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Home , CNH Industrial, International Harvester, Nortrax

July 15, 2013 Vol. 19, Issue 7

• Buyer for MacDon? • Polish Ag Booming • Co. Store Comeback?

CNH Industrial Has Big Aspirations Following Merger The merger of CNH Global and its Strong Ag Position to earn a predominant share of its parent company, , -based With the combined sales of its returns from North American ag. Its Industrial S.p. A., goes beyond simply Case IH and New Holland branded CE business is basically only in North streamlining an unwieldy conglomer- equipment, CNH is clearly estab- America where, in order to compete ate. Post-merger, the newly formed lished the second largest manufac- successfully, they are heavily invested company would be the world’s third- turer of farm equipment in the world in distribution through the Nortrax largest capital-goods company, accord- with $15.7 billion in revenues for organization. Its components business ing to Zacks.com. “The successful year ended December 31, 2012. This is a good contributor to the bottom integration of both the businesses still places it more than a few steps line,” he says. would fortify the combined entity to behind number one Deere, which AGCO, on the other hand, “is a compete at the highest level in the reached $27.1 billion for fiscal year pure ag play and has deepened its capital-goods sector with adequate ended October 31, 2012. Nipping at commitment to this sector with the flexibility to pursue inorganic growth both their heels is AGCO Corp. with GSI acquisition in grain handling.” at opportune times.” $10 billion in ag machinery sales for Market Share. Based on what The merger is also likely to sow the year ended December 31, 2012. Ag Equipment Intelligence is hearing the seeds of a similar endeavor by In his assessment of CNH’s “lon- from green and red dealers, Deere serving as a “technical blueprint” for ger view” approach, Russell says, and Case IH are currently engaged the combination between Fiat and its “Overall, CNH Industrial has the scale in a knockdown, drag-out battle for division in the U.S., accord- and breadth to provide resources and market share in , in ing to Zack’s. diversity for long-term sustainability,” some cases sacrificing profit margins “The prospectus for the new says Russell. for unit volume. With the continuing company does not make clear who “Deere is the global market lead- boom in big farm machinery — both CNH considers its number one or er in farm equipment and continues Continued on page 2 two capital goods competitors might be,” says George Russell, a former CNH Industrial Revenues by Segment CNH executive, who worked both (in millions U.S. $) ag and CE sides of the business, and 2012 2011 now executive partner with Currie Management Consultants. Ag & Equipment (CNH) 20,972 18,152 “But the prospectus identifies & Commercial Vehicles () 11,659 12,492 the targets as ‘U.S. capital goods FPT Industrial (Fiat Powertrain) 3,832 4,207 companies.’ We assume this means Elimination & Other (2,780) (3,121) Caterpillar with $66 billion in 2012 Total for Group 33,683 31,730 revenues and Deere & Co., which had revenues of $36.2 billion last Trading Profit/Loss by Segment (in millions U.S. $) year. Combining all of its 2012 reve- 2012 2011 nues, including farm and construction equipment, trucks and engines, CNH Ag & Construction Equipment (CNH) 2,030 1,506 Industrial approaches Deere’s level Trucks & Commercial Vehicles (Iveco) 609 647 with about $34 billion in revenues.” FPT Industrial (Fiat Powertrain) 184 140 A ranking global player compet- Elimination & Other (128) (85) ing in CE, trucks and engines is Volvo Total for Group 2,695 2,208 with $47 billion in revenues. Source: company reports

