Neil: Neil from Messick's here today to talk to you a little bit about the compact tractor market, specifically the market under 50 horsepower. This market has ebbed and flowed over the years, and some instability among the companies that are at the bottom end of the market trying to establish themselves has been the norm for a long time. If we look at the market today and how things have progressed here over the last couple of years, I would believe we're at a point today that, in the next couple of years, we might see a couple go out of business.
Today, we're going to discuss a little bit exactly why the market has developed in the way that it has, and some of the concerns that I see, observing the industry today.
[music]
Neil: There's a lot of reasons why there's a lot of interest in this small tractor market. If you look here over the last decade or more, there has been consistent year-over-year growth of the small tractor business. Today, almost 10 times as many small tractors are sold as there are big farm and utility tractors. It is a significant volume segment in terms of units, in terms of company's profitability, it's gotten big.
Because of that, it's encouraged some new entrances. There's a lot of companies that have set up shop in this market that are new to it, following that trend. Like many industries, COVID had a huge impact on us with people spending more time at home, on their properties. It caused sales to shoot through the roof. The under 50 horsepower tractor market had its peak in 2001 at 215,000 units. Now that was not a sustainable number, right? That was an artificial number based upon what was happening out there with COVID.
Now that we're settling back down again, we're falling back into that 2019-ish range. We're going to finish out 2023 having sold about 182,000 units. The market has retracted now and it's going to stabilize. The dynamics now of the number of competitors in that market look very different. The numbers that you're looking at here come from the AEM, the Association of Equipment Manufacturers. Most of the equipment companies are going to report their sales to the AEM who helps them understand their position in the market and helps them plan their businesses.
This data is actually public information. The AEM publishes quarterly updates on these things as time goes by. These reports are often misunderstood. When you look here and it says two-wheel drive tractors, it is talking about what we think of as four-wheel drive machines, basically a fixed frame machine. The reference to four-wheel drive tractors here is in our large articulated farm tractors. We're going to lump our everyday tractors into that two-wheel drive category.
The horsepower ranges that are listed here are PTO horsepower. When I say we're looking at the under 50 engine horsepower market, that works out to about 40 PTO horsepower, which is the large reporting category here that we're discussing today. We're going to continue to break these numbers down further. For this one, you're going to have to take "my industry experience" here for a little bit.
The tractor market has historically always been a duopoly between Kubota and John Deere. Historically, they've made up a lion's share of this market, at one point being as high as 80%. Now, as more of these companies have entered the market, that number probably has been chipped away at a little bit. I'm going to simulate some values here giving Kubota and Deere somewhere between 65% to 75% of today's tractor market.
These share numbers don't move quick. You'll see some 1% or 2% changes from year or year, but a couple of little changes or some extra advertising or social influencers that might be causing you to see some different brands that you may not have seen before isn't causing huge swings in the market. In my experience, 80% I know was reality at one point, and probably 65% to 75% is probably closer to true today. As we start working through here, you're going to see the exact details on those numbers probably aren't important.
If we move the Kubota and John Deere share of the tractor market, that leaves us somewhere between 45,000 to 63,000 remaining units. Now those units are split up today among more companies than they ever have been split up between before. In today's tractor market, you're going to find Bobcat, Bad Boy, Yanmar, Case, New Holland, Massey Ferguson, Mahindra, Kioti, LS, Rural Kings, Solis, Summit, and TYM all selling tractors into this sub-50 horsepower market.
Now, when we go through and we start dividing up the remaining 45,000 to 63,000 tractors among all of those dealership brands and all of the locations that they sell in, we have diluted the remainder of the market to the point that most of these companies are probably selling somewhere in the 2,000 to 4,000 units a year. That causes some concern. If you're a tractor company trying to build a business off of that amount of volume, you've got an uphill battle. This is not a easy business to be in.
If you think about all the things that an equipment company needs to be, you need to be able to engineer a machine. You need to be able to manufacture it, which is hard. You need to be able to take care of the distribution, manage a dealer network, file warranty claims, put parts in a warehouse, and take care of all those distribution needs. This is not an easy business to be in. In fact, it's incredibly complex, especially with Tier 4 emissions. It's hard for the manufacturers.
It's hard for us, too, in a dealership setting, to be able to manage all of your needs and keeping the parts on the shelves and providing the service, and taking care of the machines in the field. When the market starts to get this diluted for some of these companies at the bottom, we start to wonder about their ability in order to provide an appropriate level of service.
Now, it starts to seem inevitable to me, when we start to look at the numbers in this way, that all of these companies aren't sustainable, and there's probably a point that consolidation or bankruptcies or people pulling out of the domestic U.S. market is going to happen. This is not new in this business. If you look back over the last 20 years or so, you'll find tractors that used to be sold at Cabela's at one point, I believe TYM sourced. Those are completely gone at this point. A brand called FarmTrac that you won't find anymore.
Branson was recently rolled up into TYM. A company called Montana used to be around. They're gone now. I used to sell Cub Cadet tractors, Cub Cadet compacts, and they've completely pulled out of the compact tractor market. Historically here, you could pull those 5 brands over the last 20 years that are now not offered on the market anymore and look at the grouping of companies that we have sitting at the bottom of the tractor market today, and it would be very reasonable to think that it's almost necessary that some of the same thing is going to occur.
