OCT 98] BUSINESS FEATURE
Massey Job Losses
- The Writing On The Wall
BY CHRIS STUDMAN
AGCO has added to Coventry's recent jobs gloom with the
announcement of 400 redundancies at its Massey Ferguson subsidiary.
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, AGCOs 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, AGCOs 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
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
"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."
AGCOs 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
"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
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, AGCOs flexible structure enables us to make these
reductions immediately, without cost penalties other than the negative impact of overhead
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
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