Reviewing major inventories.

*"WHAT!!," cried the man with whom I was sharing a taxi. "You mean they haven't cleaned that inventory up yet? What have they been doing in your inducstry?"

This man and I had discovered that we were both headed from the Atlanta airport to a major conference-exhibition of the fasteners industry, and we had begun talking shop. He took the news about the high inventories of the farm equipment industry to heart, for he had hoped to sell some nuts and bolts, or whatever, to tractor makers in 1984.

By the time you read this, perhaps we'll all know if that fastener man can smile again sometime in the foreseeable future. Meanwhile, supply levels are generally well beyond demand in many high-ticket equipment areas.

The big table on the opposite page provides a quick glimpse of how it's been going over the past 21 quarters with regard to the inventory of major machines. Each December has its own color, each March, etc., so you can compare easily on a year-to-year basis for each quarter.

In addition, we invite your inspection of the table below. This one indicates the relevance of the inventory levels, for it briefly relates them to sales. How can it be?

Inventories staying so high profuce plenty of grief and anxiety, but also astonishment. Many people, like the man in the taxi, wonder how companies can keep producing in the face of a pre-existing glut. It seems simple enough: If more tractors roll off the factory line, or are lifted off the deck of a container ship, than roll off the dealer's truck into a farmyard, inventory will go up. And so will profit-robbing interest payments. So the trick would seem to be, just don't make any more.

But there are complications. The obvious one is an unexpected drop in demand or the failure of an expected upturn to materialize. Such situations are made more difficult when production schedules are cast in concrete far in advance. With imported machines, commitment to produce is established even earlier.

Another complication might be that the models/options that are the bright sellers in an otherwise dreary marketplace aren't the ones the experts expected to be hot. Case in point:

Another article in this issue tells of the big surge in market share of tractors with mechanical front-wheel drive. Would you have believed that about 10 per cent of the 100 to 140 horsepower units sold in the U.S. last year would go with front-drive systems on them? I would have underestimated the demand, and I'll bet some others actually did. Meanwhile, conventional versions may have gathered dust.

There was an article in the Mar. 29 Wall Street Journal about current inventories in American business. It told how low inventories are in many fields--bicycles, tires, autos--and low by design, too. Many businesses are saving big money in interest and storage costs by keeping the lowest invetory-to-sales ratios in more than a decade, thanks to computer advancements.

But, the article tells us, the big test is still to come. Shortages might erupt by mid-year and this will test the resolve of executives. One of the perils is that if they yield to pressur e to build up inventory so as not to miss out on increasing demand, there could be a scramble for supplies, heavier borrowing, and a rise in prices and interest rates.

For somebody in the farm equipment industry, it has a far-away ring to it. It's a world only dimly remembered for veterans of this business. There was heavy borrowing, a scramble for supplies and rocketing inflation back in 1973 and 1974. The industry's leaders didn't understand at the time that their resolve was being tested (but neither did anyone else) and inventory growth in relation to demand really got rolling. The capsule box

To symbolize the farm equipment industry's desire to trim excess inventory, I&T purchased a box of over-the-counter appetite control capsules, photographed it and placed it on the cover of this issue.

These capsules are intended as a means to the end of losing excess weight. And so, since we're talking about symbols, we could look on those capsules as the equivalent of discounting--a means to the end of trimming surplus iron in this business, right?

If you read the back of the package, you find that the folks who make these capsules have some good advice:

"Do not use if you have high blood pressure, diabetes, heart, thyroid, kidney or other disease or are being treated for high blood pressure or depression or are under 18 or over 60....Do not take if you are presently taking another medication containing phenylpropanolamine, or any type of nasal decongestant drug..., etc."

There's more, but you get the idea: Some medicine carries with it the risk of side effects.

And there are people who will tell you that there are dangerous side effects that can result from excessive use of discounting as a means of trimming inventory.

One of them, frequently cited in these pages, is the pain that such practices inflict on the discounting manufacturer's dealer organization, particulalry when almost all dealers have a fairly generous supply of used equipment on hand. Used equipment piles up as discounting progresses, while the per-unit value of the equipment goes down.

The discounting manufacturer, through his captive credit company, usually has to get involved in this used equipment, for the farmer and retailer usually have worked out a deal in which little or no cash is seen.

Thus, while the new machine is safely off the inventory log, there's another one, used, that's added. And to make a deal these days, discount notwithstanding, the dealer has to give a lot for the used machine.

And thus, our tables with this article give only a partial insight as to how the inventory struggle goes. If we were to get the full picture, we would have to have some impossible-to-get numbers: Number of new machines floored by and for the manufacturer, and their value, plus the number of used machines involved, along with the amount of flooring involved.