The contents of this report represent our interpretation and analysis of information generally available to the public or released by responsible individuals in the subject companies, but is not guaranteed as to accuracy or completeness. It does not contain material provided to us in confidence by our clients. Individual companies reported on and analyzed by Lessiter Publications Inc., may be clients of this and other Lessiter Publications Inc. services. This information is not furnished in connection with a sale or offer to sell securities or in connection with the solicitation of an offer to buy securities. CNH Industrial Has Big Aspirations Following Merger...Continued from page 1 row-crop and combines — Industrial is has a better spread of branded dealerships was also the two are attempting to further business activities globally. “With the acknowledged by Walker in that 2011 increase machine population in all exception of trucks in North America, interview. “We certainly are not going major ag regions in anticipation of a the new company has significant foot- to disrupt current business that’s out slowdown that will eventually impact prints for all products in all regions there with our dealers who happen the overall industry. and a more diverse product portfolio, to have dual brands in the same build- Jim Walker, vice president of Case which includes farm, construction, ing,” he said. “New Holland and Case IH North America, confirmed the , engines and powertrains. IH have distinct drivers in the market- push for increasing market share in Its business model of portfolio place, and there’s more product range an August 2011 interview with Ag management says that when one busi- differentiation every year between Equipment Intelligence. ness is down, another well perform- the brands. As we go forward, we At the time he said that Case IH ing business will continue to fund would like to see individuality of our would continue pushing its dealers dealers in pushing those products to focus on increasing their machine and those brands.” population along with market share. “Typically, greater “We’ll continue to emphasize market penetration is CE: Miles to Go the importance of building machine While CNH Industrial will con- population,” he said. “The more they achieved where each tinue to build on its strength in farm can get out there from the standpoint dealer sells the full line machinery, it has some distance to go of product range, the more they’ll put of products from only to get to the number one or two posi- themselves in a position to improve one of the brands...” tion in construction equipment. With absorption rate and to handle any $3.8 billion in revenues for 2012, downturn in new equipment sales.” CNH is among the bigger players, but Walker said building machine growth and development. So, for the has miles to go to get anywhere near population and market share go hand long term, dealers should expect that industry giant Caterpillar. in hand in strengthening a dealer’s CNH Industrial should be competi- According to Boston Consulting position in his sales area. tive in all segments whether their Group data, the heavy hitters in the “Machine population is the con- industry and market is up or down,” construction equipment business sistent buildup of machines year after says Russell. include Caterpillar, Komatsu, Terex, year, which increases a dealership’s Dual Branding. He also adds CNH, Deere & Co., Volvo Group, IR total penetration. Market share repre- that dealers can expect growing pres- (Bobcat), Hitachi, Liebherr, JCB, Sany sents a point in time during a defined sure to reduce the number of “dual- and Zoomlion. period. ”Market share is important branded” Case IH and New Holland Maybe the biggest question about because that’s how a dealer builds his dealerships. “The organization chang- the new company’s strategy comes accumulation of product and popula- es that occurred in 2005 when Sergio in its CE business and the long-term tion, he said. Marchionne arrived and created the source for technology, says Overall, says Russell, CNH global brand presidents position will Russell. “The global agreement with continue in the new CNH Industrial Kobelco is winding down and CNH organization,” says Russell. Industrial will distribute directly to AEI Copyright Notice In its prospectus, the company Case and New Holland CE dealers Ag Equipment Intelligence is a says, “Consistent with its brand pro- in the Pacific region instead of copyrighted publication of Lessiter motion program, CNH generally seeks through Kobelco. Kobelco technology Publications. Copying an entire issue to share with others, by any means, to have dealers sell a full product will continue to be used for excava- is illegal. Duplicating of individual range. Typically, greater market pene- tors built in CNH plants in items for internal use is permitted tration is achieved where each dealer and North America, at least for the only with permission of the pub- sells the full line of products from near future in an arrangement similar lisher. Licensing agreements that only one of the brands [Case IH or to that of Deere and Hitachi in North allow distribution of Ag Equipment Intelligence to a specified number New Holland]…Exclusive, dedicated America,” he says. of readers are available by contact- dealers generally provide a higher Russell adds that Sumitomo is the ing Lessiter Publications at 262-782- level of market penetration.” supplier for Case heavy 4480, ext. 408. CNH’s push to minimize dual- Continued on page 8

