John Deere Road
John Deere has grown and prospered through a long-standing partnership with the world's most productive farmers. Today, John Deere is a global company with several equipment operations and complementary service businesses. These businesses are closely interrelated, providing the company with significant opportunities and other synergistic benefits.
One of the five oldest companies in the United States, Deere & Company is the world's largest manufacturer of agricultural equipment and a major U.S. producer of construction, forestry, and lawn and grounds care equipment. The company has factories throughout the world and distributes its products in more than 160 countries through independent retail dealers--nearly 5,000 worldwide. It is also active in financial services--retail and lease financing and insurance--and provides health care benefit management services to nearly 900 companies and government agencies in eight states. Deere has been an industry innovator since John Deere introduced the first successful self-cleaning steel plow in 1837. At that time, most Americans lived on farms; now many of Deere's customers belong to the upper five percent of the nation's farmers, who take in 80 percent of the net farm income; these farmers run big farms that need sophisticated equipment.
Born in 1804 in Vermont, John Deere was a blacksmith renowned for his craftsmanship and inventiveness. After a business depression in the 1830s, Deere, like many young easterners, migrated west. He settled in Grand Detour, Illinois, where his blacksmith business thrived. He soon saw that the cast-iron hand plow that pioneers had brought from the East did not work well in midwestern soil, which clung to the plow's bottom and made it necessary for the farmer to scrape off the soil every few feet. Deere developed a plow with a polished and specially shaped moldboard and share, which scoured itself after lifting the soil.
This first plow was made from a broken sawblade, but the tool quickly became so popular with Deere's customers that he began to make plows before he got orders for them--a revolutionary practice in those days. In 1843 Deere ordered a shipment of rolled steel from England. This move enabled him to expand his business, and three years later, he was able to get steel made to his specifications from Pittsburgh, Pennsylvania mills. In 1847 Deere moved his business to Moline, Illinois, near the Mississippi River, which provided water power and convenient transportation. By 1850 he was producing 1,600 plows a year.
Known to say, "I will never put my name on a plow that does not have in it the best that is in me," Deere continued to improve his plows and to tailor them for different soil conditions. In 1868 the business was incorporated as Deere & Company. In 1869 Deere named his son, Charles Deere, vice-president and treasurer of the company. When John Deere died in 1886, Charles succeeded him as president.
Charles Deere focused on the company's distribution system, establishing wholesale branches to market and distribute Deere equipment to the independent dealers who sold it. The product line was also expanded. The Gilpin Sulky Plow, launched in 1874, had the capacity to plow three acres in 12 hours, and in 1898 the new Deere Gang Plow, which used four horses instead of three and could plow six acres in 12 hours, was introduced. In the early 1900s, Deere plows were powered by steam engines. By the time Charles Deere died in 1907, the company was manufacturing a range of cultivators, steel plows, corn and cotton planters, and other tools.
Grew through Acquisitions in the Early 20th Century
William Butterworth, a son-in-law of Charles Deere who was responsible for bringing together under the John Deere name other farm equipment companies with whom Deere had done business, became the next president, in 1907. As president, Butterworth engineered the 1911 acquisition of the Van Brunt Manufacturing Company of Horicon, Wisconsin, which produced the first working broadcast seeder and grain drill. Also in 1911, Deere & Mansur Works, which had been established in 1877 by the company to make corn planters, was merged with Deere, as was Joseph Dain's hay-making tool company. In 1918, Deere bought Waterloo Gasoline Engine Company in Waterloo, Iowa, one of the first makers of tractors.
During World War I, the demand for food motivated many more farmers to begin to use tractors, and agriculture gradually lost its dependence on animal power. Deere sold 8,000 Waterloo Boy tractors in 1918. In 1823 Deere introduced its own tractor, called the Model D.
