The news coming from the major equipment brands in February strongly suggests the equipment market in 2015 is shaping up to be very different than the one we’ve experienced in the past five years.
The sales outlook for new equipment this year isn’t all that rosy. In a speech to investors at a February shareholders meeting, John Deere’s CEO, Samuel Allen, reported that the brand saw a fall of 5 percent in overall sales last year, which resulted in a drop in revenue of 11 percent. But the worst is yet to come. “As for 2015, it is shaping up to be a challenging year,” he said. “Our forecast calls for sales to be down 17 percent, or close to (U.S.)$6 billion.”
Information provided by Deere on a shareholders conference call on February 25th says its Ag and Turf Division’s retail sales in Canada and the U.S. are forecast to stumble by as much as 25 to 30 percent this year.
The forecasts coming from the others in the Big Four Brands aren’t much better.
In its monthly sales report for January, AEM (the Association of Equipment Manufacturers) reported 2015 started off with sales of new tractors and combines in Canada falling dramatically. Four-wheel drive tractor sales dropped 69 percent. Combines 77, and total tractors sales slumped 13 percent compared to January 2014.
Those numbers represent only one month out of 12, but the numbers are a bit startling, nonetheless.
Now with a large volume of used equipment on the market from all those years of hyperactive new equipment sales, the industry also has to focus on finding homes for all those late-model, low-hour trade ins cluttering up many dealer lots.
To help with that, all the major brands have now adopted the used-equipment warranty idea.
AGCO, Case IH and New Holland all announced the launch of their Certified Pre-Owned programs this month, matching the one Deere debuted in early summer. And also in February, Deere expanded its program to include sprayers. Initially, only high-horsepower tractors and combines qualified.
Case IH and NH, offer a one-year, $0 deductible program, also covering high-horsepower tractors and combines. AGCO’s program now covers the widest range of products, providing a one-year warranty on qualifying high-horsepower tractors, combines, windrowers, large square balers and sprayers.
The softening of agricultural commodity prices, which has reduced farm incomes globally, is considered to be the primary culprit responsible for the slumping sales of new equipment. Of course, there are other factors, too. Geopolitical instability in Eastern Europe and Russia is also stifling sales in a region where all the brands saw tremendous growth potential. China’s overall market growth, while still phenomenal, has slowed, too.
Having said all that, all the brands racked up sales in 2014 that must still be considered relatively strong from a historical perspective. John Deere, which owns the largest share of the North American market grossed U.S.$ 36.1 billion. Even with the projected decline for overall sales in the near future, that will still leave the brand with a healthy income.
To keep corporate shareholders optimistic, there is now one word which seems to figure prominently in the messages major brand CEOs are sending out. That word is “longterm”. Generally, they say, the future looks bright for equipment manufacturers over the long haul. To emphasize that, Deere’s Allen added in his speech that the company still thinks it can reach its goal of bumping total worldwide sales to U.S.$ 50 billion—in the longterm.