The Banner Lane based manufacturer has been making tractors for decades and has always been susceptible to the ups and downs of the world wide agricultural industry.

The signs of the latest slump have been there to see for at least six months.

Even though AGCO trumpeted record net earnings for the first quarter of this year they threw in some notes of caution with regards to the performance in the tractor sector:

"Industry results in Western Europe continue to be impacted by a severe decline in the UK [tractor] market compared to the first quarter of last year," Robert Ratliff, AGCO’s Chairman and Chief Executive Officer stated.
[press release - 30 April 1998]

The Asian market was the other area of concern:

Mr Ratliff said, "The Asian markets were down significantly over 1997 due to economic difficulties in that region, which was in line with our expectations."
[press release - 30 April 1998]

But at that time these weaknesses were balanced by healthy increases in both the North and South American markets.

By the end of July when the second quarter results were released the mood had changed significantly. The press release in its second paragraph stated:

"The Company also announced that it is leading the industry in aggressively confronting current negative market conditions. AGCO will adjust its production schedule to slash inventories, further boost cash flow and position the Company for strength in 1999."

The strength of the pound was by now beginning to have an affect on the sales of UK sourced products - Massey's tractors taking the brunt. Agressive pricing by competitors was also cited:

“The strong British pound continues to put pressure on margins of our UK sourced products,” stated Robert J Ratliff, AGCO’s Chairman & Chief Executive Officer.

“In addition, we have seen aggressive pricing actions by competitors in the second quarter. This has adversely affected our market share for the short term.”

But the writing on the wall for the unlucky 400 at Banner Lane was written large and clear in a section of the press release of 30 July headed 'AGCO's Flexible Production Strategy Facilitates Cost Savings'. In this Robert J Ratliff revealed what was to come:

"Negative market conditions in several regions adversely affected the industry this quarter. Most notable are the indirect impact of continued declines in the Asia Pacific markets, a decrease in sales to the Central and Eastern European region due to a lack of available financing, and depressed market conditions in Africa."

“AGCO’s management recognizes that these factors have reduced agricultural commodity imports from North America and Western Europe. This has resulted in increased commodity surpluses, which negatively impact commodity prices and reduce farm income. Industry declines continue in most Western European markets including the UK and France, which are significant markets for AGCO. These regions are down 39% and 5%, respectively, for the first six months of 1998 when compared to the previous year."

"In response to these negative industry conditions, we are reducing our 1998 production levels at AGCO's facilities in the UK, France and North America by a total of 17% of standard aggregate working hours."

The Chairman went on:

“We feel strongly that this timely action is the correct course to ensure solid results for the remainder of 1998 and a strong position for 1999. Unlike our competitors, AGCO’s flexible structure enables us to make these reductions immediately, without cost penalties other than the negative impact of overhead absorption."

By September analysts were clearly identifying this as an industry-wide problem. In a Reuters feature 'Farm machine makers embrace downturn' it was stated that the four main tractor manufacturers (Deere, Case, New Holland and AGCO) had announced planned production cuts. All the manufacturers plan to tough it out by tightening belts and reducing inventories. AGCO's Robert Ratliff clearly takes this view

"We definitely believe that at AGCO, that we have to prove that we can handle a downcycle aggressively and show that we can be successful at the trough, but also coming out the other side.''

A glance at AGCO's share price performance over the last few months [graph] clearly shows that it is going through rocky times in the eyes of the market.

It was AGCO's announcement on 7 October of their third quarter figures that quite bluntly spelt out what was to come for the Banner Lane workers less than a fortnight later:

"AGCO Corporation today announced that it has initiated aggressive production adjustments and cost cutting measures to balance inventories and operating expenses in response to revised lower second half 1998 and 1999 industry demand forecasts.

In the third and fourth quarter of 1998 total tractor and combine unit production will be reduced by an additional 8% from those reductions previously announced. These cutbacks will adjust dealer and Company inventory to recent changes in demand and position the Company for lower industry levels in 1999.

Operating expense is being reduced by over $15 million in the fourth quarter through personnel reductions and the curtailment of various operations. An additional $50 million in further expense reductions is planned for 1999, to support operating income targets."

Then on Monday 19 October the announcement was made that 400 out of the 2500 strong workforce at Banner Lane were to be made redundant.

Even though the indications were there six months ago what could be done by the company, the workforce, the unions or the council. Not much - this is all part and parcel of the industrial global markets Coventry's major manufacturers operate in.

But that is no consolation to the 400 men and women who now face an unemployed and uncertain Christmas. They make the tractors that plough the fields that grow the corn that makes the bread that fills the mouths of everyone.

And they are good tractors too - probably the best in the world.
  

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This page modified on 10 November 2008 09:49:15AM