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AGCO opens up

The company that helped pioneer the multiple-brand strategy in ag marks its 10th year by divulging past strategies and future plans.

Few ag machinery companies have grown faster in 10 years' time than AGCO. Since the company was formed in 1990, its annual revenue has increased from $2 million to more than $3 billion and it has acquired 17 brands.

All of those brands remain profitable, a track record that is unusual in today's business climate, according to Robert Ratliff, AGCO executive chairman. "Eighty-five percent of acquisitions fail," Ratliff says. "None of ours has failed."

To celebrate its 10-year anniversary, the company brought in a panel of dealers representing 2,200 of its dealers nationwide, 25 investment analysts and 20 members of the press to headquarters in Atlanta, GA, to share its business philosophies and plans for the future.

What's in a name? Ratliff stands behind a podium and projects on screen four basic philosophies that have accounted for the company's success in the past 10 years.

The first and most basic one was to build a multiple-brand distribution network, a concept borrowed from such automotive companies as Ford and GM. Under this approach, AGCO retains the names and identities of the brands it purchases while maintaining a larger dealer network and participating in multiple markets.

"We are most proud of our ability to be the product consolidator - putting all of these businesses under the AGCO umbrella and yet maintaining the history of each of these brands," Ratliff says.

Dealer profitability is another major philosophy of the company. "This should lead all of our decisions," Ratliff says. "If our dealers aren't profitable, we can't be either." Key factors in maintaining profitability are good inventory management and proper turnover rates. To that end, AGCO was able to warn its dealers of a downturn 60 to 90 days ahead of time in the third quarter of 1998 so that they could get their inventories in line, unload excess used equipment and collect their receivables, according to Ratliff.

A third successful philosophy is horizontal production. AGCO outsources 75% of its components. "We buy from major suppliers," Ratliff says. "That requires less capital so we can use the dollars in new product development."

New product development is the fourth philosophy critical to AGCO's success. The company develops common product platforms to reduce costs and capital requirements but differentiates those products through features, financing and promotion. With a common platform, it is able to transfer the leading technology of one product to other products as market forces dictate. For example, the company plans to transfer the continuously variable transmission (CVT) available on its Fendt tractor - billed as the most technologically advanced tractor in the world - to other tractors in coming years.

Surviving the markets In 1998, AGCO's sales dropped sharply, as did those of many other ag machinery makers, due to slumping commodity prices and export sales. Industry unit sales of tractors with more than 100 hp were down 8% in 1998 and 27% in 1999 while combine sales dropped 4 and 47% during the same time frame.

In response to this lower demand, AGCO was forced to close all but two of its manufacturing plants in the U.S. to reduce excess production capacity. Ratliff says this effort alone will save the company $20 to $25 million in costs annually, a savings it can redirect to its product development and research efforts.

However, AGCO is optimistic about the future. "We've hit the trough," Ratliff says. "There are signs that exports are picking up." As a result, the company projects unit sales to be down only 0 to 5% for year 2000.

What's ahead? Ron Hess, vice president of marketing for AGCO brands, projects a 12 to 13% growth in unit sales of tractors and combines, possibly in two to three years. So will AGCO rely on past strategies, such as rapid acquisitions, to get there? Hess responds, "The company will seal activity and grow in strength and distribution. This might involve fewer [dealer] numbers."

He says the company will be more selective in its dealers, increase training and employ higher dealer standards. For example, AGCO is developing rating systems that rate dealers on everything from service, parts and facilities to market share, and then assign incentives based on each dealer's ratings. "For example, if you sell a unit, you may typically get 2%," Hess explains. "But if you are rated higher, your incentive may be 4%."

Hess says parts and after-sales service will be critical to AGCO's continued growth, just as they are in the automotive industry. "If you buy a Lexus, for example, you just expect good service," he says. "With our Fendt tractors, you pay a 20% premium. So we'll step up service and maybe use our Hesston, KS, facility for training."

New products coming Continued product development will also remain key to that growth. The company gave us a sneak peak at these 10 new products scheduled for release this fall and beyond:

New compact tractor models in the AGCO and Massey Ferguson lines will be available this fall. Demand for these under-50-hp tractors is being driven by what the industry refers to as "sundowners" - dual-income couples who live outside of town but who hold jobs in town and farm on a small scale on the evenings and weekends.

