J D Seller-CIH Parts

old bc · Sep 1, 2014

I emailed my friend that has three CIH dealerships and ask his about the parts price. I put his answer below.

"Prices will not be raised for this reason. Not the way a public company works. Titan is a public company & does have significant problems. If they fail bankruptcy is the likely path not from support of CNH."

NY 986 · Sep 1, 2014

Where is your friend's dealerships geographically? Probably far enough away from the Titan mess that corporate CNH has not sucked them in to clean it up.

old bc · Sep 1, 2014

They are in Eastern Arkansas.

JD Seller · Sep 1, 2014

Well that maybe correct but I just was asking as the two fellows I talked to are from different ends of the state. They both where told this was going to happen by their NON Titian local dealer.

Your friend is only partly correct. CIH has a history of taking over failing dealerships and then selling them to someone else. I do not see CIH letting Titian close without a plan to reopen those stores right away. I mean hours not weeks after Titian closes. The reason being they have allowed Titian to control entire areas of many states. There are NO other CIH dealers in many of those areas. In some of the plains states they have almost all the dealerships in the entire state. So I would put money on CIH doing something to not let those dealerships set long closed.

Also think about how much Titian owes CIH. Even if Titian does have a Billion borrowed from Wells Fargo I bet they have far more borrowed or owed to CIH.

The Large dealership at Dike Iowa is an example of this. That old dealer was flying high and selling/leasing equipment all over three states. HE had HUNDREDS of used late model combines. When his dealership stated to fail he did fraudulent things to try to keep above water. CIH stepped in and took it over.

The reason we all need to watch this is that the mega dealerships effect us all. Even if you have a smaller dealership close by. If these large stores fail you will be effected. One was is your equipment's value can fall if a lot of equipment is "dumped" on the market all at once. Second is your local dealership can have the price of all their goods raised to try to cover the parent companies losses in other areas.

I think we will see some interesting thing happen in the next few years with these mega dealerships. One thing that could happen is that the industry could real easy vertically intergrade. Meaning the company/brand could own everything top to bottom. Then list price might be what you pay. Zero shopping around of all the stores say List is what it is. Think of Walmart. You do not "deal" on what you pay there.

NY 986 · Sep 1, 2014

Good analysis. Nearly all the manufacturers during the 1980's tried to let failed dealerships sit empty and all it did was get the negative gossip mill turning at high speed. Deere had some real black eyes here but the intro of the 50 series row crops and the demise of IH took the heat off in a matter of a couple of years. The heat would probably be on a lot longer this time.

Craig Thoricht · Sep 1, 2014

I worked, for a while, at an International truck dealership in Ohio. After the crash in 2008,we almost went under [for several reasons],but International has a crew that comes in and will do whatever it takes to maintain that market.
I got to know the one outside manager pretty well and he told me that this was a fairly common situation.
I f they do this for trucks,they will do this for the farm equipment side,as well.
I understand that they are two different companies,but there are times when they will not abandon a territory.
The transition will be difficult,and people will lose jobs, but I've seen it personally.

NY 986 · Sep 1, 2014

It is a somewhat unique situation as there is quite a bit of overlap in the CaseIH and New Holland product lines. If we have lean times such as the 1980's were it will be impossible to keep all of them open and the temptation will be there to thin the herd. I can see closures here in terms of CNH as there are CIH outlets not far from NH stores. I don't think they can all make it if big ticket sales are trimmed back to a handful of units for each location. The dealers here in the 1990's were ecstatic if they could sell a couple of combines across a 3 or 4 store chain. Locally, I think Deere has reached an equilibrium in terms of number of stores but would expect that chains may team up with each other.

Cas · Sep 1, 2014

The big question mark to me is how CIH bond debt structured. They might not be in a position to take on Titan bonds which now stand at junk.
I guess the best example would be White Motor in the early 1980s. It got to the point where it was every man for himself. See where that went and I like Whites.

IaGary · Sep 1, 2014

Years ago I was told by a major feed dealer- He would rather deal with 20 small hog farmers than 5 large hog farmers.

If two went broke it would not hurt him as bad as 1 large farmer.

Why didn't CIH see this and not allow one corp. to have so much market share?

Car dealerships may go the same way and already are.

How many of you have a Billion Auto dealer next to you?

oldtanker · Sep 1, 2014

Several times in the last 5 years or so Fiat has said that CIH/NH is for sale. The problem there is that it's huge. Add in the profit margins for CIH/NH haven't been great. So finding a buyer, who is willing to take on the whole works (that's how Fiat would sell it) with lower than industry average profits is impossible. A buyer would invest in something with a better return or wait for a "fire sale" price, pennies on the dollar. Raising parts pricing 41% at one shot will just about kill the profit end because a lot of red/blue guys are going to dump them and JD and AGCO will pick up that business. Fiat isn't going to let that happen. Now CIH/NH may allow Titan to raise prices on parts some to try to save them but with internet sales Titan would be shooting itself in the foot. They would loose both parts sales and new equipment sales. I do know the last time I checked prices on used equipment at Titan in Fergus Falls MN they have been way over average asking prices than that of private sellers and other dealers. Like a bidirectional where average asking was around 19K they wanted 33K. Bout the same hours and general condition. Or how about a Farmall 460 gasser, looked good for 6500 dollars? If Titan does fail CIH had better have a plan to reopen those stores. Lot of red around here and the closest non Titan dealer is small (14 used tractors in inventory) and 42 miles away.

