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 BALANCING TRADITION AND INNOVATION by Lynn Henderson, Editorial Director May 2006 When one sees or hears the legendary John Deere name, the first thought is usually that of magnificent green machines prowling the countryside, shaping, planting, nurturing, harvesting, mowing, and performing a myriad of other tasks. However, John Deere also has a subsidiary not quite as visible as its equipment - John Deere Credit -that is just as deeply woven into the fabric of the agricultural economy, providing invaluable services while launching innovative new products. Providing financing for the purchase of John Deere equipment is hardly a new idea. Legend has it that Mr. John Deere provided credit to the purchaser of the third plow that he ever sold in 1837, the year the company was founded. Offering financing to facilitate the purchase of John Deere equipment still accounts for well over half of John Deere Credit's business. Over a century later, in 1958, John Deere Credit Company was formally established to provide funding for John Deere retail financing programs. John Deere Credit, as it is known today, now operates from its headquarters in Johnston, IA, with over 1,700 employees worldwide. "Our organization now operates in 16 countries, and has over $20 billion in assets," reports John Deere Credit President Jim Israel. A 27-year John Deere veteran, Israel took over the helm in January 2006, after serving as vice president for marketing and product support for the John Deere Ag Equipment Group in Europe, Africa and the Middle East. "We have two major goals," Israel says. "The first is to support John Deere equipment sales by providing financing to our customers. The second is to become the premiere provider of financial services to the ag and rural communities. That's financial services - not just ag credit - and rural communities - not just the ag sector. Because of John Deere's extensive product line and customer base, we define our marketplace as anyone that touches the land, be that farmers and their large machines, contractors and their construction equipment, or consumers and their lawn mowers." John Deere continues to encourage growth of the John Deere Credit subsidiary, Israel says. The financial services business, being less cyclical than the equipment business, typically delivers steady revenues. And the business offers a solid platform for introducing new products and services. In 1999, John Deere Credit created the Agricultural Financial Services Division. The division currently has five lines of business in the North American market, says Larry Sidwell, Sr. VP. Those businesses include: • Farm Plan, which allows merchants to provide credit to their customers. • Wholesale finance for crop input manufacturers and retailers. • Direct farm operating loans for farmers. • Crop Insurance (which started in 2004). • Wind Energy - a new business that offers feasibility studies, project development and financing. "We have a diverse, yet complimentary portfolio of services," Sidwell says. "Some are operating in stable markets that allow for steady growth (Farm Plan); some are in mature markets that we think will respond to innovative products and approaches (Crop Insurance); and some are in emerging markets with significant growth potential (Wind Energy)." Let's take a closer look at a few of these services. THE NEW FARM PLAN In 1974, an innovative new financial service was launched by the Wisconsin Power Equipment Retailers Association. The principal focus of this new service was to supply instant credit to farmers for the purchase of parts and repairs during the hectic planting and harvesting seasons. John Deere acquired Farm Plan in 1984, significantly broadening its offerings and the markets it served. Farm Plan has grown to be one of the most widely used financial services by U.S. and Canadian farmers (in Canada, the service is named "AgLine"). Sidwell reports that today, Farm Plan has a portfolio in excess of $1 billlion, is offered by more than 7,000 merchants/retailers, and is used by more than 500,000 customers throughout the U.S. and Canada. Farm Plan users sign up for the service at their local merchant. Merchants include John Deere dealers, of course, but there are also several other machinery brand dealers that make Farm Plan available, as well as crop input retailers. When making a purchase, Farm Plan users have the option of charging it to their account. The purchaser receives a monthly statement detailing their purchases and requesting payment. "The Farm Plan brand is universally accepted by all of our customers and reflects our desire to serve these diverse markets," Sidwell explains. "The benefit of using Farm Plan is that it immediately provides the user with 30 days of interest-free financing," Sidwell says. "But just as important are the benefits that the merchant receives. When a purchase is charged on the Farm Plan account, the merchant turns the receivable over to Farm Plan and we become responsible for collections. Also, the merchant receives payment from Farm Plan for every approved transaction within two business days." So, merchants offering Farm Plan improve their organization's cash flow and are out of the arduous collection business. In addition, Farm Plan pre-approves its users' lines of credit, which are sometimes larger than they may get from other lenders, thereby increasing their purchasing power, and helping merchants increase their sales. Over the past several years, John Deere Credit has invested heavily in Farm Plan's technology and last fall released it to the market place. "In the past," Sidwell says, "merchants had a cumbersome authorization process between Farm Plan and their individual business systems. "Our new system is integrated at the point-of-sale. A customer choosing to use Farm Plan can have the purchase authorized and processed immediately. We have been working with some 40 different business system suppliers to interface accounts receivable with various software options." In addition to these "back-office" improvements, the new Farm Plan also has exciting new tools that enable merchants to build their business. The new tools allow merchants to customize their own sales finance programs, promote them under their brand, and establish customer loyalty programs. "Let's say there is an outbreak of soybean aphids in an area," Sidwell says. "The merchant can go to the FarmPlan.com Web site, create a postcard mailing announcing a special offer on Aphid insecticides, access their customer mailing list and our system takes it from there ... printing and mailing