A new implement control feature will be added to Fendt tractors. This feature, currently available only in Western Europe, will allow for the control of the implement through the tractor terminal.

The new CVT, currently available only on its Fendt tractor, will be available on other select AGCO tractors as early as 2002 to boost in-field efficiency, productivity and fuel economy.

Fieldstar, AGCO's yield and input application mapping system, will be expanded to sprayers in 2001 and hay products after that.

Currently, this precision farming technology is available only on its combines, tractors and planters.

New row units will be available on large models of 8000 series White planters by spring 2001 and on all of the planters in 2002. The new units will feature more than 20 improvements over the previous 6100 series they replace, according to AGCO's Joe Bozung. These include a repositioned release point on the seed disc to reduce seed bounce at higher speeds and improve planting accuracy; removal of the side sheet metal to make the unit more accessible when changing seed discs; a hopper meter that can be removed with a simple hand adjustment; a new hopper bottom with an increased angle to improve seed flow; and a wider throat to improve flow of big seeds.

A new Willmar sprayer, available this fall, will allow growers to cover more acres in an hour. It features a totally new design, road speeds that are higher than those of any other unit commercially available and a 1,200-gal. tank, which puts it equal to the largest units on the market, according to Daryl Patten, general marketing manager for Willmar Spra-Coupe. "It is designed more for the custom applicator than for farmers, but large farmers would have interest in this, too," Patten says.

The Spra-Coupe sprayer will have a new, wider boom. The boom will span 80 ft. versus the 60 ft. of the previous boom and will be the first one of that size in the 300- to 400-gal. sprayer category, Patten says.

A new Massey Ferguson 7500 articulated loader, identical to the Willmar Wrangler model 4500, will be distributed in the ag market. The loader is designed to load pallets and move chemicals and other materials while offering easier access and better visibility, reach, lift height and clearance than a skid-steer loader. Four bucket sizes will be available.

A precutter option on Hesston big square balers will be in limited production this year and full production next year. The option is designed to shorten the chop to make the crop easier for cows to digest.

AGCO's Gleaner R62, MF 8780 and 8780 XP built for this fall will be powered by a 285-hp Cummins engine to increase productivity.

Dexter Schaible, AGCO's senior vice president of worldwide engineering and product development, is a tough man to reach. He spends 50% of his time in Europe and 50% in the States, overseeing development of all new products produced at any AGCO factory. We were able to snag him for 10 minutes at the company's recent open house and ask what he sees happening in the farm equipment industry in the next 10 years. Here's what he had to say.

AGCO just celebrated its 10-year anniversary as machinery maker and has come out with numerous innovations in that time. What do you see for the next 10 years?

It is getting to be where size of the implements and horsepower are close to being maxed out. I see the future as more electronic. All of our equipment is going to get a whole lot smarter. A key example of that is our new Fendt tractor. Our models in Europe are equipped with a tractor management system that allows the operator to be more efficient because he does not have to determine the capacity of the implement he is pulling. This can be programmed in with the pairing of Fendt's continuously variable transmission [CVT] and its electronically governed engine. This feature will be available in the U.S. in the next two to three years as CVT and electronic engines come together.

What changes do you see coming in combines?

Combines in Europe have electronically governed engines and can be run at the speed of full capacity with a cruise control feature, which monitors the load in the cylinder and varies speed of the combine according to that load as it is going down the field. This feature will be coming to North America as well.

Will combines increase in horsepower?

We're at Class 7 now (300 to 340 hp). There will be a Class 8 (350 to 400 hp). So I believe that combine power will go to around 400 hp in the future, and the rest of the combine will have the capacity to match that horsepower. But the basic concept of the combine won't change. It will still be rotary or conventional.

What other changes will we see in tractors and combines?

In the next five to 10 years, you'll see more features to improve operator comfort. In tractors, these include front suspension and cab suspension. I also think you'll see more tracked-type tractors in the over-300-hp class in our lines. I think you'll see the market for that grow.

Is that because of soil compaction?

Compaction and, more importantly, efficiency to the ground. At 225 PTO hp, we are reaching the limit of a wheel tractor in terms of getting that power to the ground so that it becomes more efficient.

Finally, what changes do you see coming for farm implements?

I do not have a good feel on how implements will change, but I do know that implements will become more efficient when we have smart tractors.

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