Rick

NY 986 · Sep 1, 2014

No matter how you look at it CNH has got a serious problem and the solutions are few. A company wide price increase on parts may be the only option they have and save a lot of jobs on the corporate level. If we were looking at 7 dollar corn and 14 dollar beans somebody outside the company might step in to float Titan for a chance to profit on this. But now is a bad time for a dealer to take a dump knowing farmers are heading into a period of belt tightening.

RodinNS · Sep 1, 2014

I find these threads amusing... Dealerships go broke all the time. They appoint receivers and the court/receiver will make decisions about how to manage the mess and in a case like this will probably keep the lights on throughout and somebody will walk in as the new owner at a firesale price... and the ones holding the bag will be the shareholders.... if anything happens at all.
Personally I find the idea of a 41% across the board price increase very improbable... If the situation is that bad that it would require that kind of increase to keep the lights on... then the patient is already dead on the table. 41%, I suspect... would be a full doubling of dealer gross margin and perhaps more.

Rod

NY 986 · Sep 1, 2014

I think what JD Seller was getting at was this is not the run of the mill dealer failure. This can create damage at the corporate level and no doubt a lot of executives realize their jobs are on the line as they do have to answer to shareholders. I think also that JD Seller is saying that CNH does not have the reserves to weather this whereas if a small dealer underwent this CNH could carry the burden without a problem.

rrlund · Sep 1, 2014

Ya,this could be a little bit different deal than when White went out. They were part and parceled out and there was a buyer somewhere or other to take them in bits and pieces,but what does Agco want with another line of hay tools,or Deere with another line of 4 wheel drive tractors or combines? Pretty much all there is,is the big 3. One of those goes,all the other two will do is ramp up production and encourage entrepreneurs to buy those dealership buildings and sign a contract to sell Agco or Deere.

NY 986 · Sep 1, 2014

I think breaking up CNH is a quite a ways off. Also, there is the issue of the Justice Dept signing off on any breakup due to anti-trust rules. Raising parts prices company wide is the relatively most painless way to deal with this problem. That way nobody in the CNH dealer network has a decided advantage over other dealers. Raising wholegoods prices will result in a massive decline in sales share of the market. Farmers and other CNH customers might chaffe about this for a while but maybe the prices could be cut in a few years and memories will be short about this matter.

EricInSEI · Sep 1, 2014

Dealer ships already frequently are higher priced than other sources of parts. If CNH were to raise the price of parts 41%, I would think that they could kiss good bye all common parts. Belts, hoses, bearings, filters, and many other parts are available from other suppliers. Even some of the engines they use they buy from other companies so those parts are also available.

While there are parts you have to get from CNH, I would bet that the lost sales of all those smaller parts would really hurt. It could result in even less income from parts sales, I don't know what the breakdown would be.

rrlund · Sep 1, 2014

No break up is my point. If they go broke,nobody is going to be there and jump in to grab up pieces. If they go broke,they'll just shut down, a bankruptcy judge will order an auction of whatever they have in stock and that will be the end.

NY 986 · Sep 1, 2014

You may be right on this. I worry if things got this bad for CNH that some company out of China or Russian would jump in for pennies on the dollar.

NY 986 · Sep 1, 2014

I know I have too much time on my hands today but the hay tools portion of NH would fit into Kubota fairly well if things went that far.

rrlund · Sep 1, 2014

Kubota already bought Vicon and got their hay tool didn't they?

NY 986 · Sep 1, 2014

Yeah, they bought Kverneland of which Vicon shares technology with and at one time were financially linked. NH would give Kubota a square baler for the North American market plus a much greater share of mower conditioners and round balers. While Kubota was at it maybe they would look at skid loaders and manure spreaders. At that point maybe Kubota would sell off the forage harvesters to somebody such as AGCO. Maybe the combines would go to somebody outside the US.

rrlund · Sep 1, 2014

You could well be right about Kubota and New Holland hay tools. I think that would even expand their market around here since there are more Kubota dealers than New Holland. Some of the existing NH dealers might even take on Kubota to stay open the way that some White dealers went to Ford when White collapsed.

mab570diesel · Sep 1, 2014

I'd be great if ford bought them back,if it went to kubota i'd be on the deere or agco band wagon real quick.I wouldn't even buy parts off kubota for my older new holland/ford stuff.

NY 986 · Sep 1, 2014

I know even before the Titan problem people talked about Kubota buying CNH in its entirety. I just have the feeling that this is something Kubota really is not interested in doing. I am waiting for the industry "experts" to start talking about excess manufacturing capacity like they did in the early 1980's. Talk like that could hurt CNH in terms of suitors.