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2 Ag Equipment Intelligence/July/2013 Corn Conditions Equity Firm Eyeing MacDon Acquisition Gives Clues to Yield According to a July 8 report from , TPG Capital is one of the final bid- Corn conditions during the grow- ders for MacDon Industries Ltd., the farm equipment manufacturer based in ing season is usually indicative of Winnipeg, Manitoba. that season’s yield. According to Citing three unidentified people familiar with the matter, Reuters Steven Fisher, analyst for UBS, on reported that the private equity firm is working on making a binding bid for average, in bumper crop years, over MacDon by the mid-July deadline for final offers. Reportedly, MacDon is look- 70% of the crop is reported to be in ing to sell itself for around $1 billion. “good” or “excellent” condition dur- MadDon describes itself as a family owned and Canadian-based manufac- ing the July, August and September turer of harvesting equipment specializing in the production of pull-type and growing season. Conversely, during self-propelled windrowers and specialty and pick-up headers for combines poor weather crop years less than for world markets. Its disc, auger and draper products are commonly used to 60% of the crop is reported to be in harvest a wide variety of cereal grains, oilseeds, grass seeds, rice, soybeans, “good” or “excellent” condition later hay, forage and specialty crops such as peas, lupins and lentils. in the season. Reuters also reported that “Other parties, including buyout firm “The separation in condition Berkshire Partners LLC and an industry player, have also been evaluating between bumper crops and poor potential bids for MacDon, although it remains uncertain whether a compet- crops typically occurs in the late- ing offer will materialize.” June and early-July growing season. In April, the news group broke the story that MacDon had enlisted We note that this season condi- Goldman Sachs Group Inc. to find a buyer for the company. MacDon began tion has been improving over time in 1949 as Killbery Industries Ltd., a manufacturer of agricultural equipment, rather than deteriorating, which including sprayers, grain augers, disc seeders, cultivators and manure spread- could be a positive for this sea- ers. It was renamed MacDon following the company’s acquisition by the son’s yield,” says Fisher. MacDonald family in 1971.

FARM MACHINERY TICKER (AS OF 07/10/13) 07/10/13 06/12/13 1-Year 1-Year P/E Avg. Market Manufacturers Symbol Price Price High Low Ratio Volume Cap. Ag Growth Int’l. AFN $36.16 $34.34 $36.75 $27.80 29.39 32,129 453.06M AGCO AGCO $53.14 $53.33 $49.90 $40.29 10.06 942,802 5.17B AgJunction Inc. AJX $0.96 $0.95 $1.00 $0.56 N/A 30,213 N/A Alamo ALG $43.06 $40.73 $44.13 $27.07 17.87 16,154 519.86M Art’s Way Mfg. ARTW $7.57 $7.44 $8.50 $5.23 9.35 9,884 30.58M Blount Int’l BLT $12.01 $12.99 $17.49 $11.58 13.97 222,178 591.12M Buhler Ind.* BUI $6.20 $6.20 $7.25 $5.20 7.95 3,230 153.23M Caterpillar CAT $84.96 $83.21 $99.70 $78.25 11.45 6,636,950 55.86B CNH Global CNH $43.17 $42.10 $49.99 $34.36 8.70 339,105 10.49B Deere & Co. DE $82.87 $84.32 $95.60 $72.85 10.20 3,191,580 32.16B Kubota KUB $78.52 $78.73 $88.38 $44.84 21.05 105,183 19.72B Lindsay LNN $77.89 $79.12 $94.90 $64.46 14.58 189,486 1.00B Raven Industries RAVN $31.28 $29.94 $37.73 $23.01 24.06 105,851 1.14B Titan Int’l TWI $17.10 $17.99 $27.12 $15.77 11.83 903,397 915.23M Trimble Navigation TRMB $27.77 $26.15 $32.03 $20.01 37.78 1,657,260 7.10B Valmont Industries VMI $149.22 $138.88 $164.93 $119.23 15.42 184,873 3.99B Retailers Cervus CVL $19.85 $19.05 $20.90 $18.50 12.41 10,889 296.10M Equipment Rocky Mountain RME $13.57 $13.55 $14.88 $10.40 10.36 40,316 260.73M Equipment Titan Machinery TITN $20.26 $20.06 $32.00 $19.07 12.48 506,043 422.50M Supply TSCO $112.17 $112.69 $122.20 $75.46 31.45 537,986 8.53B *As of 7/9/13

