AEM and the Equipment Dealers Association (EDA) teamed up in August to survey their respective members about the levels of new and used agriculture equipment inventory currently on the market.  While there were a number of similarities between the two groups surveyed, the discrepancies within the survey results were most interesting.

AEM’s data results revealed that, since 2014, the ag equipment manufacturers surveyed believe that new and used inventory levels are decreasing overall. This trend is consistent with EDA’s ag equipment dealer survey results for the second quarter of 2016. In the second quarter of 2016, 79 percent of manufacturers felt that inventory levels (new and used combined) were stable or falling.  Approximately 75 percent of dealers felt the same.

While dealers and manufacturers both agree that inventories, used and new, are clogging up the pipelines, it appears that manufacturers are less concerned about their own inventories as they might have started the shedding process earlier or at an accelerated rate.

However, their perceptions on dealer inventories differ.

Currently, 43.1 percent of manufacturers believe that dealer inventories are “about right,” and 36.2 percent 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 percent of dealers believe new inventory is too high and 59 percent believe used inventory is too high. 

There are a number of potential reasons for the discrepancies between manufacturer and dealer opinions.  First, it is likely that the dealers’ viewpoint is both more immediate and that they have to take into consideration all lines of equipment rather than that of one specific manufacturer. Conversely, manufacturers’ view is limited as they only consider their own product line. Also, manufacturers must consider the whole production chain as well as retail, spreading their focus. For dealers who carry lines from multiple OEMs, the inventory picture can be both nuanced and daunting.

Second, while dealers may be more focused on the day-to-day operations of their business, manufacturers may be taking the long view, evaluating the situation as it will exist weeks, months or even years down the road.  As a result, manufacturers may look at current inventory levels as a problem, but might consider the issue temporary as their production outlook requires them to constantly consider the future adjustments. 

“It is not surprising that dealers and manufacturers have differing opinions when it comes to inventory levels.” said Joe Dykes, EDA’s vice president of industry relations. “In the current environment dealers could be focusing more on day to day inventory issues, sales and competition in their region, where manufacturers may be looking more at national and global market trends, yearly production and sales.”

“Manufacturers remain concerned about new and used inventories. 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,” said Charlie O’Brien, AEM senior vice president. “Recovery won’t be overnight.  But the downward trend in inventories is financially helpful for the entire supply chain as inventories are moved through the distribution channel.”

When it comes to solutions, AEM and EDA survey takers seemed to agree about what should be done to fix the inventory issue. 

Manufacturers, when asked about their plans and initiatives to address inventory issues, largely focus on internal solutions to minimize cost and make production leaner.  Some specific examples given were: reducing headcount, restricting overtime and cutting production.  While most manufacturers focused on internal ways to reduce inventory, others did offer dealer-focused solutions such as better or more competitive financing, retail sales promotions and reducing purchasing requirements for dealerships. 

Dealers also offered some internally focused solutions to the inventory problem such as stopping or reducing orders for new inventory.  Many noted, however, that manufacturers were 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. 

Ultimately, it seems agriculture equipment manufacturers and dealers both 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. 

About AEM:

AEM is the North American-based international trade group providing innovative business development resources to advance the off-road equipment manufacturing industry in the global marketplace. AEM membership comprises more than 900 companies, including 450 in the agriculture sector, and more than 200 product lines in the agriculture, construction, forestry, mining and utility sectors worldwide. AEM is headquartered in Milwaukee, Wisconsin, with offices in the world capitals of Washington, D.C.; Ottawa, Canada; and Beijing, China.       

About EDA:

Founded in 1900, the Equipment Dealers Association (EDA) – formerly known as the North American Equipment Dealers Association (NAEDA) – is a non-profit trade organization that represents approximately 4,500 retail dealerships across the United States and Canada. Our mission at EDA is simple: we are committed to building the best business environment for equipment dealers.

For more information please contact Joe Dykes at EDA: jdykes@equipmentdealer.org or Benjamin Duyck at AEM: bduyck@aem.org.          

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