The Dec. 20, 2022 announcement that Titan Machinery had acquired Pioneer Farm Equipment’s 5 Idaho locations reminded Farm Equipment editors of some previous coverage of a presentation given by Herman Wilson, retired owner of Pioneer, back in 2009.

13 years later, it's interesting to review Wilson's comments on structural changes needed in the industry, including dealer numbers, contract approvals, inventory, margins, market share, among others. 

Farm Equipment Editor/Publisher Mike Lesstier saw Wilson’s presentation at the September 2009 Italian Farm Machinery Convention in California. Upon returning from the meeting, Lessiter wrote, “Immediately following me on the program was Herman Wilson, president of the 15-store Pioneer Equipment Co., with locations in California, Idaho and Texas. Having gotten to know Wilson (who’s also a CPA) on a trip to Europe a few years ago, I expected him to call it like he saw it, and he didn’t disappoint. In fact, it was the most candid presentation by a dealer-principal that I’ve witnessed.”

A few highlights from that column include:

From the time his mic was turned on, he pulled no punches. “This industry has too much structural cost for what we’re doing for our customers,” he said. “It’s costing me 15-20% more than it should just to get the product to my door — those numbers need to be sliced significantly. You can’t do it as long as we have huge inventories that pile up and the industry is still run like it’s 1935.” Here are a few points from Wilson’s address.

Dealer Numbers. In the post-World War II era, a tractor dealership in every town was necessary due to horse-to-tractor conversions and the reliability/repair issues of the day. “In today’s world, it’s ridiculous to have dealerships closer than 50 miles apart.” The question that the dealer is never asked, he says, is how much extra he’s willing to pay to keep two stores open that should be consolidated due to insufficient volumes.

Contract Approvals. Wilson recently saw a sales prospectus for a John Deere dealership that was priced $5 million below its fair market value. “Because of Deere’s insistence in giving the dealership to a particular buyer, they destroyed the value of the dealership. Why he didn’t sue I don’t understand. Manufacturers feel the only value is their name on the signpost, but we’ve all seen manufacturers try to run their own stores and not succeed.” 

Read the full article here.

A second article — Web Exclusive: Herman Wilson Telling Your Side of the Story — breaks down more of Wilson’s presentation and touches on: parts margins, the wholegoods value chain, market share irrationality, inventory, field representatives, and more. 

Some highlights from that article include:

Parts Margins. “The dealer is getting less than his fair share of the parts pie because of inefficiencies in distribution,” says Wilson. According to Wilson, the current margins on parts are about 30% for both the dealer and manufacturer. “The major’s 30% share was established back when the manufacturers actually manufactured something. If less than half of my orders come from the depot, why should the major get 30% of the shipment cost?” The new model he shared allows for a 40% margin for the dealer and 18% for the manufacturer.

Market Share Irrationality. “If I put a deal in front of the customer and the manufacturer decides not to come to the party price-wise, whose responsibility is it if we don’t get the order?” He also discussed market shares and how the numbers are getting jacked around. “If we have a customer that trades his tractor every 3 years or 600 hours and we go and talk him into trading every two, our market share just went up a bunch. But in the end, there’s still the same brand of tractor in that barn that still gets 600 hours of use a year.”

Inventory. Regardless of whether it’s the manufacturer or dealer that owns the inventory in the system, it needlessly increases capital costs. Inventory ought to be a joint effort instead of threats on what will happen if a given level of inventory isn’t ordered. Wilson says that the master distributor model  — holding the manufacturers’ inventory — could cut distribution cost since aggregate inventory is better than fragmented inventories. “The master distributor would hold consigned inventory and deliver based on sales.”

Read the full article here.

Related Content:

Titan Machinery Acquires Pioneer Farm Equipment Co.'s Idaho Dealerships

Editor's Page - Telling Your Side of the Story

Herman Wilson Telling Your Side of the Story