Why Did International Harvester Go Broke?

International Harvesters was an agricultural machinery manufacturing company formed after the merger of McCormick Harvesting Machine Company and the Deering Harvester Company. It was a household name, employing thousands of workers for decades. The International Harvester products included tractors, combines, forage equipment, hay tools, seeding equipment, tillage equipment, and sprayers.

Tenneco later bought the agricultural manufacturing sector of the International Harvester as well as the agricultural manufacturing business of J. I. Case company and merged the two to create Case IH. Later, the merger between Case IH and New Holland N.V. became Case New Holland (CNH), now known as CNH Global.

As fate would have it, International Harvesters, the company that revolutionized American agriculture, could not weather all storms. Consequently, the 150-year-old company would lose footing, leaving dealers and farmers uncertain about their future and investment.

In this article, we shall explore the history of International Harvester and how it went down.

The Rise of the International Harvester

The International Harvester traces its roots to Cyrus Hall McCormick, a great industrialist during the 19th century and the son of a farm machinery inventor. Although Cyrus McCormick’s father failed commercially, Cyrus Hall followed in his father’s footsteps and tried his luck.

At twenty-two years of age, Cyrus Hall McCormick invented a better reaper for harvesting grain and got a patent on it three years later. This success milestone prompted him to continuously improve his reapers by adding elements that enhanced the machine’s efficiency.

The First Fall – Difficult Economic Times

In 1837, economic panic befell America. The President at that time would later note that the crisis resulted from the ease of credit access and rampant speculation. This led to a widespread lack of employment, economic depression, cotton and paper money devaluing, bank failures, and financial failures.

The economic difficulty saw Cyprus take a financial dip driving the business into bankruptcy. This would also see Cyrus Hall McCormick take seven years to repay his debt; luckily, this was not the end of his story.

In the 1840s, he discovered a bigger niche for his machines on large farms out West in Ohio, Indiana, and Illinois, prompting him to move his business to Chicago.

While in Chicago, he improved his machines, added other agricultural products, and expanded his factories. Cyrus and his brothers mastered the art of marketing and distribution within this industry as they had over 10,000 dealers, further making the business grow.

The Second Fall – Fierce Competition

After surviving the 1837 economic panic with great difficulty, Cyprus had to battle the rising number of competitors.

Deering, Milliken, and company, whose inventions leapfrogged the McCormick machines, led to intense competition for the farmer’s money. By the 1890s, both the McCormick’s and Deering’s had big factories, and both competed for dealers and farmers, which strained the McCormick Harvesting Machines Company.

The fierce competition led to the 1902 merger between the McCormick Harvesting Machines Company, the Deering Harvesting Company, and three other companies to avert the awaiting tragedy. This merger gave rise to the International Harvester Company.

Officially a Sleeping Giant – Out of Touch with The Market

In the mid-1970s, the company was no longer expanding, and its profit margins were dwindling. Its competitors, like the John Deere Company, had surpassed them in the market.

The International Harvester Company also had a heavy debt burden that threatened to cripple the company.

Xerox President Archie McCardell was hired to reinvigorate the sleeping giant to avert this situation. The company now focused more on investing in new plants, innovative technologies, and new products, not knowing they were watering dead grass.

Customers, dealers, employees, and experienced executives should have been listened to when they tried to advise the company. Regardless, the company increased its debt load.

Another reason International Harvester fell is that it had less favorable contracts compared to its competitors like Deere and Caterpillar companies. These poor contracts also saw workers put down their tools and call a strike for about five months in the UAW, further weakening the case of the IH parts company.

Nonetheless, the company continued production of tractors and farm equipment, disregarding the market downturn. The managers miscalculated and assumed that farmers would order heavily to restock inventory after the strike ended, but this was not the case.

Around the same period, inflation and interest rates flared, making the company more susceptible to losses as farmers stopped buying International Harvesters Machines.

The inflation and high-interest rates slowed down the market, reducing demand in dealer territories. Another devastating factor entered the picture when President Jimmy Carter imposed a grain ban on the Soviet Union, further reducing farm equipment in the markets.

This saw the company possessing yards full of unsold inventory and large amounts of capital tied up. Due to this economic crisis and miscalculation, the company lost around $500 million in six months, narrowly surviving insolvency.

The Last Straw – Being Bought Out

The unsold inventory and tied-up capital further constrained the International Harvesters Company as it desperately needed operating funds, prompting it to borrow loans.

The company’s source of income would manifest when dealers sold machines. Unfortunately, dealers’ opinions were not sought while improving the company and were subjected to comply with strict rules.

They had to comply with building a new facility, the prototype building, as the company wanted all dealers to look the same. From the losses the company made in subsequent years, International Harvester’s Board of Directors voted to eliminate the company’s annual $1.20 common share dividend, further demoralizing stakeholders.

In the year 1985, International Harvester was beyond salvageable. It sold its farm equipment division, and the remainder of the company was sold to Navistar International Cooperation in the subsequent year.

Since the IH merger, customers have stayed loyal to the red equipment. Both dealers and customers feel that the merger turned out well for them. Customers can find Case IH parts and services for their equipment.

Conclusion

The fact is that the International Harvester was a giant in the industry for years. However, these factors, among others, brought it crippling to its knees with weak and ineffective management over the years, evidenced by the lack of listening to customers’ and dealers’ opinions. High-interest rates and a heavy debt burden made surviving even more difficult. Call us!