Construction Equipment
Deere Ends 33-Year US Equipment JV With Hitachi in $275M Deal
Photo Courtesy Deere
Signaling a shift in both companies’ strategies as they approach an increasingly global equipment market, U.S. manufacturer John Deere and Japan's Hitachi Construction Machinery are dissolving their multi-decade joint venture to manufacture and sell Hitachi construction equipment in the Americas under the Deere brand, the two firms said Aug. 19.
In a $275-million deal, Moline, Ind.-based Deere will acquire three existing Deere-Hitachi factories in the Americas and secure licensing agreements for intellectual property necessary for continued production of the machines. Hitachi-designed equipment in the firms' joint venture—which includes a range of medium and large hydraulic excavators—will continue to be produced by Deere through at least 2022 and will be supported and serviced through its existing network. Terms of the deal take effect in February 2022.
“This joint venture has been successful and has served us well over the years,” John Stone, Deere Construction & Forestry worldwide president, told investors and analysts during the company's third-quarter earnings call on Aug. 20. “Our new strategy will allow us to leverage our own technology and designs, specifically focused on the markets that matter most to us.”
Hitachi Construction Machinery, "through HCMA [US unit Hitachi Construction Machinery Americas], will be able to better determine its own destiny in the Americas with its own business strategies, improved products and services, and updated technologies, all provided through a revamped and strengthened distribution network,” said Alan Quinn, president of HCMA, based in Newnan, Ga.
Deere and Hitachi's collaboration dates to the 1960s, with the two manufacturers signing their first OEM supply agreement in 1983. In 1988 they formed the Deere-Hitachi joint venture to produce Hitachi-designed hydraulic excavators. Under that arrangement, Hitachi excavators were fabricated, assembled and sold entirely within the Americas.
Hitachi Construction Machinery has been looking to expand its direct presence in the Americas, noting in its Aug. 19 announcement that it plans to add more than 60 locations. The company will begin selling its own heavy equipment into the North American market in spring 2022, although all production will be done in Japan for the near future.
“HCM has been improving and investing in business strategies since 2017 to prepare for the creation of HCMA,” Quinn said in the press statement. “This includes many ‘value chain’ initiatives to bolster parts and service, rental, used equipment, remanufactured parts and financing.”
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Deere sees a lot more in the deal than just absorbing the existing product lines.
According to Stone, it is part of a broader effort to bring advanced technologies to the manufacturers’ construction equipment offerings. “The next generation of Deere’s construction equipment will feature a higher degree of our proprietary technology stack, inclusive of grade control, vision systems and remote monitoring,” he said during the 3Q earnings call.
Deere has already begun manufacturing and selling its own excavators in overseas markets and plans to phase those machines into distribution channels in the Americas in the coming years.
This shift comes at a time when Deere is seeing strong demand for construction equipment in the Americas. The company’s construction and forestry division reported an operating profit of $463 million year-over-year in the third quarter. Looking forward, it predicts North American equipment sales will increase 15% to 20% and compact equipment sales expected will rise 20% to 25%, with both forecasts unchanged from its fiscal guidance earlier in the year.
Deere cites a strong U.S. housing market and steady demand from rental channels as drivers of this demand.
