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IS THE TRACTOR INDUSTRY EQUIPPED TO UNRAVEL THE COMPLEX DILEMMAS OF FARMERS AND DEALERS?
By Yukti Arora, Manager, J.D. Power
The weak recovery signs have dampened sentiments in an agrarian market that continues to grapple with recurring challenges posed by untimely rains and adverse weather conditions. Tractor manufacturers, dealers and farmers are battling it out to counter the exogenous risks faced by the sector today. As the industry experiences heightened pressure on agricultural machinery sales, the critical need of the hour is to implement targeted strategies to address farmer concerns, manage dealer profitability and mitigate downside risks.
Plight of the Indian Farmers
Farmers’ aspiration to be debt-free is increasingly becoming a distant reality. While on one hand their incomes have been impacted by a drastic drop in productivity, the ban on commercial usage of tractors in several talukas has further intensified their cash-flow problems. Besides losing this important alternative source of income, lack of access to credit facilities and inadequate technical support fail to justify a substantial outlay on agricultural machinery for many. This reduces their willingness to adopt improved mechanized solutions to increase yields.
Furthermore, inaccurate information provided on the actual horsepower of the tractor has put farmers at a high risk of machine damage due to misuse, adding to their repair and maintenance expenses. Lack of prompt servicing support from dealers is also impairing efficiency levels by increasing down-time particularly during peak seasons. The results of the J.D. Power 2015 India Tractor Studies revealed that less than half of tractor owners surveyed fully agreed that their dealer went out of his way to help them. If given a choice, close to 70% of respondents in the study expressed a likelihood of using an independent workshop or local mechanic.
Problems plaguing the Tractor Dealers
Tractor dealers are also finding themselves engulfed in the upheavals of the sector. Under constant pressure from OEMs to meet monthly volume targets, they are struggling to continuously reinvent themselves to grow their business. However with growing market uncertainty, dealers are wary of investing in their own infrastructure.
The task of selling to today’s farmer has become tougher and dealer’s survival is no longer reliant only on sales of new equipment. In order to assist the cash-strapped farmers, not only are dealers required to provide farmers with flexible financing options, they also need to facilitate trade-ins for their aging farm equipment to help them pay for new machinery upgrade. However, the accumulation of used tractor stock across the network is forcing down residuals and making it hard for dealers to make any profit from their trade-ins.
Managing soaring customer expectations adds another layer of complexity to their existing difficulties. Customers expect repair and maintenance to be provided instantly and at a location that’s convenient to them. As the findings of J.D. Power Tractor studies show, farmers who took their tractor to the dealer workshop for servicing or repair are less satisfied than those who had their tractor attended to at their farm or workplace. Farmers are also cost sensitive as satisfaction scores drop by more than 100 index points when they felt that the amount paid for servicing was worse than expected. In contrast, farmers who mentioned that the amount paid was better than what they expected reported an upward swing of 48 index points above the Index.
Support expected by Farmers and Dealers from Their Tractor Manufacturers
Findings from J.D. Power studies suggest that there is an urgent need amongst farmers to be offered more advanced products that meet the needs of varied farming applications. Service support wise, they want complete services and parts solutions with a robust dealer network that come staffed with best talent and efficient access to inventory.
With 75% of tractor customers being first time buyers and thus inexperienced with equipment, OEMs can actively communicate and educate buyers on the direct benefits of investing in enhanced farm mechanization. Additionally, manufacturers can address the credit demands of customers by providing appropriate financing options at the right time, without access to which, they will continue to operate in a low investment- low productivity mode. Whether it is supporting the network with trade-ins for old machines or providing leasing options to customers who want to curtail costs, there are many ways in which OEMs can also aid dealers in managing their resources and improving profit margins.
Rethinking prevailing strategies by exploring opportunities of working with customers in more areas will imbibe confidence and drive change across the sector. Also staying attuned to network demands will enable manufacturers to win long term commitment and loyalty from their dealers. Moreover, government intervention to aid this entire ecosystem by providing the required infrastructure for promoting efficient farming practices would add impetus.
The sector that feeds over a billion still holds immense potential over the medium to long term. This is echoed by the positive outlook of the tractor owners covered in the J.D. Power study, where three quarter of all farmers surveyed across the country anticipate their future incomes from agriculture to improve.