Deere Turns to Leasing: Analysis

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Earthmoving

John Deere wheel loader dumps dirt into an articulated dump truck.
A newspaper report suggests that the Deere strategy of buying new equipment for use in leasing may have negative effects down the road.

The Wall Street Journal analyzed federal transaction records and suggests John Deere is buying new farm and construction equipment and leasing it to customers in order to combat lagging new-equipment sales.

The transaction analysis revealed that more than one-third of financed purchases are being leased to customers. The paper also reported that 90 percent of those leases are owned by Deere’s financial arm.

Leasing has always been an option for managers of construction equipment fleets, and last year was used by 8 percent of equipment managers, according to Construction Equipment’s 2019 Annual Report & Forecast. Financed purchasing was a strategy for 45 percent of managers, up from 40.6 percent in 2018.

The Journal report (link requires registration) suggests that the Deere strategy of buying new equipment for use in leasing may have negative effects down the road. Although the move puts new equipment into the hands of customers who may be hesitant due to current market conditions—including the ongoing trade war with China—the Journal suggests customers may prefer to stay with leasing rather than return to direct purchases or financed purchases, which would negatively affect Deere financials.

“[L]easing offers less reliable profit and more complexity than lending customers money with interest to pay for their equipment purchases,” the report says.

An additional risk occurs when leased equipment is turned in. As it moves to the used-equipment market, the increase in supply would trigger downward pressure on the prices the company would be able to obtain when selling it, the report suggests.

Source: The Wall Street Journal