Case Analysis Massey Ferguson 1980

Topics: Finance, Debt, Diesel engine Pages: 6 (1632 words) Published: February 27, 2015

Case Analysis Massey Ferguson 1980:
Massey Ferguson Limited an International producer of Farm machinery and diesel engine started its operations way back in 1847 and by the end of 19 th century they had operations throughout 31 countries of the world. In 1978 Company had financial loss of US. $262.2 million .

Massey’s Strategies:
 
1) Product-Market Strategy:
Massey’s product line consisted of tractors, combine harvesters, balers, forage harvesters, agriculture implements, farmstead equipments and other equipment for agricultural use. Industrial line consisted of Industrial tractors, loaders, rough terrain forklifts, skid steer loaders, utility loaders and skidders. In 1980 Massey was holding

17% market share worldwide in tractors.
14% market for combines.
13% in Industry machinery.

History shows that Massey had been strong in Market outside North America and Western Europe. Massey Production facilities were also across the different region of the world (Exhibit 5). Largest facilities were located in Canada, France, England, and Australia. In less developed countries like Pakistan, Peru, Egypt, Iran, Libya, Turkey, Saudi Arabia, Sri Lanka, Sudan and Mozambique Massey was quite successful in carrying out the contracts and operations. It is quite obvious as Massey got $360 million contract to update Peru’s tractor and diesel engine industry.  

In 1980 Massey purchased diesel engines from Perkins Engine Group which was the producer of diesel engines in England. 50% of Perkins’s diesel engine export worldwide was to Massey’s subsidiaries and affiliates. Because of rising gasoline prices there was huge shift to diesel engines, so it was bringing in an effective market to Massey as well

2) Financial Strategy:
During 1960’s and 70’s Massey was aggressively involved in expanding its operations and building up new assets which was majorly financed by Debts that of short term nature .By 1978 Massey’s Debt/Equity ratio= 214% (Exhibit 4) Same year Massey lost US. $ 262.2 million, management associated this loss to following reasons:

High Interest rates
Imposition of Monetary policies and credit restrictions in Argentina and Brazil, which ultimately causes sales to decline. Decline in North American natives’ income and higher prices of products.

Beside this loss company laid off their employees from 68,000 to 47,000, reduced inventories from US $.1083.2 to US $.988.9 million, 24 plants were closed. Despite all these moves there were continuous losses all around the world especially on operations that was approx US $35.4 million or US $.2.38/share. At the end of first 3 quarters of 1980 company had unfavorable loss of US $ 62 million including currency adjustments of U.S $ 37 million.

3) Comparative Strategy:
Massey Competitors in farm and industry sector included:

Large multinational companies with full product lines
Medium and small enterprises, conducting business locally with restricted range of products.
Named: Deere & co and International harvesters. Massey was traditionally ranked 3 rd in sales of farm equipment behind Deere & Co and International Harvesters. However in 80’s Massey occupied 2nd position in market for small tractors and combine harvesters. In contrast with its competitors, Massey Ferguson chose to finance its expansionary agenda primarily through debt offerings and short term credit lines. This type of structuring had very detrimental implications for Massey Ferguson. The use of so much leverage would increase the risk of the projects they were undertaking beyond the industry standard. Firms in the same industry such as Deere and International Harvester throughout the 1976-1980 period maintained debt/capital and STD/capital percentages consistently lower than Massey Ferguson (a trend that exacerbated as time went on). Therefore if the farm equipment market were to weaken, relatively, Massey Ferguson would find itself in a less favorable position. Along with the increase of...
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