Advertise in Print | Subscriptions
Published November 11, 2013, 10:27 AM

Cash flow

How will ag iron sellers thrive in 2014 and beyond?

By: Mikkel Pates, Agweek

Farm equipment dealers will need to focus on cash flow if they’re going to survive and thrive in a new period of lower commodity prices and higher interest rates.

Jim Weber, a capital goods industry consultant and equipment industry columnist from St. Petersburg, Fla., will speak in Bismarck, N.D., on Nov. 19 and 20 as part of the North Dakota Implement Dealers Association annual meeting.

Weber tells Agweek his sessions will focus on two topics.

A 1:15 p.m. session on Nov. 19 for both the auto and ag equipment dealers will focus on growing a business by developing a professional image.

“Be prepared to have a culture in place to make changes that are necessary,” he says. The successful businesses will need to work on a dozen issues, including internal matters — ability to change, empathy, a system of rewards, communication, esprit de corps, teamwork and strategic focus.

Nov. 20 sessions, at 10:15 a.m. and continued at 1:30 p.m., will focus on improving dealership cash flow.

One of the things manufacturers have done in the past decade to assist dealer cash flow is purchase their dealers receivables on a daily basis.

“When you’re buying a trade-in, you should be buying it on the projected number of days it is going to stay in the inventory,” Weber says. “That’s going to become the driving force.”

Weber acknowledges that he predicted a 25 to 40 percent shakeout of dealer entities in the U.S. between 2000 and 2010, but that didn’t happen. He says that’s because neither he nor anyone else could have predicted the period of low interest rates and high commodity prices during that time. He says economic indicators point to those factors changing now, which will have dire consequences if dealers don’t make necessary changes. The Federal Reserve Bank has indicated interest rates could increase by the second half of 2014. Commodity prices have fallen, with corn at about $4 per bushel, compared with $7 just a year ago.

Cash flow first

Weber predicts dealerships will fail if they don’t fully embrace the goal of cash flow first and profitability second. Among other things, this means being willing to do what is necessary to turn inventories more quickly, even if it means taking lower margins.

The successful strategy is “not about the optimization of paper profits, it is about the maximization of positive cash flow,” he says. “I’m not saying you drop the margin, I’m saying you speed the turn.” He says manufacturers continue to emphasize larger dealer chains, rather than individual or smaller chains.

He says smaller dealers need to emphasize cash flow to survive, and should want to even if they are considering selling. “At least generate the cash so the value of your business becomes greater,” he says.

Weber has been in the capital goods industry for some 35 years. He started with International Harvester and then obtained a doctorate from West Virginia University. He went on to work with numerous ag manufacturers in dealer trainer positions, including with Massey Ferguson, J.I. Case, New Holland, Caterpillar, Case International and AGCO.

He says the past 10 years or so have been unprecedented for dealers.

“If they’ve failed in the past 15 years, it’s totally due to management,” Weber says. “When you have record-high commodity prices and record-low interest rates, how could anyone fail in this business?”

Agweek is a sponsor of the conference. To register for the convention, go to: www.ndida.com.

Tags: