Ford, Fiat merger brings speculation.

Ford, Fiat Merger Brings Speculation

THE FORD-FIAT merger, if approved by various governments, would create the world's largest farm/construction machinery company and give the new firm a broader range of products than either of them has at present.

Mounds of details must be ironed out, and governments here and abroad must give their blessing to the union, but the prospect of the merger taking place has given rise to some interesting facts and some rampant conjecture about the two organizations.

"I really don't know that much about them, but my gut feeling on Fiat is I'd rather be playing with these guys than against them," commented Ron Kohlert, chairman of the Ford New Holland North American dealer council.

Kohlert, of Highline Farm Equipment, Wetaskiwin, Alberta, Canada, said there's a generally positive reaction to Fiat's agreement to take 80 percent control of a new company that would be formed out of FNH and FiatGeotech.

"First, I'm glad to see it settled after all this time, and secondly, I feel rather positive about the prospects of Fiat taking over the agricultural lines. Fiat seems to have an aggressive style. Put simply, Ford wanted out and Fiat wanted in."

Henry Ford, born a farmer, started his auto company in 1903 and got into farm machinery with the revolutionary Fordson, the first mass-produced farm tractor, which he exported to Europe in 1916 and 1917. Ford started selling it to U.S. farmers in 1918. The company's international orientation persisted through the years, and from 1929 to 1938 all Ford tractors were produced overseas, reflecting today's situation.

Ford bought New Holland in 1986 and created Ford New Holland in early 1987, then bought Canada's Versatile Corp. and its 4wd tractors in July of that year. FNH, with 17,000 employees, builds machinery in Pennsylvania and Nebraska, and has plants in Canada, Belgium, England and Brazil, and joint ventures in India, Pakistan, Japan, Mexico and Venezuela.

Ford made no secret through the '80s that it wanted to sell the ag division, and ended years of speculation on April 6 with a three-paragraph announcement that they and Fiat were holding discussions "involving their tractor and farm equipment operations, while preserving their product and market identities." On July 31 they revealed plans for an 80-20 percent Fiat-Ford ownership of a new company that would incorporate the two firm's ag/industrial lines.

Fiat, an auto and truck builder like Ford, was founded in 1899, shortly before Ford, and got into farm machinery in 1919, shortly after Ford. Fiat is Italy's largest publicly-owned industrial group, with 286,000 employees and operations in 58 countries through 617 subsidiaries and 297 affiliate companies. The FiatGeotech subsidiary, with 13,000 employees, has plants in Italy, Brazil, France and the United States.

FiatGeotech has been involved in North American agriculture since it took 51 percent control of Hesston in 1977, eventually taking 100 percent control in 1986. The Hesston plant in Hesston, Kan., is currently a joint venture of Fiat and Case International, making hay and forage machinery for both the Hesston and Case IH lines; a source at the plant says production is about equally balanced between the two brand names. Fiat's other major U.S. brand is the Woods mower line, which came in the package when Hesston was purchased. Its major world brand names include Laverda in combines, the Fiat Trattori and Fiatagri names used in tractors, Braud grape harvesters and the Fiatallis construction line.

Compatible lines

Bert Serre, international public affairs spokesman for Ford Motor Co., gave I&T sales figures that show FNH and FiatGeotech fitting together in terms of product lines and geographic distribution of sales. He said sales of tractors by the two firms in 1989 (in round numbers) were:

                  FNH       Fiat
North America    26,500    1,487
Western Europe   16,600   33,500
South America    10,700    1,000
Rest of World    13,400   19,300
Total tractors   67,200   55,287

Serre said world-wide sales of non-tractor ag products and construction machinery in 1989 were:

                      FNH       Fiat
Combines              5,200    1,500
Balers                10,400   3,500
Forage Harvesters     2,100    250
Grape Harvesters      -0-      450

Mower

Conditioners          7,800    1,900
Spreaders             5,300     -0-

Loader/backhoe

tractors              8,100    600
Bulldozers            -0-      1,500
Crawler loaders       -0-      2,900
Grader/scrapers       -0-      600
Excavators            -0-      2,100

"There are many products," he noted, "where one company is strong and the other has little or nothing. Except for a few points, they are very compatible."

A recent FNH statement said the company is the world's third largest ag/industrial equipment manufacturer, with revenues of $2.8 billion in 1989. FiatGeotech, the world's second largest ag/industrial producer, counted 1989 sales of $2.3 billion. Assuming no losses due to merger, their combination produces a company with sales over $5 billion, and a unit volume topping the current No. 1 producer, Massey-Ferguson, and well ahead of Deere and Case, the world's current No. 4 and No. 5 producers.

In the U.S. market, Fiat's minuscule tractor volume would not push Ford out of it's current No. 3 rank, behind No. 1 Deere and No. 2 Case, or push Ford much farther ahead of No. 4 Massey-Ferguson, No. 5 Deutz-Allis and No. 6 White.

Why would Ford want to hold only a 20 percent stake in the new joint company, and give Fiat the option to purchase total control "within specified time limits," reported to be four years?

"Ford New Holland does not fit with what Ford Motor Company, sees as its core business of cars, trucks and financial services," said Serre, noting that Ford Motor Co. worldwide is a $95 to $96 billion business.

In addition to Ford Motor Credit Co., familiar to car and tractor buyers, the company also owns The Associates credit company and First Nationwide Bank. "The goal is for financial services to be 30 percent of profits," Serre explains, noting that the money business helps level out some of the cyclical hills and valleys encountered in the automotive markets.

FNH's $2.8 billion in revenues is less than 3 percent of total revenues within the Ford system, and it's another cyclical business, just like cars and trucks.

A Ford memo on the merger notes that there is "a separate joint venture with Ford majority ownership (51 percent) and managed by Ford Credit Corporation will provide full availability of financial services to Ford New Holland dealers and customers in North America."

Fiat's forecast

On the other hand, Fiat Group had 1989 net revenues of $41 billion; the $2.3 billion from FiatGeotech and $2.8 billion from FNH combine to make a whopping $6.1 billion business, that would be 13 percent of the $44 billion in business Fiat might expect to do after taking over FNH.

In introducing the new "Winner" series of tractors, with four models from 98 to 130 hp, Fiat made some projections for the future.

"At the end of the eighties," said the report, "the overall demand for tractors in countries with market economies was steady at about 520,000 units, of which 140,000 were tractors below 30 hp. In Europe, in the same period, the total market reached 216,000 units.

"In the medium term, we can expect the world market to stabilize at approximately 500,000 units by 1995, mainly as a result of the positive trend of the Asian markets and the upswing of the North American market, after years of inactivity, for tractors over 40 hp, to the detriment of the small tractor.

"The European scene is increasingly conditioned by Community policies to limit surpluses, by the impact of biotechnologies, by the changing structure of the farm (larger but fewer workers), and by the growing attention to environmental problems: a series of elements which permit us to forecast a drop in the number of tractors sold. However, this drop will be offset by the increasing sophistication of the tractors, which will become more and more mobile power units, versatile but whose optimal performance will also be expressed in specialist uses."

The new Winner series, the company said, was tailored "to respond adequately to the requirements of the important 100-130 hp power bracket in the decade from 1990 to 2000."

While it's apparent that Fiat hopes to ride its new tractor line to future glory, the official announcements have left in doubt the status of other product lines, notably the FNH 8030 series of tractors, which compete directly with the new Fiat models. Smaller non-Japanese FNH models, from about 30 hp and up, also have direct competition from Fiat-built models.

Synergy or Redundancy?

Ford and Fiat sources are understandably mute when questioned about possible future elimination of some models; approvals from many national governments are needed to make the buyout fly, and England would not be expected to endorse a shutdown of major FNH tractor assembly lines on its soil.

But in the most recent foreign takeover of a U.S. tractor company, German-built tractors displaced domestic models in the Deutz-Allis lineup and a similar outcome might be expected in a Ford-Fiat merger. The closest the companies have come to revealing future product plans is a statement, contained in an internal memo that said:

"The deployment of synergies between the two companies will require rationalization of the current activities, avoiding duplication of efforts and boosting innovation and quality both for commercial and industrial activities. Fiat is fully committed to such a task, and will support the New Company in the needed investments, beyond that required for the acquisition."

Among other key passages in the information provided about the new, still-unnamed company by Fiat to FNH managers were:

"In North America it will rank third in the agricultural tractor segment with a 23 percent market share and will enjoy improved capability in the difficult areas of hay, forage and grain-harvesting equipment, by developing synergies between Hesston and New Holland activities (which will be kept separate and independent on the market).

"In Europe, the New Company will be a leader both in agricultural tractors and in hay, forage and grain-harvesting equipment.

"In Brazil, the New Company will be active in the agricultural field with Ford New Holland presence and in construction equipment with Fiat Allis.

"The New Company will be majority owned and managed by Fiat. It intends to maintain substantially decentralized operations (a) in North America, (b) in Europe, where the two organizations, Ford New Holland and FiatGeotech will remain independent on each national market, and (c) in Brazil."

In a separate letter to employees dated July 31, FNH chairman and CEO Robert F. Moglia stated that "The New Company will maintain overall compensation and benefits substantially comparable to those in effect for Ford New Holland employees for at least two years and honor existing collective bargaining agreements."

While Ford and Fiat have not issued a schedule of events that will lead to the final merger, an internal memo to managers states that "it is expected the signing of the contract and the merging of the two entities will take place no later than January 1, 1991, subject always to government approvals."

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