Ag Equipment Intelligence/July/2013 3 Deere Reports Mixed Retail Sales in June Commentary While industry wide sales of farm research firm. with an industry growth of 18%. tractors and combines continue at a On the other hand, Deere’s Deere’s inventory for combines was brisk pace, in its June monthly retail sales of row-crop tractors saw better slightly lower than the industry at announcement on July 11, Deere and results than the industry growth rate 20% of the previous 12-month sales. Co. reported it experienced “mixed” of 27% during the month. Growth was also seen for select turf results in May. Likewise, Deere’s inventory of and utility equipment, with retail Deere said U.S. and Canada sales row-crop tractors was lower than the sales seeing double-digit growth. of utility tractors were flat in May, industry inventory, which was 33% of Deere says it expects overall while industry wide the segment saw previous 12-month sales. Deere didn’t equipment sales to grow around 3% 4% growth. In addition, Deere’s inven- fair as well with four-wheel drive trac- in the third quarter of fiscal 2013 and tory was reported to be lower than tors, posting a double-digit decrease 5% for the full year. the industry wide inventory of utility for the month vs. 8% growth across Segment-wise, Deere is forecasting tractors, which stood at 49% of the the industry. However, inventory was worldwide sales of agriculture and turf previous 12-month sales, according in line with the industry at 23%. equipment to grow 7% in fiscal 2013, to a report by Zacks, an investment Combine sales saw better results, according to the report.

Strongest Sales Months for Farm Machinery 5 Year Avg. 10 Year Avg.

January February March April

<40 HP 3.8% <40 HP 4.4% <40 HP 8.2% <40 HP 12.3% 3.8% 4.3% 8.2% 12.2% 5.6% 7.8% 40-100 HP 40-100 HP 5.3% 40-100 HP 40-100 HP 9.9% 5.6% 5.1% 7.9% 10.1% 7.6% 6.6% 9.7% 11.3% >100HP >100HP >100HP >100HP 7.8% 6.3% 10.1% 12.6% 5.8% 6.7% 10.3% 12.3% 4WD 4WD 4WD 4WD 6.0% 5.9% 10.3% 14.6% 5.4% 4.8% 6.4% 6.2% Combines Combines Combines Combines 4.9% 4.2% 5.8% 6.6%

0 1 2 3 4 5 6 7 8 0 1 2 3 4 5 6 7 8 0 2 4 6 8 10 0 3 6 9 12 15

May June July August

<40 HP 13.2% <40 HP 12.2% <40 HP 8.8% <40 HP 7.6% 13.0% 12.4% 9.4% 8.0% 8.6% 40-100 HP 9.6% 40-100 HP 10.4% 40-100 HP 40-100 HP 7.3% 9.7% 10.8% 9.1% 7.7% 8.7% 7.7% 7.2% 6.5% >100HP >100HP >100HP >100HP 8.4% 8.0% 6.8% 5.8% 8.7% 7.6% 7.0% 7.0% 4WD 4WD 4WD 4WD 8.6% 7.2% 6.3% 5.6% 6.7% 9.0% 12.3% 12.0% Combines Combines Combines Combines 6.3% 9.2% 12.0% 11.9%

0 3 6 9 12 15 0 3 6 9 12 15 0 3 6 9 12 15 0 2 4 6 8 10 12

September October November December

<40 HP 8.2% <40 HP 8.2% <40 HP 4.9% <40 HP 6.8% 8.1% 8.0% 4.9% 6.5% 8.1% 9.9% 5.9% 9.3% 40-100 HP 40-100 HP 40-100 HP 40-100 HP 8.0% 9.9% 5.8% 9.0% 8.6% 13.3% 6.1% 10.9% >100HP >100HP >100HP >100HP 7.4% 13.3% 5.7% 10.5% 9.8% 15.1% 6.3% 9.9% 4WD 4WD 4WD 4WD 8.2% 15.7% 5.7% 9.6% 13.6% 12.7% 5.1% 9.7% Combines Combines Combines Combines 13.9% 11.9% 5.0% 10.5%

0 3 6 9 12 15 0 5 10 15 20 0 1 2 3 4 5 6 7 8 0 2 4 6 8 10 12

Source: AEM & RW Barid

The seasonality of farm equipment sales has remained steady over the last 10 years. The best month for compact tractor sales is May (13.2% 5-year avg. and 13% 10-year avg.). Utility tractors sell best in June (10.4% 5-year avg. and 10.8% 10-year avg.). Row-crop tractors sell best in October (13.3% on average over both the last 5 and 10 years). October has also been the best month for 4WD sales, averaging 15.1% over the last 5 years and 15.7% over 10 years. Combine sales are strongest in September, (13.6% over the past 5 years and 13.9% over the past 10 years).

