Can Agriculture Avoid the Pitfalls of the Auto Sector

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While in London Ontario for the Innovative Farmers of Ontario meeting I listened to a keynote speech given by Dennis DesRosiers.  Dennis is a highly respected automobile industry analyst and he gave a breakdown of what has put the auto sector behind the financial eight ball.  The purpose was for farmers in attendance to draw the comparisons to agriculture and make some better decisions on their own farms.

Here are some of Dennis’s key points with some of my own commentary mix in:

  • Never take you eye off the customer– If you have no customer you are essentially bankrupt.  Your customers are who make you successful.  Dennis mentioned farmers need to grow crops that are desired by the customer.  He said that the Detroit auto makers sometimes forget who the customer is.
  • Home runs do not trump many singles – Too many times we get enamoured with what is hot and not on what pays the bills and makes us successful in the long run.  An example of this could be chasing prices instead of sticking to our well thought out crop rotations to encourage crop management in the long term.  Trying to pay for the farm in one turn of the livestock business or in one crop year many times can lead to financial wreckage and not success.  Boring can be better than trying to prove you knew something someone else didn’t.
  • Bigger isn’t necessarily better – Detroit made a habit of buying every single car company that came onto the market to try and increase size.  Dennis said that they tried to fool themselves and the customer by losing money on everything but try to make it  up on volume.  This is a recipe for financial disaster.  Expanding a money losing business just means you lose more money.  Expanding your farm must make sense financially and not just to produce more grain.
  • Debt is the root of all evil in a cyclical business – Dennis stated very firmly that leveraging up a cyclical business can be a financial disaster.  When there is financial stress cash is king can earn you more time to get your balance sheet and income statement into better shape.  The car company’s became so levered that financial ruin was inevitable.  Check out the story we ran last week that dealt with this very issue.
  • You can run but you can’t hide from your problems – Dennis talked about how the auto industry ran from its legacy issues and losses per unit for a very long time.  Throw in the recession and all of a sudden the exposure was revealed to the masses.  Dennis put it a great way, “when the tide goes out you discover who is not wearing a bathing suit.”  On the farm a similar situation is not dealing with your family farms’ succession issues.  Continuing to put succession aside can be a big mistake and eventually must be dealt with.
  • Government really isn’t your friend – The auto industry has discovered that government money does not come without strings.  The priorities of the government can be much different than the core strategies of the money recipient.  I had a friend say once that a business that has to survive on government funding is not a business.  In agriculture we lean on government to ensure stability instead of dealing with some of the systemic issues of the industry.  Free money is nothing more than a band-aid and can be more detrimental in the long run.

I thought that Dennis provided a great background into the auto sector and I know that many of the farmers in attendance had a number of ah-ha moments.  Let me know whta you think about some of the comparisons Dennis makes and if you see some similarities between the two industries.

 

Shaun Haney

Shaun grew up on a family seed farm in Southern Alberta. Haney Farms produces, conditions and retails wheat, barley, canola and corn seed. Shaun Haney is the founder of RealAgriculture.com. @shaunhaney

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