Vol. 12, Issue 10 News, Information & Analysis for the Ag Equipment Marketer February 15, 2006 FBI Looking into Bankrupt Iowa Dealer As Farm Customers Consider Options to Reclaim $22 Million As a group of farmers from several states The Iowa Attorney General’s assertions going around,”said attorney plan their next move in an attempt to office is also involved in the case, but Matt Cronin, who is representing the recover $22 million they paid says that it is unclear what recourse group.“If there’s a basis for a lawsuit Walterman Implement in Dike, Iowa, farmers may have under either state — and it appears right now that there before it was closed down in October, or federal law. is — that will likely lead to litigation.” the FBI is now looking into the matter. Stanley Webb, a Mitchellville, An undisclosed number of farm- The Case-IH dealership was Iowa, farmer, has filed suit against Case ers had been making payments to the forced into Chapter 7 bankruptcy by Credit Corp., CNH Capital America dealership ranging between $12,000 creditors who claim Walterman dou- and Walker-Schork International, Inc. and $22,000 in a “roll” program that ble-financed several pieces of equip- Webb claims that Case delivered a would have provided them with new ment. It is estimated that hundreds of new combine registered in his name and previously owned combines. farmers from Iowa and surrounding to the Rochelle, Ill., dealer, who sold it Many of Walterman’s customers states lost thousands of dollars each to a local farmer. have outstanding notes with the after the dealership was closed. According to the Des Moines financing company of CNH America. Tom Witom, a spokesman for Register, about 130 farmers who claim Some fear they may be obligated to CNH America, the Racine, Wis.-based to have lost thousands of dollars to pay off the loans, even if they do not maker of Case IH equipment, indicates Walterman, recently met in Maxwell, own the equipment. that the company is cooperating with Iowa, to discuss their options. “We are sensitive to the issues of “an FBI investigation into the business “The first step is going to be to having to make payment,and will work practices of Walterman.” look into the facts.There are a lot of to support our Case-IH customers. But, Continued on page 2 Dealers Expect 2006 New Equipment Pricing to Rise 3% According to preliminary results from UBS Investment ries have increased slightly since the last survey and are at Research’s 19th Semiannual Agricultural Dealer Survey,deal- normal levels.They also report that used equipment inven- ers say that new and used equipment prices continue to tories have also increased since the spring but remain firm, but at a slower pace of growth.Additionally, dealers below normal. Survey results also indicate that delivery expect smaller price increases by manufacturers on new lead times have improved. equipment in 2006. The results shown in the accompanying tables are Dealers also indicated that new equipment invento- based on 560 responses to the UBS survey as of February 2. The surveys were mailed to AGCO, Case-IH, Deere and New Holland agricultural equipment dealers. TABLE 1. DEALER VIEWS New Equipment Pricing ON NEW EQUIPMENT PRICES Dealers indicate that new equipment prices continue Company Weakening Stable Firming to firm, but at a slower pace.As shown in Table 1, 38% of the survey respondents indicate that the price of new ag AGCO 12% 42% 46% equipment is “Firming,”while 12% say that it is “Weakening.” Case-IH 14% 43% 42% UBS analyst David Bleustein says that this indicates that Deere & Co. 10% 53% 37% dealers believe price increases will continue. New Holland 11% 58% 31% In total, dealers feel pricing increases will soften some- Total 12% 50% 38% what from those seen during the 3 previous semi-annual Continued on page 3 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. FBI Looking...Continued from page 1 they did sign a binding contract that deposited with CNH Capital or any to blame or let things get out of con- must be honored,”said Frank Anglin III, other financial institution. trol,Anglin insisted that it’s not uncom- Case IH North America Ag vice presi- Anglin said that from a broad per- mon for a dealer to place orders well dent in an interview with Ag Industry spective, “customers should’ve real- beyond his assigned number.“Dealers Watch. “We’re not at fault,and to come ized that the situation could not work are selling outside of their area after CNH when it was not knowledge- economically for the dealer.” Despite because other dealers have not been able about any wrongdoing does not the immediate losses, it is possible aggressive.”While the scope of the sit- reflect a broad perspective.” that farmers participating in the pro- uation was unique, Anglin says that Case IH and CNH Capital, which gram for some time may have come 30% of dealers sell beyond their imme- forced Walterman into bankruptcy in out ahead. diate geographic area. late October, claims misappropriation When AIW asked what controls Titan Machinery, based in Fargo, of funds and unpaid debt totaling $22 Case would be using to keep such a N.D., one of Case IH’s largest Midwest million. Walterman has denied any situation from repeating itself, Troy dealerships,is acting as the agent for Case wrongdoing. Price,VP North American Agricultural IH and will continue operating the deal- According to filings in the case, Financial Services, mentioned it was ership during bankruptcy proceedings. employees of Walterman Implement an isolated incident.“We have full con- In a February 10 telephone inte- sought contracts for the 2006 harvest fidence in our normal audit process view with AIW, David Meyer,Titan’s season and collected deposits. The for identifying and preventing situa- president & CEO,commented that little money was supposed to have been tions like this from occurring again.”A has changed with the situation. While held in escrow by CNH Capital. But Birkey’s Farm Store representative Titan would eventually like to purchase those deposits, which range from also defended Case IH’s audit process. the dealership, no decisions will be $15,000 to $22,000, were never As for inferences that Case IH was made while the case is pending. OTHER DEALERS SAY THEY ‘SAW IT COMING’ As the Walterman Implement ordeal grinds itself through the One dealer pointed out that Iowa does not have laws prohibiting legal system, some dealers say they “saw it coming.” Ag tampering with the hour meters on farm equipment. Industry Watch spoke with several dealers that have observed It is estimated that Walterman Implement controlled 20% the situation even before the dealer was forced into bankruptcy market share in the state of Iowa. It is also known that the last fall. The dealers spoke to us but asked not to be identified. dealership sold equipment in dozens of states beyond the When Ag Industry Watch editors visited with dealers in Iowa Midwest. This gave it significant leverage within Case-IH in last summer, months before Walterman Implement was forced terms of volume discounts. into bankruptcy, it was suggested that some things weren’t “Dike was selling on price,” says one source. “Price shoppers right with the dealership in Dike. are not loyal shoppers. I suspect CNH was cutting the dealer- “I told you they were going to go belly up,” one dealer says ship some lower priced deals on combines because of vol- now. “Walterman had a plan that worked for awhile, but they ume. Also, sometimes a dealership gets in so deep, the finance couldn’t keep it going forever. Before they started handling company knows he can’t pay off his debt so they hope ‘time’ will Case, they handled Massey Ferguson. In the early ‘90s, they right the situation and continue to extend credit and terms. As went to Case and said ‘We’d like to be your dealer and we’ll he gets in deeper, at some point there has to be a decision to order 50 combines.’ pull the plug. “If you think about it,” says the equipment dealer, “they went “With the huge inventory they had at Dike, it’s hard for the from last place in the Case-IH organization to one of the finance companies to keep track of all the equipment, and biggest in North America in 15 years without making an acqui- maybe machines get financed twice. There may be no clear title sition. That’s pretty amazing. They did it from the inside out, on the equipment. I don’t know exactly what took place, but while maintaining one store.” when one dealer is moving as many combines as they were, Dealers that Ag Industry Watch spoke to about the combine- you have to suspect some things were not right.” roll program report that such selling schemes are at best a The entire Walterman affair is already impacting ag dealer- house of cards. ships, particularly the larger dealer organizations.