In Sunday's Business section, a misleading figure was given for the percentage of farm machinery imported into the United States. Although about 85 percent of all farm tractors sold in the United States are imported, the dollar value of imported machinery of all types is about 20 percent of total industry sales. (Published 7/15/87)

International Harvester Co. has gotten out of the business and changed its name. Massey-Ferguson Inc. has retrenched and restructured. New Holland was taken over by Ford Motor Co. Deere & Co. took a horrific strike last year. Allis-Chalmers Corp. filed for bankruptcy protection last month.

In the farm-equipment industry, things have gone from bad to worse.

Makers of tractors, combines and other farm machinery are in the eighth year of a dizzying sales plunge that has cut the industry's sales by more than half and eliminated many of its major players. And with weak crop prices and the economic recovery of the American farm industry moving at a glacial pace, industry officials and analysts say there is little hope in sight for beleaguered tractor makers.

"We seem to be still looking for the bottom," said Robert Moglia, president of Ford-New Holland.

The sharp drop in sales has triggered a classic industry shakeout, with some companies leaving the business and others joining forces to fight for slices of the smaller tractor sales pie. And while the image of a farmer working his field atop a tractor is a quintessentially American one, what's left of the farm-equipment industry largely has moved abroad: about 85 percent of the farm machinery sold in the United States is made in Japan or Europe, up from 50 percent a decade ago.

Even the one recent bright spot for the industry -- sales of Japanese-made small tractors used by weekend farmers, homeowners with big lawns and small farms -- has turned soft lately.

Searching for reasons to be optimistic, some in the industry point to statistics showing that the pace of the slide has slowed somewhat in the past couple of months. But analysts are not convinced. "There's no real hope in the short run," said Charles Bromley of Duff & Phelps in Chicago. "Nothing much has changed."

The tractor makers' nightmare began in 1979. Statistically, that was the best year the industry ever had: More than 300,000 tractors, combines and other pieces of equipment were sold in the United States, with a total retail value of about $12 billion. The industry's giants, Deere and Harvester, were fat and profitable, and smaller manufacturers also were enjoying healthy sales.

But by year's end, interest rates had started on an upward spiral that pushed the cost of borrowing money into double digits. Combined with low crop prices and declining grain exports, the high rates put a sharp squeeze on the nation's farmers. Scrambling to reduce costs, many farmers cut down on the one true extravagance they allowed themselves: the purchase of fancy new farm equipment every year or two.

Farmers kept tractors longer, repaired them, and all but stopped buying new equipment. The steady slide in sales reduced the number of units sold to 146,000 by last year, only $4.5 billion at retail -- just a bit more than one-third the 1979 level of retail sales.

Hardest hit was the high end of the market: big tractors with 100 horsepower or more, and combines, the giant harvesting machines used by grain farmers.

The combine slide has been, if anything, more spectacular than the tractor crash. Selling for $100,000 and up, these machines have found few buyers in recent years: Just 7,600 combines were sold last year, for instance, down from 32,000 in 1979, and combine sales this year are running 53 percent behind last year's levels.

The decline in sales of those big-ticket items put huge pressure on the tractor makers. Companies like Deere, International Harvester and New Holland had hundreds of millions of dollars invested in factories to make the big machines, and in many cases, the plants sat idle. An industry once known for its paternal management style -- it was not unusual for several generations of a family to work for IH or Deere -- began laying people off in droves.

But many of the companies were locked into expensive labor contracts won by workers during the salad days of the 1970s, and even with cutbacks were unable keep up with the decline in the market. Midway through the slump, companies began dropping by the wayside.

Perhaps the most spectacular failure was Harvester, which lost more than $3 billion in six years, underwent several restructurings and refinancings and narrowly missed bankruptcy. Only the relative health of its truck-making subsidiary kept it alive. The company finally decided to cut its losses two years ago, selling its farm-equipment operations to rival J.I. Case, a subsidiary of Tenneco Inc., changing its name to Navistar International Corp. and carrying on solely as a truck maker.

Others went through similar, though generally less traumatic, changes. Massey-Ferguson was forced to restructure and downsize its operations, while New Holland was sold by its corporate parent, Sperry Corp., to Ford. Allis-Chalmers sold its farm-equipment operations to a German heavy-industry company, Klockner-Humboldt-Deutz AG, two years ago, and attempted to struggle on as a maker of mining and industrial equipment before lingering financial problems forced it to file for Chapter 11 bankruptcy protection two weeks ago.

Even Deere, long the industry leader, was not immune. While the company has weathered the downturn better than most of its competitors -- because of size, financial strength and aggressive spending on product-development and factory automation -- it has lost money in several recent quarters. A United Auto Workers strike against the company ran for 163 days beginning last fall, causing the company to lose $331 million during the two quarters spanning the strike. Deere showed a small profit in its most recent quarter, but Eli Lustgarten, an analyst at PaineWebber Inc., predicts: "They'll go in and out of profitability in the next four to six quarters."

