Dealer’s Issues Making Headlines in Pennsylvania
Dealer consolidation and the clear desire by some major tractor corporations for exclusive relationships with the remaining dealers is hardly news to shortline manufacturers and their independent dealers. It’s a subject we have been discussing and working on for many years. What we did find surprising is that earlier this month, the Central Penn Business Journal took on the subject, including a feature article “Combine Nation — Farm Machinery Dealers Seek More Rights Amid Consolidation.”
The article was prompted by a bill which has, in various forms, languished in the Pennsylvania legislature for several sessions. The current stripped down version, Senate Bill 1169, was recently passed by the state Senate on a 38-11 vote and is awaiting action in the House.
Timothy Wentz, field manager of the trade group Northeast Equipment Dealers Association Inc. explained to the business publication that, “three or four large manufacturers dominate the world’s market for agricultural equipment.”
Wentz also said that those giants are intent on using their market power to streamline their distribution chains and manage competition. “They’re leaning on favored dealers to take over their smaller cousins, and making it hard for the latter to stay in business,” Wentz added.
To redress the balance, state Sen. Mike Waugh, a York County Republican, introduced SB 1169, which passed the Senate in March.
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 article notes that in Pennsylvania, farm equipment wholesalers and dealers constitute 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. John Deere is leading the charge against us.”
“Home Depot and Lowe’s sell major brands side-by-side and independent dealers should have the same right,” Wentz added. “If they did, they could bargain with various manufacturers, rather than having terms imposed by a single supplier. Ultimately, customers would benefit.”
Given a chance to respond to Wentz’s charges, Deere company spokesman Barry Nelson insisted that John Deere doesn’t object to dealers selling shortline makers’ products if they need to, however, Deere’s full-line competitors are a different story. “When a customer goes into a John Deere store, we want it to be a John Deere store,” Nelson said.
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,” Wentz added.
After reading the article our Association wrote the author, Tim Stuhldreher and thanked him for focusing attention on this important issue.
We reminded him that our members are small manufacturers who survive on innovation and competition.
If a dealer needs a specific piece of equipment modified, to best meet the needs of farmers in his/her area, our members can often respond in days or weeks, instead of years (or never), as can be the case with the major tractor corporations.
We also pointed out our disagreement with Barry Nelson’s statement that John Deere doesn’t object to dealers selling shortline makers’ products if they need to. We noted he was careful not to say Deere doesn’t object to dealers selling any “shortline equipment” the dealer freely chose to select for his sales lot.
We fully understand the difficult position independent dealers are placed in when their major supplier, a multi-national tractor corporation, places restrictions on them with whom they can do business.
When those restrictions are allowed, our small manufacturers can be left with very limited distribution options. Dealers are left without the ability to select the best suppliers, and farmers are left without the choice, value and innovation our small manufacturers bring to the marketplace.
Our Association supports a free and open marketplace, where farmers have a choice of dealers, where dealers are free to select the equipment that best serves their market, and all manufacturers are free to compete for the dealers’ business.
It is regrettable that current conditions require a state legislature to take action to protect independent dealers from their major supplier.
While we commend Pennsylvania State Senator Waugh for his efforts on behalf of Pennsylvania’s independent dealers, we encourage lawmakers to focus their efforts directly on the problem, giant multi-national tractor corporations, which have the ability to dictate terms in their contracts with independent dealers.
We believe, in most cases, a carve-out for manufacturers, who are a small percentage of the dealers’ annual sales, is the fair way to address the real problems independent dealers face.