Massey A7

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CASE STUDY MASSEY-FERGUSON 1980 Group A7: • Elisenda Sumarroca • Martin Von Vopelius • Finn Pilath • Dimitris Sotiriou • Lorenzo Masserini • Ilia Antipov Q1: DESCRIBE THE INDUSTRY AND THE KEY FACTORS TO BE SUCCESSFUL Industry • Competition between large multinational companies with a large portfolio of products and medium to small companies with a limited range of products. • Main companies in North America: Deere & Co, Massey-Fergusson and International Harvester. • Increasing importance of Diesel engines with the rising gasoline prices which has caused more R&D in this field. • Decline in demand in North America due to high interest rates, economic recession, soviet grain embargo and severe drought. This recession has also caused…show more content…
1) high interest rates (costs on short-term debt rose; depressed markets for farm and industrial machinery -> hurt overall sales) 2) poor weather in Western Europe 3) decline in North American farm prices and incomes (economic recession, Soviet grain embargo, drought in summer of 1980, world-wide depression) 4) imposition of credit and monetary restrictions in Argentina and Brazil -> declines in farm machinery sales What went wrong (for Massey)? •) ambitious program of acquiring assets and expanding operations (during 60s and 70s); 70s were primarily financed by debt (huge proportion was short-term debt: bank borrowings up from 113US$m in FY1976 to 1.015US$m in FY1980); FY1978 D/E ratio: 214% •) from FY1976 onwards, net income fell continuously - in FY1978 net loss of 262US$m due to reasons above and poor product market alignment: recurring problem of currency fluctuations How did Massey respond?       Cutting labor force from 68,000 to 47,000 Reducing manufacturing  space from 30m to 20m sq. ft.  Reducing inventories from 1,083US$m to 989US$m Elimination of unprofitable operations (e.g. office

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