4 Ag Equipment Intelligence/July/2013 Will ‘Company Stores’ Be the Answer for Shortline Equipment Makers With the majors adding to their prod- limited options due to competing Staying Competitive. Opening uct lines and pressuring their dealers products with the majors, where can the stores, which operate as indepen- to remain “pure” in the equipment shortliners go? “If you’re not going to dent dealers, is a strategic move to they carry, it’s becoming increasingly pull out, then you’re going to have to keep Krone North America competi- more difficult for shortliners to find do something else,” Fowler says. tive in key markets. the right dealers in the right markets, Company Stores. This scenario “We’re not trying to get into the Rusty Fowler, the retiring president is what lead Krone to open four com- retail end of the farm machinery busi- and CEO of Krone North America, pany stores — three in California and ness — the only thing we’re trying to told Ag Equipment Intelligence. one in Wisconsin. “It’s a very expen- do is keep our channels open. That’s Reflecting on how working with sive way to keep your channels open all we’re doing. I’m not trying to dealers has changed over the last 20 to the market, but it is absolutely make a ton of money at these stores; years, Fowler says the biggest change the last option that you’ve got. So they’re not there for that. They’re has been the limitation of the options that’s the way we looked at it. We’re there to keep our channels open to available to shortline manufacturers seeing the same thing happening in the market. in developing and maintaining strong Germany as well,” Fowler says. “If you look at it honestly, that’s distribution channels. Krone North America recently really all you’re doing and you’re pay- Krone specializes in high-end hay opened its forth store in the Imperial ing a heavy price to do it, but the and forage harvesting equipment. Valley in California, a huge hay mar- price not to do it is even heavier.” “If you’re a company like us, ket. “Again, we ran into the situation In order for shortliners to remain when we made the decisions to pro- where we were losing the focus of competitive, Fowler says its impera- duce the Big M self-propelled mower, the dealer we had, and we saw a very tive that their products is exceptional the Big X forage harvester and the Big clear possibility that we could be and have a meaningful competitive Pack , we more or less laid out without representation in that market advantage. “If you’ve got an excep- the direction we had to go to success- completely in the next 18 months,” tional product, then you will always fully compete. At that same time, we Fowler explains. have a channel open to the market, limited ourselves in the options we Opening the company store was but you have to find how to get there. had in dealers,” he says. a preemptive strike. “It was clear what And you better take your wallet with Last week Fowler announced he we had to do, so we looked at our you when you go because it’s going would be retiring from Krone North options. It’s the same old thing, but to be expensive,” he says. America after 26 years. He had also it’s a great market for our product Jones will begin his tenure at spent 15 years with International that we couldn’t afford not to be Krone NA on August 1. Fowler says Harvester before his stint with the there. So we went ahead and opened he will remain with the company in Spelle, Germany-based Krone. our own facility. It’s a real brutal ball- a consulting and advisory capacity for He’ll be succeeded by Thomas game out there today,” he says. at least 6 months.. F. (Tommy) Jones, a 28-year veteran with . Overall Ag Equipment Monthly Sales – April 2011 - May 2013 “When I started with Krone in 1987, we only offered traditional hay 10% tools. We could go out into the ag marketplace and there were plenty of good dealers. If you lost a contract 8% in a town, there was usually some- one else you could go to that was an 6% acceptable dealer. Today, there isn’t anywhere close to the number of 4%

dealers there were back then. So our (y/y % chg) options are very limited. Having the 2% wrong dealer,” says Fowler, “is worse than having no dealer.” 0% At the same time, the major farm equipment manufacturers began pro- Jun-12 Jun-11 Apr-12 Apr-13 Apr-11 Oct-11 Oct-12 Feb-12 Feb-13 Dec-11 Aug-12 Dec-12 ducing similar products to Krone, Aug-11 like large forage harvesters and big According to the results of the June 2013 “Dealer Sentiments & Business Conditions Update” square . This became another survey, ag equipment dealers reported year-over-year sales grew 6% on average in May, down constraint for shortline manufacturers from 7% in the prior month. John Deere saw the highest growth at 9%, while Kubota dealers reported the weakest with sales down 2%. A net 3% of participants categorized May results as to retain top-notch dealers. “better-than-expected” (23% better-than-expected; 57% in-line with expectations; 20% worse- With fewer dealers around and than-expected), compared to 1% “better-than-expected” the prior month.

