By Stan Jackson
I am happy to add a few observations to “Looking Back: What Happened to Equipment Manufacturers in the Early 1980s Farm Crisis.” Of course I must disclaim any authority to act or write in Deere’s name. I can only report my observations and opinions while employed by Deere for 34 years.
Of many reasons Deere was able to survive the 1980s in the black while others suffered, these three were of major importance:
1. Deere senior management (Hanson, Becherer) and many subordinate managers, insisted that the excellent earnings of the 1970s be used to pay down debt, update factories with latest technology and launch a company-wide initiative to become the highest quality, low-cost producer. Deere spent lavishly on latest manufacturing techniques, just-in-time assembly methods and computer aided design and manufacturing and many other R&D projects. These cost savings allowed survival in the ’80s with a small but adequate profit. Simultaneously, they diversified into a very strong consumer products division, an expanding industrial market (world-wide) and a powerhouse financial services company.
2. With these efficiencies, laid in the 1970s, Deere executives built a strong balance sheet. With this strength they could borrow needed funds, issue corporate paper and fund modernization at very favorable rates in the 80s while others were paying extreme rates. For example, in the income statements below (and included in “Looking Back: What Happened to Equipment Manufacturers in the Early 1980s Farm Crisis”), notice that in 1980-1981, Deere’s interest and overhead costs were less that 5% of sales. These same costs for the nearest manufacturer were 14%.
3. Significanlty, Deere did not turn its back on customers and dealers. Throughout the 1980s Deere used its financial and marketing clout to continue developing dealers and customers. They developed excellent incentives for farmers to continue to upgrade their equipment during these tough times. Dealers were given inventory and interest incentives that helped them survive until better times. Brand loyalty was thus built at dealer and customer level.
In short Deere leadership practiced good fundamental business principles: frugality in good times; save for downturns, manage the balance sheet not just the income statement; invest in continues improvement (efficiency); AND TAKE CARE OF YOUR DEALERS AND CUSTOMERS REGARDLESS OF ECONOMIC TIMES!
