Even if Case IH and New Holland ag equipment sales were to maintain their record-setting 2008 levels going into 2009, most industry observers believe it won't be nearly enough to offset the forecasted weakness in its construction equipment revenues.

When CNH announced its fourth-quarter financial performance in late January, all eyes were on the outlook for a "turbulent" 2009. Fears were also raised about its parent company's ability to raise cash.

Good Quarter for Ag

The fact that net sales from CNH's ag equipment division rose by 8% in the fourth quarter vs. a year earlier didn't quell fears that the continued deterioration of the firm's construction equipment business would drag the entire company down with it.

For the fourth quarter of '08, CNH reported a net profit of $114 million. Net sales of equipment fell 10.2% to $3.66 billion. Ag equipment sales were up over 8% to about $3 billion, but construction equipment sales were down about 48% at $695 million. The company expects the continuing weakness in global construction equipment industry sales to continue, with industry retail unit sales down a further 15% to 20%.

For the full year, net sales of farm equipment were up by 30% over 2007. The company is predicting that

2009 worldwide retail unit sales of larger horsepower tractors may decline 10-15% and industry retail unit sales of combines will be down 20-25%.

Bigger Problem?

CNH's outlook for the year and an unwillingness to forecast near-term profits "highlights the uncertainty for 2009," says Ann Duignan, machinery analyst for JP Morgan. Robert McCarthy, analyst for RW Baird, termed CNH's outlook "abysmal."

But beyond the difficult market conditions, some observers say the bigger challenge for CNH could be its ability to raise cash to maintain its liquidity position throughout 2009.

According to a Reuters report, CNH, which is controlled by Italian automaker Fiat, also warned that "financial market volatility and illiquidity in the asset-backed security market" were taking a toll on its finance business.

It said that Fiat — which is looking to acquire a stake in Chrysler LLC — was providing $5.2 billion in financing to the company at year's end, but "in light of continuing volatility in the financial markets, CNH has no assurance that funding at such levels will continue."

Fiat is looking to get financial aid from both the U.S. and Italian governments.

As its parent company looks to obtain outside sources of funding, CNH said the availability of its inhouse financial services would be "significantly limited."

This has led some to speculate that the need to raise cash may push Fiat into considering a sell off of one of its equipment brands. If this were the case, the most likely candidate could be New Holland, which appears to be lagging behind Case IH in both performance and perception.