the postcard to the merchant's chosen list." Reaction to the new Farm Plan features have been outstanding among merchants and customers, Sidwell reports, because these features help reduce cost, increase sales and make it easier to facilitate transactions at the point-of-sale. John Deere Crop Insurance In October 2004, through Westfield Insurance Companies, John Deere Credit entered the crop insurance business and began offering policies in a limited geographic area under the name John Deere Risk Protection. The crop insurance market, for those who have not been following it, has grown significantly in the past decade. Approximately 70 percent of U.S. farmers and ranchers carry some level of crop insurance paying an average of $17 per acre for coverage, generating coverage in excess of $37 billion. Currently, there are 17 organizations selling crop insurance generating premium estimated to be $3.7 billion annually. Israel says, "Offering crop insurance fits well with our overall goal of being the premiere provider of financial services to anyone that touches the land. Insurance is one very important tool in a farmer's risk management strategy." Dennis Daggett, a 29-year veteran of the crop insurance business, serves as president of John Deere Risk Protection, Inc. Prior to joining Deere, Daggett served as president of one of the industry's largest providers. John Deere offers federally reinsured crop insurance and crop hail policies through, Westfield Insurance Company, a highly regarded insurance carrier. John Deere Risk Protection began writing policies last year in a limited geographic area, and is expanding to 36 states for this year's season. "We are approaching crop insurance much differently than our competitors," Daggett says. "Instead of signing up as many agents as we can to sell our products, we have a rigorous selection process to ensure that we work with the premier agents in the profession and who desire to work with John Deere. These agents must complete the most intensive training program in the industry. In addition, our agents will have access to some very exciting technology, which is exclusive to John Deere that will help them build their business by making them a much more valuable partner to their customers, in addition to offering crop insurance. "We are in a unique position, with a unique set of assets, to make this a successful business," Daggett says. "John Deere understands the challenges facing American producers and can respond with efficient solutions. John Deere is one of the best known and most trusted names in American agriculture and our promise to our customers is that we will provide the best in class crop insurance products and services." John Deere Wind Energy Also in line with the John Deere Credit mission, the company has launched new services for the fast growing wind-generated energy industry. David Drescher, a 15-year John Deere veteran who most recently headed equipment finance operations, has been named VP to lead this new service. Energy experts estimate the wind that constantly sweeps the U.S. Midwest can generate enough energy to make the region fully self-sufficient of its energy needs and eliminate the need for imported oil. With that premise, several states have enacted legislation that provides tax breaks o assist this capital-intensive industry with the financial resources and incentive to ramp up production. The industry has been responding. Experts estimate that last year over 2,400 megawatts of wind energy, generating nearly $3.4 billion of energy, were installed in the U.S. During 2006, it is estimated that 3,000 megawatts will be added. "We are focused on the development and investment in community-based wind energy projects," Drescher reports. "They represent a significant growth opportunity for our agricultural customers and landowners. This initiative complements John Deere's activities in a variety of other renewable alternative energy projects and also provides a source of long-term revenue growth for our customer base and our shareholders." Today, the more traditional business model used within the industry is one in which utility companies or other investment groups perform all of the tasks of getting a wind field up and operating. They provide all of the financing and retain ownership. The rural community and/or landowners' role is confined to renting their land for annual payments. The John Deere Wind Energy business model positions the company as that of both a debt and an equity investor. John Deere Credit enters into agreements with local wind-energy developers and landowners to facilitate the development and operation of wind energy projects. Drescher says, "It is important that these projects are economically viable for all parties. The business model usually includes local landowners as limited partners who provide management oversight and play an important role in project development. Ultimately, these limited partners can gain ownership of the project assets and its long-term economic benefits." An example of one successful project it has completed is Wolf Wind Enterprises, LLC. in Minnesota. This local developer had performed the necessary wind assessment and found it had the potential for a successful community wind energy project. The local developer entered into an agreement with John Deere Wind Energy, thus allowing John Deere to complete the project, including due diligence, construction permits, connections to a local power grid, and balance of plant contractor selection and procurement of wind turbines. John Deere Credit provided the financing for the project and retained an ownership interest position with the local community investors and landowners with the promise of selling its share to them at the end of ten years. The company currently has a dozen such projects underway. Because of the trust and reliability of the John Deere name, the wind energy unit is branded as John Deere Wind Energy. Looking Ahead "We are bullish about the future of North American agriculture," Israel says. "To be successful, though, the region needs to have dexterity, be innovative, and think globally. The ag community needs to continue to move toward producing unique and higher valued products and away from being price takers. "We at John Deere Credit are extremely excited to serve this important market segment. It is our goal to continue to provide the best service possible to our clients, and devote substantial resources to help our customers, the ag industry and rural communities to succeed and thrive in the years to come." AM Tweet |
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