Shortline equipment short on financing

Wednesday, May 6, 2009

© AgMedia Inc.

by BETTER FARMING STAFF

Farmers can expect to see less inventory on dealers’ lots as Canada’s farm equipment industry wrestles with fewer financing alternatives.

Craig Smith, chair of the Canada East Equipment Dealers’ Association, says Textron Financial Canada Limited’s decision to get out of the agriculture equipment financing business precipitated the situation.

The company financed several shortline equipment displays at dealerships. ‘Shortline‘ is an industry term referring to equipment generated by smaller manufacturers. It includes tillage, planting and haying equipment.

Dealerships have to arrange financing to keep inventory, Smith explains, referring to the arrangement as a “floor plan.”

Larger companies may offer a dealership a grace period of several months before requiring payment on equipment; that time period is usually shorter for smaller manufacturers. Once payment on the equipment comes due, “I either have to write a cheque for it or I have to finance it with another company,” he says.

The association is exploring other avenues to help out the dealer network. Other companies are considering filling the gap, but so far, there are no takers.

“Definitely it’s a concern,” he says. 

GE Capital Solutions Canada, which arranges floor plans for some companies, has indicated it won’t expand its services to others. The Association has looked at Farm Credit Canada but Smith says the crown corporation doesn’t seem interested because it would mean conducting audits to verify stock, which would be an added expense.

That leaves dealers with the options of either using a line of credit to finance the floor plan or reducing shortline inventories.

“Money is tight and if dealers can’t finance their equipment then obviously they’re not going to stock it.”

Smith says, “it may not be a bad thing” for government to step in, but he wonders how quickly it could address the issue.

At Binbrook-based O’Neils Farm Equipment Ltd., where Smith is vice president, “we’re taking a harder look at what we want to stock as a shortline, how much volume we do, how much pre-selling we can do. We may look at trying to pre-sell more.”

Some dealerships will look to their lines of credit to help finance floor plans.
Smith notes the industry has been moving steadily to more pre-sales anyway.

The trend has to do with more complex equipment on offer and a greater range of options available.

“The days of having 50 tractors on your lot or pieces of equipment on your lot for the farmer to come in and just buy it and take it home right then and there, that has almost gone the way of the dodo bird,” he says. BF