The upheaval and consolidation among the farm-equipment companies has drastically changed the look of the industry. Indeed, where once Deere and Harvester dominated the industry as the only full-line producers of everything from small tractors to combines, now Deere, Case-IH and Ford-New Holland can make that claim -- while other companies have expanded their lines by acquiring competitors. "We actually have more full-line marketing and manufacturing companies than we did 10 years ago," said Emmett Barker, president of the Farm and Industrial Equipment Institute, a Chicago-based trade group. "The more you can bring various lines together, the more you can spread your overhead costs."

The industry has been reordered in another way, as well. During the past few years, more and more manufacturing of farm equipment has shifted overseas. Although combines and large tractors still are made in the United States and Canada, most smaller equipment is made in Europe or Japan.

According to industry executives and analysts, that shift reflects market patterns more than problems and expense of American manufacturing. Europe, for instance, is the largest market in the world for medium-sized tractors -- with 40 to 100 horsepower -- so it is more economical to make those machines there, near the primary market, and ship some to the United States.

Similarly, small tractors -- under 40-horsepower -- are most popular in Japan, and all of the small tractors sold in the United States are made in Japan, either by American companies with plants there or by Japanese firms that sell the products here either through one of the big tractor brands or, in a few cases, under their own names.

The market for those small tractors has been about the only good thing about the farm-equipment business during the past few years, and its success has masked some of the industry's other problems, analysts say. U.S. sales of small tractors, which were mostly flat during the first few years of the slump, have skyrocketed in the past five years, to 62,000 last year from 42,000 in 1982.

The buyers of these small machines -- which typically start at about $5,000 -- generally are not traditional farm-equipment customers. Instead, the buyers are people with large lawns who feel they need more than a rider mower, or are weekend and part-time farmers, known as "sundowners" in the industry.

"That's one of the things everybody wants to do when they move out into the country -- get a tractor," said Reyburn Browning, owner of Whitmore and Arnold, a farm-equipment dealership in Purcellville, Va. "And thank God for that."

In the area around Browning's dealership in western Loudoun County, large farms are being broken up and sold in smaller parcels to the sundowners, significantly changing patterns of demand for the tractors Browning sells. Rather than buying medium- and large-sized equipment needed to work a good-sized farm, the owner of these 10- or 20-acre tracts come to the dealership for small tractors made in Japan and sold by Browning under the Case-IH and Kubota brands. "The farm-equipment business, in the traditional sense, is not too great," Browning said. "However, it is being replaced very successfully" by the smaller machines. And while they cost a fraction of the sales price of a larger tractor, they have helped dealer profitability, Browning said, because profit margins are higher on the under-40-horsepower machines.

But even the "under-40s" lately seem to have become infected with the farm-equipment industry's overall problems. During the first five months of this year, small-tractor sales were off 4.4 percent from last year, according to the Farm and Industrial Equipment Institute. That decline has been attributed to market saturation; economic downturns in the oil patch, where the small machines were particularly strong sellers to executives with weekend farms; and the increased value of the yen against the dollar, which has raised prices of the small tractors.

Despite the steady stream of bad news, some farm-equipment industry executives insist that they see cause for cautious optimism about the industry's future. Crop and land prices are firming somewhat, they say, and the farm-credit crisis is abating, so theoretically farmers will have more to spend in coming months.

In addition, the executives say, farmers can't run old tractors forever; eventually, they will have to buy replacements. "When you look at the average age of the machines out there, it's been increasing fast," said Jerry K. Green, president of Case-IH.

Barker claims to be able to divine the future based on sales of used tractor parts, which are increasing. "That is to say that a guy isn't willing to invest in a long-term repair part {if} he doesn't think the tractor or combine isn't going to last itself," he said. "He's not going to put a $10,000 transmission in a tractor that's not worth $10,000 itself."

Maybe so. But not everybody is convinced that a recovery -- even a limited one -- is around the corner.

Despite the Deere strike, industry inventories still are high: nearly a year's worth of tractors, at current selling rates, are sitting on dealers' and manufacturers' lots; four or five months' worth is considered the norm. And even though interest rates are down and farmers are somewhat better off than a few years ago, sales continue to decline. "In the past, we've always talked about how putting more more money in farmers' pockets would stimulate demand, but apparently they're using this money to pay off debts rather than putting it into capital equipment," said Stan Daberkow, an economist at the Department of Agriculture.

"We hear reports from the field where people say it looks like things are bottoming out, although at this time our monthly retail sales reports don't show any bottoming out or improvement of any kind," Barker said.

"What many people were expecting -- I think maybe hoping is a better word -- was for a year of stability for farm-equipment sales," said Peter J. Heffernan, an economist at the Federal Reserve Bank of Chicago. "That hadn't happened as of the first quarter."

"You can write off this year. This year is clearly weaker than last year," Lustgarten said. "Nineteen-eighty-seven is the year you thought it couldn't get worse, but it is."

And when and if things do come back, the farm-equipment industry will be much different than it was before the slump, experts say. "It's kind of like remodeling a house: You have to go through and tear out the walls and consolidate," Barker said. "In two years, it will be, for all intents and purposes, a new industry. It will have some of the same products and some of the same companies, but it won't be anything like the industry 10 years ago."

"I don't expect that farm-equipment sales will ever get back to where they were in the late 1970s," Green said. At best, he said, sales will return to half of the 1979 level. "If you look at farm-equipment sales today, they're about one-third of what they were in 1979, and that's pretty damn bad."