In 1928, Charles Deere Wiman, John Deere's great-grandson, became president of the company. Wiman concentrated on engineering and product development, and the company grew rapidly. In the 1930s, when the John Deere Combination Unit was introduced, the farmer could bed, plant, and fertilize cotton ten times faster than four men with four mules. The four-row tractor corn planter allowed one man to plant and fertilize between 40 and 50 acres a day. In 1937, despite the Great Depression, Deere reached $100 million in gross sales.
During World War II Burton F. Peek was president. Peek served during the two years that Wiman held the post of colonel of ordinance, in Washington, DC. Peek and Wiman, when he returned to Deere, continued to focus on innovation in product design, and by the end of the war Deere was a leader. In 1952 Deere was the first farm equipment manufacturer to modify the self-propelled combine for picking and shelling corn. Three years later, Deere was one of the 100 largest manufacturing companies in the United States.
Major Period of Growth Followed World War II
After Wiman died in 1955, his son-in-law, William A. Hewitt, became president and CEO. He led the company into a major growth period. Seeing that Deere's decentralized operations needed to be coordinated, Hewitt accomplished this by increasing communication between different branches of the company. He also promoted Elwood Curtis, Deere's controller, to vice-president.
During the mid-1950s, while Deere's competitors were expanding abroad, Hewitt seized the opportunity to manufacture overseas. In 1956 he sent one of Deere's factory leaders, Harry Pence, to look for possible acquisitions overseas. The first was a small German tractor company called Heinrich Lanz, which was in financial trouble and could be bought cheaply. Other acquisitions or plant constructions followed in France, Spain, Argentina, Mexico, and South Africa. For 15 years, overseas operations suffered huge losses due to managerial mistakes and unforeseen problems in start-up activities and in foreign exchange, but Hewitt believed the company had to expand internationally or risk being forced out of the market. Deere continued to expand in Canada, Western Europe, and Latin America.
In 1957, Hewitt hired Finnish architect Eero Saarinen, the designer of the Gateway Arch in Saint Louis, Missouri, to design a new headquarters building that would belie Deere's provincial, rather conservative image. The new building was completed seven years later in the same Moline location, and it became a tourist site, particularly attractive to farmers.
In the late 1950s, Vice-President Elwood Curtis convinced Hewitt to diversify into finance. In 1958 Deere donated its capital stock in Moline National Bank to the John Deere Foundation, and, freed of antitrust constraints, the John Deere Credit Company was established to help finance farm equipment dealerships. Ten years later, Deere acquired Fulton Insurance Company in New York. Insurance and finance were to become important Deere operations when equipment sales slumped.
Hewitt diversified and expanded Deere to help balance the company's farm equipment operations. Since tractor sales were dependent on the income of farmers, sales fluctuated according to weather, agricultural prices, and government policy. Although agricultural machinery still accounted for most of Deere's sales, in the late 1950s, Deere began to make machinery for construction, along with equipment for street and road maintenance and logging. In 1963, the company began to manufacture and market lawn care and garden equipment. This branch of the company grew rapidly. By 1969, there were 3,700 independent John Deere dealers in the United States and Canada. In 1969, through the dealers, Deere began to operate a network of John Deere parts and service centers.
Late 1960s and 1970s Marked by Series of Strikes
Although the 1960s were a decade of growth and diversification for Deere, it was also a turbulent time. Earnings decreased markedly in 1966 and 1967, mainly because of overseas operations. In 1968, the company suffered losses due to unfavorable weather, low crop prices, and a six-week strike. The United Auto Workers (UAW) demanded a contract from Deere similar to the one it had won at Caterpillar Tractor Company, one of Deere's competitors. Deere refused, and the strike finally ended when the UAW proposed an inverse seniority plan, which gave senior workers up to 95 percent of their pay if they volunteered to be laid off for one year. This allowed older workers, who were closer to retirement, to take time off while collecting UAW supplemental unemployment benefits. The plan went into effect in late 1967, and in three years Deere laid off 1,698 people, about 70 percent of them with high seniority.
