply to other countries faster than in the U.S. Demand is going to come and go as customers react to constant changes in the pricing of what they sell and what they buy," says Watson.
A Nebraska dealer believes the equipment situation this year is a reflection of what he saw back in the late 1970s, but the shortages are the result of different forces. "Back then, we exceeded production capabilities, but today we're exceeding available materials at stable costs both at home and overseas. Our U.S. manufacturing infrastructure is only a fraction of what it was 30 years ago."
Based on his experience from 3 decades ago, Dick Simon, GM & president of Maize Corp., Maize, Kan., sees a more ominous trend developing in the wake of the current equipment crunch - and offers a word of warning to his fellow dealers.
"Just remember the same circumstances took place in the late '70s and look what happened in 1980 through 1985," says Simon. "A lot of people went out of business. The farmer is in a dilemma right now. He has some money but he is looking at fuel, fertilizer and seed costs, let alone the cost of new equipment that have all gone through the roof.
"What will happen when the money from the stock market pulls back, the government money dries up on ethanol and farmers get a few good crops? Anyone who was in this business in the late '70s and early '80s should be sitting on their cash right now because of what they went through then. The prices we're getting today are mostly generated because very few us have anything to sell."
Dealers Weigh Risks of Keeping Customers Happy
With a lack of new equipment to sell, some dealers are taking a hard look at what it might take to keep customers happy and coming back. Some of the options are risky, particularly in today's volatile environment.
Duane Wallin, general manager of Colorado Equipment, in Greeley, Colo., says early orders can put dealers in a difficult position. He believes the major suppliers don't always make pre-selling a simple proposition.
"The danger in ordering and trading a year out or more is trying to determine what trade-ins will be worth 12 months down the road. Or, what if a customer, because of adverse weather conditions, cancels his order? Will the supplier monetarily penalize the dealer if the original customer backs out of a retail and we sell it to a different customer? This is a big problem."
Trying to maintain some semblance of inventory in the current environment can also come with a price, according Gary Vavrina, general manager of Vacin Inc., Clarkson, Neb.
"With the current high demand for new equipment, the past 12 months have been unbelievably difficult, not only in securing orders for sold equipment, but getting stock for inventory," says Vavrina.
"We're already out to late fall and winter on many new John Deere large-frame tractors. The only real means of securing inventory for stock is to purchase it without terms, which creates higher demands for cash and/or increased floor plan interest expense."
Aware of the difficulties of buying equipment for inventory without pre-sells, some dealers have taken on the risk rather than losing sales because they didn't have machines on hand.
"Customers are leery of the economy and are not ramping up," says Allan Perry, vice president of One Stop Equipment in Ramona, Calif. "We're getting inquiries, but no early orders. We decided to take the risk and added stock to our current inventory."
Likewise, Young of Young's Equipment in Saskatchewan, would rather have equipment available than to force customers to wait or look elsewhere.
"We ordered heavily and gambled on the market. We also went out and bought incremental units at auction to meet our anticipated shortfall," he says.
With equipment for retail taking priority over machines for inventory, Jim Collins, vice president, GVM West, Bellevue, Ohio, is glad the dealership planned ahead, but found he needed to share equipment with other dealers in need.
"We ordered heavy to make sure we had product to sell. Sharing floor-planned equipment between dealers can be a challenge. But if we don't let it go, we have to settle for it. This makes good business sense for the manufacturer, but at times it can punish the dealer that planned ahead and ordered for stock. All in all, everyone has worked well together, and our area manager has worked hard to help everyone out."
Shortage of New Improves Turns, Margins on Used Machines
As the saying goes, "One man's junk is another man's treasure."
Confronted with their inability to procure new equipment, dealers report that customers were often willing to settle instead for good, used machinery. For many dealers, this helped reduce the number of lost sales that may have occurred, while improving turns and, in some cases, margins.
"The real problem with not being able to get new units to the customer is the delay it caused in getting our hands on his used," says Mark Foster of Birkey's Farm Stores. "Customers have been grabbing good used equipment up as fast as it comes in."
Mike Meth of Colorado Equipment, Greeley, Colo., adds, "The problem with lack of new equipment availability actually increased the used market margins for us."
And Dennis Wagner, MV Equipment of Sterling, Colo., reports, "We could have sold about 20% more new equipment, if we had it. The positive side is that it helped us keep our used inventory down and increased our turns."