NY 986 · Sep 1, 2014

I don't see Ford ever going back to the farm equipment business. They were in tough shape in the 1980's when they bought New Holland and still thought they needed to be selling farm equipment. Hopefully, for a lot of people's sakes nothing happens to CNH but nothing can be assured.

Anonymous-0 · Sep 1, 2014

Our closest "non Titan" dealer is 80 miles away, and
the next closest would be probably 130 miles. But
the closest Titan dealer is 55 miles away.

RodinNS · Sep 1, 2014

I don't see that it's any different than any other bankruptcy from corporate's point of view... or mabey I should say not much different. The only difference is the territory that would not be covered if nobody stepped in to cover it.
In my view the most likely scenario here is that a receiver would be appointed to manage in continuum until the courts could sort it out... CNH would receive their floor plan back because it's secure, Wells will be left to choose their next managing partner and do a dance while jockeying back and forth for the tub of Vaseline, the employees will lose their pensions if they had any... and the rest will continue on, business as usual except they'll probably knife a bunch of underperforming stores. The lenders will have to decide whether they want to really recoup a little bit of their money now by forcing a sale of used equipment on a falling market... or mabey sitting and waiting for the sun to reappear...
What is clear in my mind is that someone WILL step in to run this chain one way or another because there IS a significant opportunity there for someone at a certain price... SHOULD that eventuality ever take place... which I'm not too sure it ever will.
CNH, for the most part... I don't think gives a tinkers damn who run the thing as long as somebody has a sign up with their name on it. There's no downside for them in having secure new stock in their name and overvalued used in Wells Fargo's pocket... or the shareholder's pocket. That's really just about the perfect scenario... somebody else take the bath without flooding the market.

Rod

Indiana Ken · Sep 1, 2014

(quoted from post at 12:50:25 09/01/14) I think what JD Seller was getting at was this is not the run of the mill dealer failure. This can create damage at the corporate level and no doubt a lot of executives realize their jobs are on the line as they do have to answer to shareholders. I think also that JD Seller is saying that CNH does not have the reserves to weather this whereas if a small dealer underwent this CNH could carry the burden without a problem.

A dealer "too big to fail", I love it... Does that suggest we should brake up the large dealers and have smaller dealers?

T in NE · Sep 1, 2014

I think the nearest non-Titan dealer in Nebraska (and maybe one of only a small handful) is in Seward. Good 4 our drive for us. Titan had people there courting them a while back, but they declined.

NY 986 · Sep 2, 2014

JD Seller would have to speak up as to the details but Titan is a multi-state operation as opposed to a two or three individual location dealer. If it were just a two or three location dealer of course people could just find their way to another CIH outlet without corporate sweating it much. Floor planning is not that big a part of a dealer's operation unlike a generation ago. At least here in the East dealers speak in terms of corporate prefers that nearly all machine inventory be pre-sold. So if the machinery has been delivered to the customer, the money collected or finance contract in place and there is still a billion dollars or more outstanding then there is a serious problem. That money may have been diverted to fulfill an expansion plan on the part of the dealer or it may have been embezzled. Again, the Midwest guys can tell us more about this but this situation is far from ordinary for a dealer failure.

NY 986 · Sep 2, 2014

My statement should read NEW machine inventory be pre-sold. Sorry.

RodinNS · Sep 2, 2014

I think some people in this thread are making the assumption that there is only one course of action in a bankruptcy proceeding.... when in fact there are many. In a single store location it would be easy to pull the plug, have an auction, liquidate all that can be sold for cash and move on. In these cases the sheer size of the territory covered and the obligations that go with that would/should be considered by the court. There would also be a huge intangible value placed on those dealership agreements... so there's value there to someone probably in excess of the 'real' value of the assets. There may also be more value there to the lenders to see someone else come in and buy the assets than there would be to sell it all off at a firesale price... Keep in mind that the owners equity is the first thing to get wiped out in this ordeal...
For what it's worth, the last time I looked at Titan's consolidated financials about a year ago I didn't see anything that seemed like a particularly imminent problem but a lot can change in a year..
Seems to me this talk about their bankruptcy and CNH selling off their assets turns up about this time every year when everyone is sitting on their hands with their thumbs stuck up their arses waiting for corn to be ready...

Rod

NY 986 · Sep 2, 2014

The thing that sticks out to me is the 41 percent increase on parts. If true this means corporate CNH is seeing a big problem that others are not seeing as CNH has all the Titan financials in hand for their bean counters to look at. If true the bean counters do not see enough value in the assets of Titan to cover their financial obligations aka liability. I would agree with you if this is a somewhat typical dealer failure this could be handled in a number of ways with a minimum of fuss and public speculation.

RodinNS · Sep 2, 2014

I patently do not believe that 41% figure... I know a fair bit about retail/wholesale and such and that figure would be generous on most categories for an ENTIRE gross sales margin over cost of goods sold. To double that margin or even suggest it is ludicrous. I could see a 2-3% swing or even 5% if things were desperate... but that in itself would equate to a HUGE amount of money. 5% would be a very strong net bottom line for a lot of retail operations... never mind 41%.

Rod

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