Ag Equipment Intelligence/July/2013 5 Polish Ag Machinery Market Posts Strongest Growth in EU Last year turned out to be a good one play a role in purchase decisions, “Nearly €10 billion was paid out for Polish farmers despite a poor start even though a large number of Ursus to farmers and companies — the larg- to the cropping year. tractors can still be seen, especially est sum within the EU,” VDMA says. According to the Frankfurt-based on smaller Polish farms,” the German This signals a a decline in demand VDMA Assn., association reported. because of the expiring support mea- nearly one quarter of the area cul- In its assessment, VDMA said, sures and many Polish farms are now tivated with winter grain by Polish “Altogether, the Polish agricultural well equipped and up to date. farmers had to be plowed up due sector has developed very positively “In the first 3 months, new reg- to damage caused by frost. But with in recent years. Structural change has istrations decreased by 17%. At the improving crop yields, solid results set in and led to stronger competi- moment, a gulf appears to be open- with their summer grains, Polish farm- tiveness. On average farms are much ing up between the theoretically ers had a much better crop for the larger than they were just a few years still strong investment plans and the year than they had in 2011. ago and are well equipped with mod- orders actually placed with dealers. Polish farmers produced 29 mil- ern machinery. Nonetheless, Poland has established lion metric tons 2012, an increase of Falling Demand. On the down- itself as the fifth largest agricultural 7% from strong growth in summer side, EU subsidies from the rural machinery market in the EU and in wheat, maize and summer barley. development programs between the short and long term will have With the EU support measures 2007—13 have been nearly com- significant demand for replacement aimed at the modernizing farming pletely paid out or allocated. purchases of machinery.” operations and the higher prices for agricultural products, the overall good Polish Agricultural Machinery Market crop result in 2012 was also reflected in sales of farm machinery. In total, 1.507 market volume grew by 14%, reach- 1.317 1.258 ing €1.5 billion — one of the highest 1.230 growth rates within the EU. 934 979 Growing Imports. Imports of 775 agricultural machinery increased by nearly 22% to €1.3 billion. Tractor in million sales reached a total of 19,315 units, with most in the 75 -100 horsepower range. However, according to VDMA, 2006 2007 2008 2009 2010 2011 2012 the strongest demand was for tractors in the 130-160 horsepower range. Overall good crop results in 2012 was reflected in sales of farm machinery. In total, market “Besides the Czech supplier volume grew by a 14% reaching €1.5 billion — one of the highest growth rates in the EU. Zetor, practically only Western brands Source: VDMA

Lindsay Sends Mixed Signals on Irrigation Market

Still riding the wave of last year’s plantings and crop yields on crop USDA data released on July 8 drought, Lindsay Corp.’s sales of irri- prices and farm incomes. showed 65% of U.S. corn in “good” or gation equipment rose by 12% in the “In the near term, we have seen “excellent” condition, up from 56% a U.S. to $118.3 million in the third quar- downward pressure on key agricul- year ago when the drought was begin- ter ending May 31, despite the wet tural commodity prices in anticipa- ning to take hold. However, that is still spring experienced throughout much tion of an improved harvest over last down from 2011 levels, which were of the U.S. Adding to that, the company year’s drought conditions,” said Rick near 70%. saw an 88% hike in international sales Parod, Lindsay president and CEO. “Lindsay gave mixed signals about thanks to a large Iraqi order, growing “However, recent reports cast the irrigation market and character- group revenues 28% to $219.4 million. doubt on the quality of the crop, rais- ized the demand environment as While sales were up, Lindsay ing concern over forecasted ending- ‘uncertain,’ saying it isn’t clear wheth- notes increased rainfall across the stocks, particularly for corn. er record plantings or concerns over Corn Belt diminished the favorable “In addition, the environment for crop quality, due to wet weather in the impact of drought conditions on irri- infrastructure sales remains difficult, Midwest, will have the bigger impact gation equipment demand over the although we are seeing indications on crop prices and, therefore, farm past 12 months. The concern has now for modest improvement from recent incomes,” Holden Lewis, analyst with switched to the impact of delayed sales trends.” BB&T, said in a note to investors.

