Deere is leasing more equipment to bump up sales, but the program could have longer-term risks
By Bob Tita Oct. 14, 2019 5:30 am ET Deere & Co. is spending billions of dollars annually to buy its own equipment for a leasing program, which lifts sales of new farm tractors and construction machinery but adds financial complexity and weighs on the used-equipment market.
Leases allow Deere to bump up sales by delivering machinery to customers who might not be willing to buy in a soft market. But the longer-term risk to the company is that many customers will continue to prefer leasing when the farm economy rebounds, and leasing offers less reliable profit and more complexity than lending customers money with interest to pay for their equipment purchases.
“We did incur some losses when we remarketed those machines,” said Joshua Jepsen, Deere’s director of investor relations. Mr. Jepsen said Deere’s inventory of returned equipment from leasing is about flat from a year ago and accounts for about 5% of the overall market for used Deere farm equipment. SHARE YOUR THOUGHTS Do you think farmers are more likely to buy expensive equipment like Deere tractors by lease than outright purchase? Why or why not? Join the conversation below.
Greg Muckler, who farms 3,000 acres and manages a herd of 200 cows in Grinnell, Iowa, said he leased a CNH-built tractor last month for the first time.Farmers who lease say the cost of buying their equipment after leases expire is often more than they could pay for similar used machines. Deere has been raising lease rates to lower the purchase price at the end of the leases. But much of the returned equipment is still relegated to the used market where Deere has had to cut prices to move it.
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