Apr 2, 2013 by Scott Garvey

Why a company-owned equipment dealership?

According to a report in a reputable
European magazine, Germany-based farm equipment manufacturer Claas is
preparing to open a network of 14 company-owned dealerships in the
northern part of its home country. The stores are said to open
sometime in 2014. Apparently, the brand is discontinuing its
relationship with the 19-outlet dealership chain that had been
selling into that market area.

One of the main planks in Claas’
marketing strategy is its emphasis on service. And while it isn’t
clear why the company is dumping its present dealer—or if it’s
dumping Claas—the manufacturer clearly feels company employees
working at corporate outlets are the way to go to meet the level of
service it wants to offer customers.

Assuming the report is true and Claas
does move ahead as reported (I couldn’t find any press releases on
the brand’s website confirming this), having its own corporate
dealerships will make that company pretty unique in the farm
machinery marketplace.

Back in the late 1980s, Massey Combines
Corp, which was splintered off from Massey Ferguson during its severe
financial crisis, toyed with the concept of company-owned
dealerships, opening one near Wichita, Kansas, and it had plans for
another before collapsing into bankruptcy. But there really aren’t
any other recent examples to cite—at least that I’m aware of.

So, is the move by Claas the cutting
edge of a new trend? Will other companies look more seriously at this
option based on whether or not that brand makes a success of their
stores?

With the new breed of independent
dealership chains showing excellent profits, it poses this question:
why wouldn’t brands want to generate additional revenue by retailing
their own machines?

Four of five years ago I put that
question to an executive at New Holland. His response at the time was
manufacturing and retailing are two entirely different businesses,
and NH—then—wasn’t interested in doing both.

Now, however, the relationship between
some manufacturers and their dealers may be changing with the growth
in size of retail chains. Very large dealers now have more leverage
in the manufacturer-dealer relationship. Will brands that have
allowed the creation of very large dealer chains remain content with
this new arrangement in the future, particularly if dealers continue
to grow in size and influence?

But the Claas situation might be better
described as an example of a brand having to make a repair to its
dealer network rather than trying to restructure it (in the absence
of public details on the Claas situation, I’m speculating here). And
if that is the case, in today’s world of multi-chain outlets the
company’s options are limited. Setting up corporate stores may be one
of the few choices it has. Here’s why.

A few decades ago when machinery
retailing was done primarily through single-store dealerships, the
unexpected closure of one wasn’t nearly as great a disruption as it
would be in today’s world of chains, like the 19-store one ending its
relationship with Claas. The unexpected or sudden termination of a
dealer network would now affect a very large region and a lot of
customers. The potential loss in sales and reputation for the brand
could be pretty significant.

Dealerships can fail, even in good
times, for any number of reasons, and business arrangements in any
industry don’t always go as planned. If the worst happens, how does a
brand compensate for losing a chain the size of the one Claas is
losing? The capital and effort required for an outside firm to
establish, staff and begin operations in a territory that large would
be enormous, making it unlikely the manufacturer could find a
suitable replacement in the short term. Claas may have had little
choice but to move in on its own and establish corporate dealerships
to salvage the situation and protect its market share in the region.
The stores could always be sold later.

As time goes by, it seems almost
inevitable that other brands will face a situation like this as well.
And their options will likely be just a limited. It will be
interesting to see how others deal with similar problems when they
occur—as they no doubt will.

Scott

Scott Garvey

Scott Garvey


Grainews' machinery editor Scott Garvey follows trends and innovation in equipment technology, takes a look at new farm machinery offerings, tracks their performance and goes into the workshop to find better ways to keep them up and running.


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