As Congress is wasting time calling Caterpillar on the carpet for employing a tax strategy that is completely legal and involves Switzerland, let’s spin the globe in the other direction and talk about a place that’s infinitely more interesting—China.
I had the opportunity to get exclusive interviews with the heads of Caterpillar, John Deere, and Case while at Conexpo (you’ll be able to read the feature in the May issue of Construction Equipment), and as part of those conversations, I asked Caterpillar chairman and CEO Doug Oberhelman and CNH Industrial Construction Equipment brand president Mario Gasparri (Case) about equipment prices, and whether there’s a window for so-called value brands (such as Volvo’s SDLG) to come in and undercut North America’s traditional equipment powers.
First, in setting up a question, I made the mistake of saying that equipment prices rose exponentially in the last 10 years thanks in part to emissions requirements. Oberhelman cut me off mid-sentence.
“Well, they haven’t risen exponentially; I’ll dispute that,” Oberhelman said. “Exponentially is 1-times-10-to-the-nth of something, and they’ve not gone up that far.”
I swallowed my faulty math (something I’ve been doing since grade school) and moved on. Does Caterpillar think there are buyers who may be priced out of North American offerings, opening up a space for value brands, say from China?
“There have always been a number of players in our industry that offer a value product, whether it’s for rental rates that are lower, or whatever it is, but we come back around every time to our business model, which is the life of the machine, resale value at the end, and owning and operating costs all the way through,” Oberhelman said. “It’s won for us for 90 years and I am absolutely convinced it will win for us again in the future.
“We’ve always had these players, you can remember some over the last decades, different kinds of players that have come in with very low-end product, and there’s no support network,” Oberhelman continued. “There’s a certain faction of people that will buy it, and certainly in economic times like today they would be more popular than other times, but we just have to keep doing what we’re doing.”
Spoken like a brand that’s in the No. 1 position. In my mind, I imagined him uttering the phrase "dustbin of history" in relation to "other players."
I was a little more specific with CNH’s Gasparri, mentioning the Volvo and SDLG strategy by name, knowing that he was more likely not to use the time-honored “I can’t speak to what another company may be doing, but I can tell you what we’re doing” response.
“First of all, Volvo has done this exercise in other markets, for instance in Brazil; apparently it didn’t work so well,” Gasparri said. “I think it’s an opportunity they are trying considering they had done this acquisition in China, and they are trying to better exploit what they have today, given also the major drop in business in China.
“It was more like an obligated choice to try to sell this equipment somewhere else. I think partly it was also driven by the need to utilize the capacity that they had in China with this company they had taken over,” he said.
Gasparri doesn’t see it as the beginning of a trend. “I don’t think there will be many others pulling this—to me this is a bit of a trial and I don’t expect there will be more,” he said.
“What we see [for the future] is a Chinese company with a Chinese brand that may be a potential threat. So it’s a question to prepare to face a possible increase in competition. Of course, they have a long way to go,” Gasparri warned. “They will have a very difficult time finding a [dealer] network; it’s not so easy to find very good dealer partners in a market that is mature like North America. Also, their approach is quite different from the Western/North American approach.”
In short, Cat and Case don’t seem worried—but what would happen if value-priced Chinese products were able to find dealer support?
Food for thought.
[UPDATE: Since this posting, CNH Industrial announced that CEO Richard Tobin would take on additional responsibility and succeed Mario Gasparri as brand president for Case Construction Equipment (and New Holland Construction Equipment).]