Throughout the 1960s, Deere expanded its lawn-and-garden product line to include snowmobiles, hand tools, portable heaters, lanterns, chain saws, and other products. In 1972 Deere introduced the John Deere bicycle in an effort to take advantage of a rapidly expanding market. This was also the first year Deere made a profit overseas, as the demand for farm machinery increased both within the United States and abroad.
In 1975, overseas plants accounted for $681 million in sales and the company expected to grow more in foreign operations than domestically. That year, Deere also began a seven-year, $1.8 billion capital program to increase the capacity of its factories and plants by 30 percent.
During the 1970s, Deere repeatedly had conflicts with the UAW, as the firm began to mechanize further its manufacturing operations, cut back costs, and lay off workers. In 1976 a six-week strike reduced inventory at a time when the demand for equipment remained strong, and Deere lost a significant amount. In October 1979 UAW members went on strike again, demanding more paid time off and cost-of-living wage increases. Deere argued that its workers already had more paid time off than employees at similar companies and changes would be too costly. Consequently, Deere factories were shut down for three weeks, until a new contract was agreed upon.
In 1978 Hewitt committed $350 million to overseas expansion. Nonetheless, that year overseas operations took serious losses due to foreign-exchange fluctuation and high start-up costs for its new line of German tractors.
In the late 1970s Deere added 20 products to its construction equipment sector and doubled the size of its Davenport, Iowa plant, with the expectation that the construction industry would grow twice as fast as the farm equipment industry. By 1982, however, because of high interest rates, the construction equipment business was in a slump.
1980s Proved Difficult Because of the Farm Recession
In 1982 Deere also experienced the first effects of the farm recession. Hewitt retired as head of the company and later became the U.S. ambassador to Jamaica. Robert Hanson, a longtime Deere employee and Moline native, became president and CEO (he was the first chief executive to be unrelated to the Deere family). He took up the post at a challenging time. The country was in the midst of a recession and farm equipment sales were low. The company's dealers were overstocked and its plants were running at about 50 percent capacity. To help its dealers survive, Deere incurred a large amount of short-term debt. Hanson cut capital spending by 30 percent, much of it in labor costs, and Deere began its dramatic reduction of salaried employees. Between 1980 and 1983, the company laid off about 40 percent of its employees.
In 1982 the newly robotized Waterloo tractor plant lost money, only a year after it began production. Although the plant required fewer workers, Deere lost money because the demand for tractors was so low that the plant had to run at a fraction of its capacity and overhead was high. In fact, manufacturing operations lost money continually until 1986.
To recoup some of the losses, Deere continued to develop its financial sector. In 1982 the company acquired Central National Life Insurance Company and expanded its John Deere Credit Company to include leasing operations. During the early and mid-1980s, Deere was active in helping farmers to finance tractor purchases, offering credit incentives. Deere won the loyalty of many farmers this way. This helped sales at a time when many farmers were tightening their budgets. Farmers' net incomes had decreased about 75 percent in the past decade, basically because of overproduction, which, in turn, cost the government a great deal in surplus storage. In 1983 President Ronald Reagan introduced a payment-in-kind program, which paid farmers not to plant a certain number of acres, to alleviate the overproduction problem.
Deere's investment in overseas expansion had not paid off, and in 1983 the company still held a small share of the European market. In an effort to strengthen its links with Japan, Deere began to import Hitachi construction equipment.
Despite Deere's financial troubles, the recession hit Deere much less severely than it did its competitors, and Hanson found ways for the company to make money in sectors other than farm implements. In 1984 Deere acquired a rotating-combustion-engine business from the Curtiss-Wright Corporation, and Deere also bought all rights to Farm Plan, an agricultural-financing service.
Sales in farm equipment continued to decrease markedly. The company survived mainly from its sale of lawn tractors, European sales, and its financial operations. In 1985 Deere continued to cut back on labor costs when it simplified the design of its basic engine and reorganized its factory system, laying off 480 workers. "When you're on the way to the gallows, your attention is clearly focused," Hanson told Financial World, May 2, 1989.
