This dealer group is expanding its ag machinery business while going head to head with some of the biggest and best retailers in North America.

Butler Machinery's headquarters is in Fargo, N.D. and it sells Caterpillar, Challenger and Lexion equipment.

With four of the biggest, most competitive and well-developed farm equipment dealer networks in the U.S. headquartered in Fargo, N.D., there must be something in the water, but more likely the soil, that breeds agricultural entrepreneurs in the Red River Valley.

The four — including Brandt Holdings, Butler Machinery, RDO Equipment and Titan Machinery — account for nearly 100 dealer locations in the states of Minnesota, North Dakota and South Dakota alone. Competing for a piece of the ag equipment retail pie in the Northern Plains isn’t for the faint of heart.

Among farm equipment dealers, Butler Machinery may be the least known of the four dealer groups. That’s because it’s primarily a Caterpillar construction equipment dealer — with “only” 11 locations.

And, despite competing against the behemoths of the farm equipment world — RDO and Brandt are John Deere dealers with 76 total locations and Titan carries Case IH and New Holland at 72 stores — over the last decade, this dealer has steadily grown its ag segment business with AGCO’s Challenger line.

Agricultural Roots

Dan Butler, president of the dealer group and third generation of the Butler family to head the company, says it has always had its roots in agriculture, albeit, not to the extent it is today. “We started out by selling Cat’s D2 and D4 diesel tractors in the 1950s.”

As Caterpillar grew in its farm machinery offerings, so did Butler. And it was in the 1980s when Caterpillar made its real mark in agriculture with the development of the Mobil-Trac system that utilized rubber instead of steel tracks that performed like flotation tires. With that, the company introduced several models of track tractors that it branded Challenger.

In December 2001, the construction equipment maker sold the design, assembly and marketing of its MT series Challenger ag tractors to AGCO. All along, Butler Machinery maintained its presence in the fertile fields of the Red River Valley.

With the addition of the full line of farm machinery that AGCO brought with it, Butler Machinery expanded its reach into farming. Today, 30% of its sales come from the ag segment. This includes some Caterpillar products, like medium-size wheel loaders, telehandlers and skid-steer loaders that are sold to farmers.

That’s up from 2-3% of total sales revenues in the 1980s, and “probably 20%” from a decade ago, according to Butler.

While he prefers not to disclose the company’s annual sales volumes, he adds that, “We’ve doubled the size of our business since 2002.” A good portion of that has resulted from its expanded sales of ag equipment.

Butler Machinery Co. — Fargo, N.D.

• History: Founded as a Caterpillar dealer in 1955 by Francis J. Butler
• Recent Moves: New store opened in Pierre, S.D. (2005); Acquired Green’s Implement, Hankinson, N.D. (2008); New store opened in Dickinson, N.D. (2009)
• Major Line: Caterpillar (construction equipment), Challenger (ag equipment), Lexion
• Shortlines: Claas, Horsch Anderson, Ag Chem, White Planter, Spra-Coupe, Wishek, Drago
• Locations: 11 (Fargo, Jamestown, Grand Forks, Hankinson, Bismarck, Dickinson and Minot, N.D.; Aberdeen, Pierre, Rapid City and Sioux Falls, S.D.
• Employees: 630 plus
• Key Staff: Dan Butler, president; Harold Sliden, vice president agriculture; Twylah Blotsky, director of IT, marketing & Six Sigma

Same, But Different

As a construction equipment dealer expanding into ag machinery, Butler acknowledges that there are subtle differences between selling the two. At the same time, he says, “It all comes down to great products and great people.”

One of the not-so-subtle differences is the fact that Caterpillar dealers are assigned well-defined sales territories. In Butler Machinery’s case, it includes most of North Dakota, all of South Dakota and Clay County in western Minnesota. In total, Caterpillar lists only 61 North American dealers.

“This model is different than it is for most ag equipment dealers,” Butler says, and the effects are felt in margins and market share.

Comparing profit margins between the CE and ag, he says, “They’re definitely different, especially as you move down the product line. If you talk to dealers selling different brands of farm equipment, they’ll tell you that it’s inline competition that drives a lot of the pressure they see on margins — to the point where it’s tough to make a dollar.”

In addition to inline competition, Butler attributes much of what’s happened to margins in the ag segment to the manufacturers’ focus on volume and market share. “We see farm equipment dealers selling at no margin, or at a negative margin, just to get the parts and service business. Dealers are giving stuff away to protect their market-share numbers.”

