Debt-wary farmers produce drought for sellers of tractors and harvesters
Joliet, Ill. — These days, nobody pays much attention to Jim Gast's shiny red machines. The parking lot is empty. Inside, the salesroom of this Joliet farm implement dealership is quiet.
The lull is not unusual for this time of year. Tractors and combines don't sell well during the lazy days of summer. But many in the farm implement industry have doubts that sales will break out of their long slump anytime soon.
Mr. Gast is one of the fortunate dealers. While sales nationwide have been sluggish since 1980, he has made money in three of the last four years. Weather has been kind to the region - so kind that Gast calls it ''paradise valley.'' And this particular sunny day has been brightened by the sale of one large International Harvester combine.
But for other dealers - and for farm implement manufacturers - 1984 is turning out to be another lean year.
It was not supposed to be that way.
Industry analysts earlier had predicted the dollar volume of farm machinery sales would increase 10 percent over 1983, which was regarded as a dismal year. The industry also expected to sell 12 percent more large tractors (100 horsepower or more) this year.
Those expectations have been scaled back. LaVon Fife, senior economist at International Harvester, still forecasts an increase in total dollar volume, but one to three percentage points lower. Sales of large tractors are off even more. Mr. Fife says they might not even equal 1983 figures.
Acknowledging that farm equipment sales tend to be cyclical, the analysts nonetheless say the downturn has been unusually prolonged.
''Every two years or so, when there's a slump like this, you can expect it (the business) to come back,'' says Richard Howell, public relations director for the Farm and Industrial Equipment Institute. ''It's been four years and it still hasn't come back. That's not normal.''
The reason is an apparent major change in farmers' attitudes about debt, economists and other observers say. After decades of piling up more and more debt, these farmers have become wary of borrowed money.
They are looking into renting farmland instead of taking out the necessary loans to buy it. And they are passing up purchases of new equipment.
The farm implement industry had expected farmers to use the money earned from the government's 1983 payment-in-kind (PIK) program to buy machinery. But in May and June - when Midwestern farmers traditionally buy large tractors for spring planting - economists found an unexpectedly weak market.
According to dealers and other observers, farmers used a lot of their PIK money to repay old debts.
''We didn't see any of it,'' laments one Illinois equipment dealer.
Instead of new machinery, many farmers are buying it used or patching up their own aging equipment to get through another year.
All this does not bode well for the industry, already suffering from overcapacity and financial losses.
The International Harvester Company has extended its annual summer shutdown from two to five weeks.
And the firm's officers no longer talk of a possible profit this year, which would have put an end to a string of disastrous years.
For dealers the situation is scarcely better.
Profit margins are so thin on new machinery sales that some dealers manage to hang on only by what they earn from servicing machines, says Tom Glaub, director of the publications division of the National Farm and Power Equipment Dealers Association. Others have closed. Dealer membership in the association fell nearly 13 percent between 1979 and 1983. This continues a long-term reduction in dealer numbers as the farm population has dwindled.
Observers are split on whether farmers' debt-dodging will be an enduring phenomenon.
Fife of International Harvester sees it lasting for at least another three years before farmers feel comfortable about borrowing in large numbers again.
''I think it's just a cycle,'' he says. If the farmer ''makes money, he'll spend it. If he doesn't make it, he's not going to spend it.''
Nevertheless, the Joliet dealer has taken steps to streamline his operation. He has cut back hours of his 21 employees.
And he has reduced inventory in the past few years. Instead of 30 tractors on hand to show customers, he now carries nine.
One important factor in 1984 profits, he says, is how many combines he can sell this fall. Besides the one sold on this day, he has four in inventory and three more on order.