BUSINESS WATCH

Requiem for a heavyweight

Peter C. Newman March 21 1988
BUSINESS WATCH

Requiem for a heavyweight

Peter C. Newman March 21 1988

Requiem for a heavyweight

BUSINESS WATCH

Peter C. Newman

The bankruptcy of Massey Combines Corp. at Brantford, Ont., on March 4 threw into sharp relief the paradoxical plight of Canada’s agricultural implements industry. It is a little-known fact that one of this country’s few long-term experiences (over the past 50 years) with free trade is in this volatile sector, where Canadian tractor and other farm equipment manufacturers have had duty-free access to the U.S. market since the late 1930s. The results have not exactly been heartwarming. From having once led the world in pioneering the use of harvesters and new tractor applications, Canada is nowT in the position of having had its last agricultural implement manufacturing firm go belly up, retaining only one major tractor plant, a Winnipeg manufacturer recently sold to an American multinational.

It is difficult to imagine how essential the industry once was to Canadian life. When the West was being settled, a Massey-Harris marching band would lead parades of newly delivered farm machines into the raw Prairie towns, with the company treating the purchasers to free concerts and dinners. Massey’s world reputation had been established at the 1897 Paris International Exposition, and its technology dominated the rural scene for generations.

The company had moved into the U.S. market as early as 1910, with the purchase of the Johnston Harvester Co. of Batavia, N.Y. Its self-propelled combine, built at the recently closed Brantford factory, revolutionized the industry. With the entire North American market at their disposal, Canada’s agricultural implement firms prospered, selling 40,000 harvesters as recently as 1980. Last year Massey’s sales totalled fewer than a thousand units, and, with its Brantford operation kaput, the parent company (renamed Varity Corp.) has not a single manufacturing plant left in Canada.

Fifteen years ago Canadian firms still controlled about 12 per cent of the North American tractor market. Now the percentage is so small that it can barely be calculated. That is a mystery because, at last count, there were nearly two million tractors, which require periodic replacement, on Canadian farms. While the farm implement business is highly cyclical (in fiveand seven-year spurts), Canadian farmers purchase an average of $2 billion worth of

tractors and farm implements a year. In 1987, 17,793 tractors were sold in Canada, out of a North American total of 125,982.

Except for that lone factory in Winnipeg, tractors are not made here anymore. The industry’s sad record emphatically substantiates the case against free trade with the United States and the claim that the ultimate result of any such treaty will be to drive all or most of our secondary man-

ufacturing facilities south of the border, where they can be closer to the large markets.

The exception to all this, and it is a fascinating case study, is the story of the Versatile Farm Equipment Co. in Winnipeg. The company was bought out in 1977 for $28 million by the Vancouver-based Bentley family’s Cornât Industries and was run for the next decade by the Vancouver entrepreneur Peter Paul Saunders, with mixed results. There were more technological

breakthroughs—particularly the invention of a bidirectional tractor that could push as well as pull so that farmers could attach implements at both or either ends of the vehicle. The company captured a quarter of the North American four-wheel tractor market and prospered for a while, but Cornat’s cash-flow problems forced a sale.

After some abortive dealings with Illinois-based John Deere & Co., Versatile was sold to a company named Ford New Holland Inc., the tractor arm of the huge Ford empire, with headquarters at New Holland, Pa., 96 km west of Philadelphia. Although the announced sale price was $126 million, the Americans paid only $34.5 million in cash for the facilities, the rest accounted for by their assumption of Versatile’s accounts receivable. (The Canadian government loaned Ford New Holland $45.5 million: that arrangement requires no principal repayment until 1997, and the entire interest is forgivable as long as the company spends at least $4.5 million a year on research at its Manitoba plant.)

One advantage of the new deal to Versatile is a much larger sales network. It has expanded from 330 dealers to 2,600 agencies already handling Ford products in North America, as well as 2,300 other Ford outlets in 100 other countries. But the company has lost its independence, the tractors no longer carry the Versatile logo on their hoods, and former president Paul Soubry has been demoted to a vice-presidency in the international Ford organization. Still, the Belgian-born executive who has spent 30 years in the industry says that it is the best thing that ever happened to him.

“We had something that everybody wanted but we needed access to a larger marketing oganization,” Soubry told me about the Ford sale. “We now also have access to technology we could never get before and are able to defy the economies of scale by concentrating on quality. Quality is a bloody religion with the Ford people—we have to show them our quality-control index each month, even before our sales numbers.”

Maybe. But Soubry’s comment on free trade—speaking as the last surviving boss of the last branch plant of what was once Canada’s leading manufacturing industry—is the most sobering: “Under free trade,” he said, “we’ll either have to be the best or disappear. That may sound cruel but it’s about to become a fact of Canadian life.”