6 Ag Equipment Intelligence/July/2013 Ag Machinery Sales June U.S. Unit Retail Sales June 2013 June June Percent Percent Equipment YTD 2013 YTD 2012 Field Accelerate in June 2013 2012 Change Change Inventory North American large ag equipment Farm Wheel retail sales accelerated in June, driven Tractors-2WD by growth in row-crop tractor, 4WD Under 40 HP 11,687 11,013 6.1 55,747 50,169 11.1 56,900 tractor and combine sales which increased 27.5%, 8.4% and 18.1% 40-100 HP 5,854 5,520 6.1 28,109 26,834 4.8 26,878 year-over-year, respectively, accord- ing to data released by the Assn. of 100 HP Plus 2,822 2,214 27.5 17,305 13,578 27.4 10,539 Equipment Manufacturers. Mid-range Total-2WD 20,363 18,747 8.6 101,161 90,581 11.7 94,317 tractor sales increased 4.3% and com- pact tractor sales increased 7.1% vs. the Total-4WD 454 429 8.6 101,161 90,581 11.7 94,317 same period last year. Inventory levels continue to rise, though generally sup- Total Tractors 20,817 19,176 8.6 104,332 93,377 11.7 95,766 ported by continued unit sales growth. SP Combines 926 710 30.4 4,590 3,128 46.7 1,831 Large tractor and combine retail sales increased 23% year-over-year in June, accelerating from the 16% increase in May. Mircea (Mig) Dobre, June Canadian Unit Retail Sales analyst with RW Baird, says year-over- June June June Percent Percent year comparisons were positive across Equipment YTD 2013 YTD 2012 2013 Field 2013 2012 Change Change all large equipment categories. U.S. Inventory sales increased 25% year-over-year, Farm Wheel while Canadian sales increased 11%. Tractors-2WD Combine retail sales continued to grow, posting an 18.1% year-over-year Under 40 HP 1,762 1,541 14.3 6,907 6,106 13.1 8,368 increase in June (in spite of a more dif- 40-100 HP 509 579 -12.1 2,856 3,010 -5.1 3,522 ficult comparison) following a 28.6% increase in May. Last three month (L3M) 100 HP Plus 450 352 27.8 2,636 2,315 13.9 2,663 sales increased 34.7% on a year-over- year. U.S. combine inventories were Total-2WD 2,721 2,472 10.1 12,399 11,431 8.5 14,553 22.2% higher year-over-year in absolute Total-4WD 87 70 24.3 832 786 5.9 619 terms in May (vs. up 24.3% last month). Row-crop tractor sales also con- Total Tractors 2,808 2,542 10.5 13,231 12,231 8.3 15,172 tinue to grow with a 27.5% year-over- year increase, accelerating from the SP Combines 197 241 -18.3 1,007 829 21.5 1,035 17.8% increase observed in May. L3M sales increased 24%. U.S. row-crop trac- 2013 tor inventories increased 49.1% year- U.S. Unit Retail Sales of 5 year over-year in May vs. a 54.1% increase 2-4 Wheel Drive Tractors & Combines average in April. June has been a slightly below 30,000 average month for row-crop tractor 28,000 sales over the last five years, typically 26,000 accounting for 7.7% of annual sales. 4WD tractor sales increased 8.4% 24,000 year-over-year in June, improving from 22,000 an 8.9% decrease in May. U.S. dealer 20,000 inventories of 4WD tractors increased 18,000 14.1% year-over-year in May, while days- sales of inventory was 73 compared to 16,000 78 in the prior year. 14,000 Mid-range tractor sales increased 12,000 in June, up 4.3% year-over-year after 10,000 a 6% increase last month. Compact tractor sales increased 7.1% year- 8,000 over-year, down from the 27% 6,000 increase last month. JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC —Assn. of Equipment Manufacturers Ag Equipment Intelligence/July/2013 7 CNH Industrial Has Big Aspirations Following Merger...Continued from page 2 globally. “But CNH and Sumitomo or strategic alliances. This will likely owns Freightliner and Western have recently concluded their North mean a play for mid- or heavy trucks brands; , with its and American LBX Link-Belt joint venture in North America.” trucks; or possibly Navistar. which is now 100% Sumitomo.” Iveco Trucks has a leading market With the goal of being the first position in the mid-range in Europe Engine Technology Edge or second biggest player in each of (22% share) and good positions in Russell also maintains that CNH its markets would suggest that CE is other regions but virtually no pres- Industrial’s Case IH and New Holland a likely area for future CNH Industrial brands, both ag and CE, could reap moves that would move them up the additional benefits in Tier 4 engine construction equipment ladder. “If we can learn from technology and a pricing advantages our mistakes, then the from the merger with Fiat Industrial. Iveco Trucks in NA “Fiat Industrial and Fiat Power Without a presence in North story of International Train (FPT) continue to be among America, it would appear