Is there more or less equipment on the market?
The Association of Equipment Manufacturers (AEM) surveyed its members and found that, since 2014, the ag equipment manufacturers surveyed believe that new and used inventory levels are decreasing overall. This trend is consistent with the Equipment Dealers Association ag equipment dealer survey results for the second quarter of 2016. In the second quarter of 2016, 79% of manufacturers felt that inventory levels (new and used combined) were stable or falling. Approximately 75% of dealers felt the same.
However, perceptions on dealer inventories differ between the two groups.
Currently, 43.1% of manufacturers believe that dealer inventories are “about right,” and 36.2% believe that dealer inventories are too high. In contrast, the majority of equipment dealers believe, despite the apparent down-trend in inventory levels, that both their new and used inventories are too high: 62% of dealers believe new inventory is too high and 59% believe used inventory is too high.
Reasons for differing views
“It is not surprising that dealers and manufacturers have differing opinions when it comes to inventory levels.” says Joe Dykes, EDA’s VP of Industry Relations “Dealers tend to focus on the micro – daily sales for their store or stores and competition within the region, while manufacturers look at the bigger picture – national and global market trends, yearly production and sales.”
Charlie O’Brien, senior vice president at the Association of Equipment Manufacturers, said recovery won’t be overnight, however the downward trend in inventories is one indicator that the industry may be on a slow track to recovery.
“Sales figures from AEM show a continued decline in new large tractor and combine sales, and given excess equipment inventory and low crop prices, it is easy to have a negative perspective,” O’Brien continued. “Manufacturers remain concerned about new and used inventories.”
When it comes to solutions, AEM and EDA survey takers and various suggestions about what should be done to fix the inventory issue.
Manufacturers, when asked about their plans and initiatives to address inventory issues, are largely focused on internal solutions to minimize cost and make production leaner. Examples include: reducing headcount, restricting overtime and cutting production. Some manufacturers are offering dealer-focused solutions such as better or more competitive financing, retail sales promotions and reducing purchasing requirements for dealerships.
The survey revealed that dealers are also offering some internally focused solutions to the inventory problem such as stopping or reducing orders for new inventory. Many noted that manufacturers are not heavily involved in assisting dealers directly in reducing inventory levels. Those dealers who did mention manufacturer-offered inventory solutions cited reduced pricing, rebates and special financing incentives.
Despite differences, the survey results show that both groups understand that they must be prepared for changes in demand and fluctuations in inventory levels. Manufacturers appear to be doing everything they can to be informed of problems early and to adjust production accordingly. Similarly, dealers are adapting to what can be accomplished in the existing market and are utilizing the tools at their disposal to keep inventory levels within a stable range supported by their markets.
Source: AEM and EDA