By Susan Kelly
CHICAGO, June 21 (Reuters) - Farm machinery maker CNH Global NV , stung by a depressed farm economy and integration woes from the New Holland-Case merger, is retooling its tractors from the bottom up in a bid to restore profits and lost market share.
The company, at a briefing next week for international media in Madrid, will unveil design changes that it hopes will deliver the cost savings investors want while keeping the features farmers expect.
CNH, the world's largest maker of tractors and combines and a leading producer of loader backhoes, excavators and other construction machinery, plans to cut in half the number of manufacturing platforms on which its vehicles are based.
Modeled after automotive production lines that churn out multiple car models from a common base, CNH's streamlined platforms are key to achieving cost savings, which it now estimates at more than $1 billion, promised by the 1999 merger of New Holland N.V. and Case Corp.
"It's the underlying rationale for the entire merger," said Mark Koznarek, analyst with Midwest Research, who has a "neutral" rating on the stock.
Investors got an update on the strategy during the company's recent road show to promote an equity offering.
In a related regulatory filing, CNH said it expects up to 40 percent of its agricultural equipment and 45 percent of its construction products will be developed on common platforms this year. Product lines will remain the same but will share common design elements and capital-intensive components.
Successfully melding its manufacturing platforms is critical for CNH, which posted net losses of $332 million in 2001 and $381 million in 2000, following the New Holland-Case merger in November 1999.
The company's shares currently trade just above $4, near their all-time low.
MARKET SHARE KEY ISSUE
CNH, which is 85 percent owned by Italian auto giant Fiat SpA , lost market share to rivals including Deere & Co. due to problems distributing its products and aggressive price cuts by competitors in the immediate aftermath of the merger, analysts said.
Since then, CNH has begun to regain some market share, and analysts said the common platform initiative is aimed at continuing that momentum.
"I think the darkest days are over, but they are not out of the woods yet," said Goldman Sachs analyst Joanna Shatney.
Beyond integrating manufacturing processes, the bigger challenge for CNH will be to market convincingly its numerous product lines sharing common elements to a diverse global customer base, analysts said.
"The pitfalls are, is it really differentiated enough so people believe it is a different product," said Morgan Stanley analyst Stephen Volkmann.
Deere has long employed a successful common platform program that is noted for its product consistency and economies of scale, while smaller competitor AGCO Corp. is making progress on a similar strategy to consolidate its platforms, said Shatney.
CNH hopes to realize $280 million in new cost savings from its common platform initiative by 2005, when it expects to have about 80 percent of the platform changes in place, the company told analysts.
That's on top of an expected $850 million in restructuring-related cost reductions from plant closings and other savings, a figure the company has raised from an initial target of $600 million, said Koznarek of Midwest Research.
CNH will slash the number of platforms for its agricultural equipment, which account for about two-thirds of total sales, to 35 from 66 currently. For construction products, the number of platforms drops to 39 from 77, the analyst said.