that the Harvester is one of the the leaders in this vital segment of CNH Industrial has plenty of room to great business lessons the capital goods industry and CNH grow in the truck market, probably of all time....” dealers now sell and service these through acquisition, merger or a part- engines for FPT Tier 4 products. nership with a truck maker already Despite the common ownership established in North America. ence in North America. “In all likeli- of CNH and FPT, and with the success With revenues of nearly $12 bil- hood, this means further acquisitions of the high efficiency SCR engine lion last year, CNH Industrial’s truck or strategic alliances. technology from Fiat Industrial, pric- operations are certainly in a much This will likely mean a play ing to CNH Global apparently was a better position than its CE business. for mid- or heavy trucks in North vexing issue. Depending on ranking criteria, the Fiat America,” says Russell. The new company softens the Group falls in at either sixth or sev- Both Catepillar and Volvo Group impact of engine price increase and enth place of worldwide truck manu- offer trucks. Cat offers on-highway guarantees a stable supply. It may facturers and that’s with no significant and vocational trucks through a mean some further changes where presence in North America. 50/50 joint venture arrangement with there are not currently FPT compo- It’s believed that the merger called NC2 nents in CNH products.” would lay down a path for CNH to Global, according to Russell. begin introducing its Iveco branded Volvo owns Mack as well as Lessons Learned? trucks in the U.S. and Canada. Its main Volvo branded trucks. The most Russell says CNH Industrial must competitors would include Daimler likely candidates for a combination avoid the issues that led to the down- AG, Navistar, Paccar, Ford, Volvo, that would provide CNH Industrial fall of , which, Group and Mitsubishi. “In all likeli- with a North American base would 30 years ago, was a market leader in hood, this means further acquisitions appear to be with Daimler, which each of the segments — farm, CE and trucks — that CNH Industrial will now compete. The GE Influence at CNH He says a useful primer for CNH Industrial executives is the book The CNH Global and Fiat Industrial merger has its roots planted in ’s philosophy of market position, according to George Russell, former CNH “A Corporate Tragedy: The Agony of executive, who worked both the ag and CE sides of the business, and currently an International Harvester Company” by executive partner with Currie Management Consultants. Barbara Marsh. “It was published in “This action represents another step by Fiat and the founding family of Fiat 1985 just before purchased to achieve a top positions in each of its markets,” say Russell. “This can be traced International Harvester’s ag division back to the philosophy of Jack Welch from his GE experience where he stated that each division should be number one or two in each of its markets or they were to and merged it with Case.” be divested.” He points to two excerpts from Russell explains that a former Fiat chairman, Paolo Fresco, had been Welch’s the book that CNH Industrial exec- right hand man for many years at GE before moving to Fiat where he engineered utives and others producing capital the purchase of Case in 1999 to create a clear number two position and global rival goods, should post on their office walls: to Deere in farm equipment. Later, Welch was briefly on the Board of CNH. The current Chairman of Fiat and Fiat Industrial, , spent 2 years “There was stiff competition from arch- at GE before coming back to work in the family business. Elkann is a great-great- rival John Deere, bad relations with grandson of the Fiat founder and was designated as heir-appar- organized labor, and a pervasive, arro- ent by his grandfather at a very early age, according to Russell. gant complacency within the com- Elkann is also chairman of , the investment by which the pany about its unsurpassable market controls several other businesses including the controlling ownership of Fiat Industrial and CNH. Exor owns over 30% of Fiat Industrial. dominance … If we can learn from our “Like with many farm equipment dealerships, predominant family owner- mistakes, then the story of International ship explains the ‘long view’ that is apparent in the positioning and logic of CNH Harvester is one of the great business Industrial, which is to position itself for further strategic moves,” says Russell. lessons of all time.”

8 Ag Equipment Intelligence/July/2013