In 1985, a $100,000 John Deere tractor sold for about $70,000. About 20 percent of the dealers in the Midwest closed. This attrition helped the stronger dealers to survive. With sales at $4 billion, Deere lost money before taxes. Deere began a health maintenance organization for small cities and rural communities in 1985, called Heritage National Health Plan.
In 1986 Deere won an $11 million military contract to develop an implement for repairing bomb-damaged runways. Also in 1986, 12,000 UAW members struck four key plants, seeking a new contract that would protect employees against cutbacks and maintain a cost-of-living adjustment. Deere shut down its remaining UAW plants and the UAW accused the company of a lockout. Deere's dealers had enough inventory to last several months at the rate they were selling them and the strike allowed Deere to reduce inventory and overhead. Deere said it could not afford the proposed labor contract and the strike lasted five-and-a-half months before Deere and the UAW could come to an agreement.
Deere lost $99 million in 1987, mainly due to depressed sales and the effect of the strike. Hanson continued to push Deere into manufacturing parts such as hydraulic cylinders for other companies, and he also expanded credit operations. Although the lawn care business continued to do well, the company still depended on the farm implements sector for 60 percent of its business.
In 1987 Hans W. Becherer was named president of Deere and Hanson remained CEO. In 1988 the farm economy began to recover from its slump because of the lower dollar and the improvement of the North American agricultural economy. As the main survivor in the industry, Deere had increased its market share during the recession from 45 percent to 55 percent. In 1988 sales increased 30 percent to $5.4 billion and net income reached a record $315 million, a one-year turnaround of $414 million. Sales of tractors rose 90 percent and sales of harvesting machinery tripled. As the recession lifted, many farmers were ready to buy new equipment.
Deere offered its largest selection of new agricultural products ever in 1988 and 1989, spending about $16 million to display its 44 new combines, tractors, and balers in Denver, Colorado and in Palm Springs, Colorado. In 1988 Deere formed a joint venture with Hitachi called Deere-Hitachi Construction Machinery, which would produce and market earth excavators.
In March 1989, Deere settled a court dispute with the Equal Employment Opportunity Commission (EEOC), which was acting on behalf of 116 former employees who were laid off as part of the labor reductions in 1984. The EEOC alleged that age discrimination was involved, and although Deere denied the allegation, it agreed to pay $4.3 million to settle the dispute rather than go through further litigation. In October 1989, a one-month strike slowed production at Deere's Wisconsin lawn care products plant. Also in 1989, Deere paid $87 million for Funk Manufacturing, a maker of powertrain components.
Difficult Early 1990s Gave Way to Record Mid-1990s
In August 1989 Becherer became CEO of Deere, then became chairman as well in June 1990 when Hanson retired. Although Deere enjoyed profits of $411.1 million in 1990, it then lost $20.2 million in 1991 and made only $37.4 million in 1992. Sales fell in both 1991 and 1992. The difficulties stemmed in part from the early 1990s recession, which hit Deere's $1 billion construction equipment business particularly hard, and in part from farmers' reluctance to buy new equipment despite an improved farm sector economy.
In response, Deere poured money into a $120 million 1991 restructuring program and into research and development--$280 million in 1992 alone. The result was the company's 1992 introduction of the 6000/7000 series of tractors, touted as Deere's most significant new products since 1960. The line consisted of six new tractors with horsepower ranging from 66 to 145, and featuring the largest cabs in the industry--cabs that included comfortable seats, stereo cassettes, air conditioning, and better visibility thanks to 29 percent more glass. Deere's revitalized new product development efforts did not let up, however. Just two years later, the company introduced the 8000 series tractors, including the 8400 model, which was the world's first 225-horsepower row-crop tractor.
