Interview with Rusty Fowler, CEO, Krone North America, Memphis, Tenn.

Beyond introducing advanced products to keep up with today's shorter technology cycle, dealers are increasingly looking to their shortline suppliers to support them in employee training and customer trades.

"Krone is a 105 year old company with global distribution in more than 40 countries. They were already established in North America for 14 years when I joined them in 1987.

"We've always specialized in traditional hay tools, but around 1998 our product line was segmented to include larger, self-propelled equipment for harvesting hay and forage crops.

"Today, our North American operations are separated into two groups. The first is what we call our 'core products.' This is what we came to this country with and includes traditional hay tools, such as rakes, tedders, mowers, balers and mower/conditioners. We offer advanced versions of these products today.

"One of the biggest challenges facing dealers and manufacturers today is keeping up with the shorter technology cycle. We're taking a larger role there, including direct engagement with the dealers' customers."

"Then, about 13 years ago, Krone began producing our commercial machines. These include our Big X forage harvester, the harvester heads that go with them, the Big Pack big square baler line and the Big M self-propelled mower/conditioner, the first commercial product we offered starting in 1998.

"The first Big M was sold to an operation in Lyons, Neb., and it's still running today. The manager calls every year to let us know it's still operating, and he's bought two other Big Ms since then. I think we're going to buy it back some day and put it in our showroom."

Recruiting Dealers

"When I joined Krone North America 25 years ago, we had about 35 dealers. We have nearly 350 now. With our different product segments, we approach dealer recruitment in two different ways.

"With our core products, we continue doing the standard blocking and tackling that we've done for years to identify our open markets and prospective dealers in that market. We have very capable people in our field organization who are constantly working to develop relationships with dealers we're interested in. Sometimes the relationship happens quickly, but other times it may require 2-3 years to establish it.

"A real benefit to building a dealer network from the ground up is getting to know a lot of dealers one on one. I continue to enjoy these long term relationships but I've also learned that if you've got the wrong dealer, you're better off not having a dealer at all.

"This is especially true when it comes to our commercial products, where we're much more selective. First of all, we don't need large numbers of dealers to carry these products. Their market potential is relatively small compared to products like 100-plus horsepower tractors and combines. We only need a few dealers, but we need absolutely the right dealers. Typically, they cover large geographic areas and, because of the nature of the products, the commitment level is much higher.

"Nonetheless, we're always looking for good dealers and I'm sure we always will be."

Shorter Technology Cycles

"One of the biggest challenges facing dealers and manufacturers today is keeping up with the shorter technology cycle. Technology in the last 10 years has come at a faster pace than I've ever seen it in my 40 year career. So much so, that a machine that was considered leading technology 2 years ago is often looked at by the more progressive farmer or custom harvester as being inadequate today.

"What that's done is cause us to raise our standards for training our own people and training our dealers' people to keep them up to date.

"In many cases, the dealer's major line supplier is tying up a lot of his personnel with training. They don't necessarily have the training time to devote to our equipment. So, they're relying more on us to fill in and, of course, we're willing to do it.

"We've formed a dedicated training group to provide the training that used to be performed by our technical products group. Our own technical people are also taking a major role in the dealers' technical service support. It's taking more resources, in both time and money, on our part because many dealers just can't keep up on their own. Therefore, we're taking a larger role, including direct engagement with the dealers' customers."

Expectations for Dealers

"When it comes to what we look for in our dealers, it's not always possible to find the perfect distribution partner, but if we do they often have similar characteristics. The first things we focus on is that the dealership is adequately capitalized and has adequate facilities. These are more important today than they've ever been. We prefer that they're in a location that's central to the market they serve and easily accessed from major highways. Capable personnel with low employee turnover says a lot about their professionalism and continuity. These are some of the things that represent good dealerships and successful dealerships.

"We prefer the dealership's management style to be professional vs. 'country casual.' In years gone by, country casual was very common. I don't believe this management style is going to cut it in the days to come.

"Especially in our commercial products, we require sufficient levels of investment in parts inventory, service training and special tools. Our field sales personnel work diligently to make sure the dealer's salespeople focus on the Krone product line and get actively engaged.

"Another very positive characteristic, not necessarily performance related, is that a dealer is active in its community or industry through dealer or equipment associations. A lot of the really good dealers I see are involved with things that support their community and their industry. That's icing on the cake. When someone's doing that, he's got the right frame of mind about relationships and his caring and concerns extend beyond his business."

Bigger Machines — Shorter Trade Cycles

"The larger self-propelled machines continue to be our primary driver for growth. Customers are getting larger, farms are getting larger, dairies are getting larger and dealerships are getting larger. Our equipment has had to follow. This has changed our sales process somewhat. We have to be better at our jobs much like the dealership salespeople have had to be. The old dried-up 'features and benefits' pitch that we've used for so many years, is no longer adequate in addressing customer needs.

