Go big or get out. Beset by tightening margins, their options constrained by suppliers who demand exclusive relationships, many of Pennsylvania's independent farm equipment dealerships are facing that stark choice.
Three or four large manufacturers dominate the world's market for agricultural equipment, said Timothy Wentz, field manager of the trade group Northeast Equipment Dealers Association Inc. Wentz works out of Carlisle; the association is based in Liverpool, N.Y.
Those giants are intent on using their market power to streamline their distribution chains and manage competition, Wentz said. They're leaning on favored dealers to take over their smaller cousins, and making it hard for the latter to stay in business, he said.
Dealers in Pennsylvania and elsewhere lack the legal protection they need to fight back, he said.
"The current Pennsylvania law is one of the worst in the country," Wentz said.
To redress the balance, state Sen. Mike Waugh, a York County Republican, introduced Senate Bill 1169. Modeled on the state's law governing automobile dealers, it passed the Senate in March by a 38-11 vote and is awaiting action in the House.
According to a summary from Waugh's office, the bill:
• Prevents manufacturers "from unduly using their influence to prevent a local dealer from purchasing the equipment of a competitive manufacturer or supplier."
• Prevents manufacturers from requiring dealers to have separate repair facilities for each brand.
• Protects dealers from having their franchises terminated without cause.
• Bars manufacturers from insisting on mandatory arbitration clauses to resolve disputes.
"I introduced this bill at the request of local farm equipment dealers," Waugh said in a statement. "They're being told what they can and cannot sell, and it's impacting their business and local farmers significantly."
The dealers' organization strongly backs the bill, Wentz said.
"I think it's important that the state level the playing field," he said.
The big four
A generation ago, dozens of full-line farm equipment manufacturers competed for U.S. customers' business. Today, though several "short line" companies offer products in this category or that, Wentz said the full-line offerings of three "primary manufacturers" dominate the market: John Deere, CNH and AGCO. Some analysts consider Kubota a fourth primary manufacturer, he said.
In Pennsylvania, farm equipment wholesalers and dealers constitute a roughly $1 billion business, according to the U.S. Census Bureau. In 2007, the most recent survey year, the industry had nearly 3,000 employees at 255 Pennsylvania locations, the bureau found.
The primaries have the power to impose largely one-sided contracts on dealers, Wentz said. The East Coast ag economy is varied, and equipment dealers want to sell multiple brands to reach all the customers in their market, but manufacturers bar them from selling or servicing more than one major line at a given location, he said.
"John Deere is leading the charge against us," he said.
Home Depot and Lowe's sell major brands side by side and independent dealers should have the same right, Wentz said. If they did, they could bargain with various manufacturers, rather than having terms imposed by a single supplier, he said. Ultimately, customers would benefit, he said.
John Deere doesn't object to dealers selling short-line makers' products if they need to, spokesman Barry Nelson said. However, Deere's full-line competitors are a different story, he said.
"When a customer goes into a John Deere store, we want it to be a John Deere store," he said.
Fewer and fewer
Manufacturers and dealers agree their industry is in the throes of a major consolidation.
The number of dealers in North America has dropped by a third over the past decade, Wentz said. Meanwhile, the number of dealers with at least five locations grew from 151 in 2009 to 187 in 2012, according to Ag Equipment Intelligence, a newsletter put out by Lessiter Publications. Lessiter publishes Farm Equipment Magazine, a trade journal.
Nelson, the Deere spokesman, described the change as a grass-roots trend.
"A lot of the strong dealers are taking on more locations," he said. "We find some of those more consolidated dealers can be more efficient."
Some dealers, however, accuse manufacturers of doing all they can to accelerate the process.
In a 2009 article, Farm Equipment Magazine compiled complaints from dozens of dealers alleging heavy-handed tactics on the part of manufacturers.
"From demanding 'brand purity' to assigning ambiguous and, in some cases, patently unfair market share goals, the major ag equipment manufacturers are utilizing their leverage to achieve their aim of fewer but larger dealership groups," the article said.
Manufacturers play dealers against one another, granting one the right to sell a particular line while withholding it from another, Wentz said.
Such favoritism has decimated the value of family businesses that took generations to build, Agricultural Equipment Magazine said.
Charles Hoober is the chairman of Hoober Inc., based in Leacock Township in eastern Lancaster County. The Hoober dealership sells Case IH — which is a CNH brand — and several short lines at five stores. Hoober's father started the business in 1941; his son is its president today.
Business today "is a totally different ballgame" compared with 70 years ago, he said. The equipment is expensive, high-tech and computerized; selling, servicing and using it requires more training and knowledge than before.
A number of economic factors favor the multiple-store model, he said, one in particular: Dealers with multiple stores can turn over inventory more quickly. Because equipment isn't stored as long, it can be sold at a lower margin.
The same applies to parts, he said. A specialized valve or gear might sit on the shelf at a single-location dealership for months before it's needed. With five locations, Hoober not only sees demand for a large inventory of parts but runs a fleet of trucks to shuttle them from store to store, keeping inventory lean and efficient and turnover brisk, he said.
Again, the result is lower cost, he said.
The downside, he said, is that plenty of single-store locations do a great job serving their markets. More often than not, they are family businesses with deep roots in their local communities, he said.
John Deere doesn't favor one dealership over another, Nelson said.
"We treat our dealers all fairly, as fairly as we can," he said.
Nevertheless, scale can offer a dealer advantages, he said. He listed many of the same points Hoober did: A fleet of service trucks, efficient inventory management and personnel trained to handle the latest technology.
The dealers' association worked for more than four years on Pennsylvania's pending bill, Wentz said. It succeeded last year in getting similar legislation passed in Maine.
Wentz said dealers deserve to make their own decisions regarding which manufacturers' products and services to offer their customers, a right car dealers and big-box stores enjoy.
"The relationship needs some balance," he said.