Meanwhile, Deere continued to seek ways to bolster its nonfarming sectors. In 1990 the company had established a Worldwide Lawn & Grounds Care Division, separating this product group from the agricultural equipment business. Deere then made a series of moves to strengthen its new division. In 1991 the company purchased a majority stake in SABO Maschinenfabrik AG, a maker of high-quality walk-behind mowers and commercial lawn mowers based in Germany. Three years later, Deere acquired the Homelite division of the conglomerate Textron, Inc. Homelite, based in Charlotte, North Carolina, was a leading manufacturer of handheld and walk-behind power products for the consumer and commercial markets. With this acquisition, Deere's lawn and ground care equipment business generated almost as much revenue as the industrial equipment division. The company in 1995 introduced the new "Sabre by John Deere" line of mid-priced lawn tractors and walk-behind mowers. The following year the name of this division was changed to Worldwide Commercial & Consumer Equipment Division.
Although Deere had long been active manufacturing its farm product overseas, the company had not been as aggressive as its competitors in selling tractors and other farm equipment outside the United States and Canada. The mid-1990s saw Deere become much more active in this area. In 1993 the company entered into a marketing agreement with Zetor s.p., a tractor manufacturer in the Czech Republic, whereby Zetor would provide Deere with a lower-priced line of 43 to 93 horsepower tractors, which Deere would sell into developing markets worldwide, particularly in Latin America and Asia. In 1996 Deere concluded its largest single agricultural sale in history when it sold $187 million in combines to Ukraine. The following year, the company established a joint venture with the Jiamusi Combine Harvester Factory based in China. The venture, called John Deere Jiamusi Harvester Company Ltd., of which Deere held a 60 percent interest, would produce smaller combines for export in the Asia-Pacific region.
Following the middling success of 1993 (in which Deere would have posted profits of $184.4 million were it not forced to take a noncash charge of $1.11 billion as the result of new accounting standards in relation to retiree health care and life insurance benefits), Deere enjoyed three consecutive years of record sales and profits. Farmers, whose coffers were overflowing as a result of high commodity prices, were finally replacing their old equipment with the innovative new models Deere introduced earlier in the decade. Sales outside the United States and Canada were becoming increasingly important to the company's success as they increased more than 75 percent from 1993 to 1996, going from $1.55 billion to $2.75 billion.
Despite the impressive results of the mid-1990s, Deere remained vulnerable to the inevitable economic downturn. The Deere of the mid-1990s, however, was somewhat more diversified than the Deere of the late 1980s. In 1989 agricultural equipment was responsible for 66 percent of net sales, industrial equipment 21 percent, and commercial/consumer equipment 13 percent, while in 1996 the figures were 63 percent, 20 percent, and 17 percent, respectively. Likewise, the company was becoming more geographically diverse, as sales from outside the United States and Canada increased from 22.8 percent of overall sales in 1989 to 28.6 percent in 1996. It seemed certain that into the 21st century Deere & Company would maintain its leading position in agricultural equipment through innovative new product development and would continue its history of careful diversification.
Principal Subsidiaries: Homelite, Inc.; John Deere Company; John Deere Credit Company; John Deere Health Care, Inc.; John Deere Insurance Group Inc.; Chamberlain John Deere Pty. Ltd. (Australia); John Deere Intercontinental Ltd. S.A. (Belgium); SLC S.A. Industria e Comercio (Brazil); John Deere Finance Limited (Canada); John Deere Limited (Canada); John Deere Jiamusi Harvester Company Ltd. (China; 60%); John Deere (France); John Deere-Lanz Verwaltungs A.G. (Germany; 99.9%); John Deere Vertrieb Deutschland (Germany); John Deere Italiana S.p.A. (Italy); John Deere Foreign Sales Corp. Limited (Jamaica); John Deere S.A. de C.V. (Mexico); SABO Maschinenfabrik AG (The Netherlands); John Deere (Proprietary) Ltd. (South Africa); John Deere Iberica S.A. (Spain); John Deere S.A. (Spain); John Deere Limited (U.K.).
Principal Divisions: Worldwide Agricultural Equipment Division; Worldwide Industrial Equipment Division; Worldwide Commercial & Consumer Equipment Division; Deere Power Systems Group; Worldwide Parts Division; John Deere Credit; John Deere Insurance Group; John Deere Health Care.