"The other thing that's happened with the advent of these larger machines is that the expectation level of the customer is much greater than it was 10 years ago. They expect more from the dealer and the dealer expects more from us.

"These rapid changes in technology have also led to shorter equipment trade cycles. We've had to get real creative with the second-tier customer for these large, expensive trades. The value of these trades, sometimes occurring every two years, is often very high.

"The bigger, more progressive operators want the biggest and newest state-of-the-art machines that are also the most expensive. They're not looking for good used equipment. Finding that second-tier customer on these expensive trades can be a problem. It's very limited.

"When a dealer has made good sales and taken in a lot of trades, he can get to the point where he can't afford to trade anymore. It doesn't behoove us to let a dealer get into that situation. We need to help him move that trade.

"We've done some of the traditional things in this regard, but we've also worked with the dealers to put together the Krone Big Iron web site where they can list their used machines.

"More importantly, we work closely with customers nationwide on behalf of our dealers. We try to find places where used machines are needed. So far, I'm not disappointed in our results but we will need to become more creative in the future."

Operational & Design Challenges

"As the machines get bigger and more powerful, they have presented us with bigger challenges. Big engine technology is a good example where many manufacturers have been challenged. But looking beyond that, why do you need a 900 or 1,000 horsepower machine if you can't put a large enough head on the front of it to utilize all of the power? This led Krone to develop the EasyCollect corn heads. These heads in 8, 10, 12 and 14 row widths not only accommodate the high horsepower, they have also improved the performance of our biggest machines as much as the power unit itself. It's simply a better way to deliver the crop to the processing unit.

"Electronics is another area where equipment is changing fast. We're introducing field management type technology and sensor driven performance and diagnostic systems, making it easier for the operator to tell what kind of job he's doing or providing diagnosis for service or performance issues. Huge advances are also being made using electronics over hydraulics, such as in GPS guidance systems.

"All of the forage harvester manufacturers have now gone to higher transport speeds, a big benefit for the North American market, but this has really challenged our engineers in Europe. They had to make forage harvesters bigger, faster and more productive and keep them less than three meters wide (about 10 feet) for transport. We now have a 14 row corn head that will fold flat and is less than three meters wide."

Dealers' Changing Needs

"A few years ago, I came to the realization that if we didn't design our programs to be more like the majors, we were not going to be successful in recruiting and maintaining a dealer network. What dealers want from us, and I'm sure from other shortliners, are programs more like their major line suppliers. So, we try to craft our programs to be more like them and that's been successful, but it comes at quite a cost.

"That has been critical in our ability to recruit new dealers. But just as importantly, when we present to a prospective dealer, we're able to tell them that the Krone product line is different and unique. And that means we have meaningful features and advantages that other equipment doesn't. When dealers go out into the marketplace to sell that product, they're the only ones that have it and that creates demand in the AOR that the dealer trades in. This is as big a pitch as the dealer programs we offer.

"On the program side, ours is very similar to the majors, including volume discount and retail financing. We have a branded retail financing company, so we can offer that and used equipment floorplanning. In fact, our program for used equipment may be even a little better than the majors right now, as we're hearing the majors are cutting their terms. Admittedly, I would like to be able to do that too, but I don't see it coming anytime soon."

Solid Retail Outlook

"Our fiscal year runs August through July and I'm looking for an 8-10% increase in retail sales with most of that coming in the last half of this year. We've all seen the net farm income projections. It's really unbelievable.

"The wholesale side is not as clear. Our inventories continue to drop, and we see some reluctance on the part of dealers to stick their neck out and order a bunch of machines. They want to see some sustainability in market conditions. They want to see the price of oil staying down. They want to see milk prices staying up at a reasonable level. These things have fluctuated so much in the last 2 years that dealers are more hesitant than they were in years gone by.

"Overall, this is going to be a big year for Krone because of the new products we're introducing. We're excited about a new series of triple mowers. We see some big business in that product area so we'll be introducing a new line to make us a bigger player.

"We've got a new round baler line that we'll be introducing that will produce very high density bales. It's an extremely attractive product, and it's going to turn heads when people see it. A non-stop Krone round baler received a gold medal at the Agritechnica show in Germany last November. It's a preview of more innovation coming from Krone. We're also bringing out a higher capacity big square baler that provides for increased density levels.

"All of the new products that we're bringing to market are aimed at bringing the cost per unit of production down. That means cost per bale, cost per acre, cost per hour or any other measurement that an operator might use. This really is new equipment, not warmed over products."