What happens when one of these companies drops out of the tractor market? You have a lot of people who have bought these machines, these fairly expensive machines, and essentially you're left with a tractor now that is an orphan. Almost immediately, you will see the market value of that tractor start to drop. Really, because its parts availability starts to become a problem. You're not able to get those service parts for it that enables you to keep that machine running, that gives the confidence to the next buyer that it's worth putting some money into.
I've been through two of these personally. Cub Cadet, in the early 2000s, from 2004 to 2007, during my time, would have had a model 8454. It was a tractor that would have been built by Daedong, Kioti's parent company. When they pulled out of the market, that machine was orphaned. Now, if we go on to Messicks.com today, go to our website, bring up that model, and start scrolling through the different sections, you're going to find that the better part of 90% of the parts for that machine are now unavailable.
Market value for that machine's not going to be great, right? We're not going to be able to keep them running. You're not going to be able to send the machine to the hunting cabin or trade it off to the kid or the neighbor or whatever. They're going to ultimately be headed to the scrapyard. Now, if we go through and compare that to the Kubota that would have been sold at the time, the L3010, we scroll through that same model, you're going to find that 95% of those parts are still available.
Yes, at the time, there's a good chance that Kubota might've been a little bit more expensive, 10%, 15% more money than what that Cub Cadet probably was. At the end of the day, the market value and the usability of that equipment today is completely different. Now, it doesn't mean that things always have to go that way. This is a New Holland TC33, and this one has a story that's a little bit different.
New Holland's tractors today are in a sourcing partnership with LS. The machines are not as similar as what everybody seems to think they are, but it is not a wholly built New Holland piece of equipment. That's a newer relationship though. Prior to that, for the decades prior, New Holland had a manufacturing relationship with a company in Japan called Shibaura.
This is a New Holland Shibaura compact tractor. Now, New Holland, with their deep roots in the ag industry and all the machinery that we sell, and a brand name that is worth protecting that they care about, continues to offer parts support for this tractor. This is from the same era, the same years as the Kubota 3010 and the 8454 Cub Cadet that we were talking about.
If you go through the parts catalogs for this machine today, you're going to find that 80%, 85% of the parts are still available for it. Really, the things that aren't available today are major engine components that are probably so costly it may not justify keeping the machine running anyway. Large assemblies of this machine today can continue to keep it out in the field. We trade them still. We give decent values for them. We can find buyers for them because New Holland has backed these tractors with appropriate parts support.
It doesn't have to go this way, but unfortunately, I think the Cub Cadet model is more the norm, where you don't have a multi-billion dollar company backing their products for decades. I've given a lot of reason here to be cautious of the companies outside the Kubota-Deere duopoly. We got to go recognize here, I sell some of these other lines as well. We regularly are going to find customers coming in who are attracted to some of the features and benefits that these other companies do have.
New Holland is often going to be a less expensive tractor line. They might have some features or ergonomics that suit people a little bit better than maybe the orange tractors that we also sell, right? There are value in these other companies, and we shouldn't go out and look down upon somebody that made one of these purchase decisions because one of these tractors might have appealed to them in the same way.
I have confidence in New Holland when it comes to being able to support their products for decades. They appear to be committed to all of these brands in a way that gives us a comfort level. I'd say probably the same thing about Case and Massey as well—the companies that build their own tractors and have these long-term relationships and big businesses and other product segments, but we can't ignore the subset of companies here at the bottom that don't have the same commitment to the business.
While it's hard to be a manufacturer, these numbers aren't painting a great picture for the dealership body either. If you divide out the subset of units that are left here by the sheer number of dealership locations, you're going to find that the average dealership is selling seven to eight tractors a year. Now dealerships often carry multiple product lines and so the numbers aren't going to work out exactly that way, but you can imagine here that selling enough machines to put parts on the shelves, to have well-trained mechanics, to have educated professional salespeople is not easy if you don't have a brand that's turning some volume or some breath in the rest of your business to pay the bills at the end of the day.
We got to go be aware that the pickings are slim for the vendors that are in this space and their dealers as well. How do I wrap this up? Buy stuff from me. No, it's not really the point here, right? You could be cynical and look at things that way, but full disclosure, I sell Kubota and New Holland. We are normally very cautious when making YouTube videos about discussing other tractor companies because of negative perceptions that come along with that.
We can sell our products on our own merits, and we don't need to throw stones at others in order to do it. I feel like there's a discussion here, an awareness that is missing from the tractor business today. If you're paying attention to social media influencers that make a lot of noise with a sponsored tractor that they have, if you're seeing a lot of paid advertising from companies, you might lose this perspective of what the actual tractor business really looks like.
I thought it was important, in order to make a video, to point out how this business has evolved over the last 20 years or so. I'm not calling out names, not naming the people here at the bottom of the list that I think are going to go under, but there's going to be several. If history has shown us that, that's been the norm in this business. I hate to see any of you on the unfortunate side of the equation.
Consider this a little education today. Maybe it's informative in your equipment shopping. If you're shopping for a piece of equipment and we can help, or if you have parts of service needs for a machine you've already got, give us a call at Messick's. We're available at 800-222-3373 or online at messicks.com.