“When that takes place, there’s not much margin left. Hopefully, at some point manufacturers will wake up and see that their dealers need to make some money. If we combine everyone’s market share goals across the different colors in this territory, I’ll bet it adds up to 140%. It’s pretty hard to make anything happen when you’re only market share driven,” Butler says.

“Yes, I’d like to grow our market share, but only if it’s profitable.”

He adds that making market share the primary goal is a very fast way to go bankrupt. “Try taking your market share to the bank to pay off a loan. I’m pretty sure your banker will have a hard time accepting that.”

A Customer’s Consultant

Butler sees little difference in marketing construction or farm equipment.

With either customer base, it comes down to helping the customer as a consultant would, not just trying to sell him something. This, he says, is the foundation of how Butler Machinery needs to do business.

Built in 2000, Butler Machinery’s headquarters in Fargo, N.D., was designed to accommodate the continuous training of the dealership’s associates. On average, each of Butler’s technicians average well over 120 hours of training per year.

“Regardless of their size, the ag customers we do best with are those who run their farms as a business. They don’t just look at the upfront cost of purchasing a piece of equipment, but make decisions based upon cost per acre,” Butler says. “They’re the ones who are always looking at their cost structure.

“In construction, it’s the cost per yard of dirt moved, not the purchase price of the product. In ag, you need to look at cost of inputs per acre.

“Both customers need to answer the same question, ‘How do I lower my inputs to finish this project or to get my crop to market?’”

If the upfront purchase price is a customer’s top criteria, Butler says, “He’s not going to buy our product. We’re going to be the most expensive on the market. But if they do the rest of their homework and want productivity and the lowest cost per yard or cost per acre, they’ll buy our product.”

For example, Butler’s sales associates have various tools at their disposal to demonstrate productivity of products and the overall effects on the farm operation. One is a harvest calculator.

“If we can get your harvest done 3 days sooner using our product than it takes with the competitor’s, what can the operator cut out?” asks Butler. “Three days of manpower and 3 days of running the grain cart up and down the field are just a couple of examples we can show why the purchase price of the equipment shouldn’t be the only criteria in a buying decision.”

“Now, take it even further and consider market conditions — the weather and other factors that can affect getting your crop out of the field and to market. The people who are willing to take a look at all of the factors and costs are the people who will do business with us. You determine that by consulting with them, not by taking the traditional sales approach.”

This takes consultation, not pushing price, he says. And he adds that this “consulting” approach fits customers of all sizes.

“A lot of our volume comes from small contractors with 2-3 machines, who sit in the seat of equipment,” Butler says. “On the other hand, many of the farmers we deal with today seldom see their tractors. Some are working 30,000-50,000 acres. But it doesn’t matter, you need to treat them the same and show them the numbers and cost per productivity gain.”

No Split, No Commissions

Where a Caterpillar construction dealership was unable to successfully integrate farm products into its dealership, it’s because they’ve treated ag as a sideline. That never works, says Butler. The recent downturn in construction equipment has a lot of Cat-Challenger dealers putting together a bona fide ag division. Butler says he’s had several contact him asking, how to meld it all together.

“I tell them that we aren’t perfect by any means, but we do a good job of getting our segments to work together and understand both sides of the equipment market,” says Butler.

“Ag and construction represents one customer base at Butler, and serving each customer is how we make our livelihood.”

Ag equipment is on equal footing with construction machinery because the firm has fostered a culture of teamwork that includes a non-commissioned sales force and not splitting ag and CE selling responsibilities.

“Our shop facilities, parts departments and front-line account technicians, or Customer Account Technicians (CATS) as we call them, sell the whole house. While some individuals may be geared toward construction, ag or electrical generation products, any one of them can sell any product.”

“If a construction customer is looking for a farm tractor, the person working with him can sell it. If a farmer’s looking for a dozer, he can sell that, too. Basically, we look at that customer as being tied to an account technician. He’s the only contact the customer should need with Butler Machinery.”

Butler says that making his sales force non-commissioned is the only way he knows to reinforce the need to focus on the doing what’s right for the customer. “We want our sales force to be a trusted member of our customer’s team, and not dependent on quick sales for their livelihood. We want him there to consult with our customers, and to make sure he buys the right product for his application.”

Leveraging Service Expertise

Butler says one thing ag dealers could learn from the core principles stressed by Caterpillar dealers is the ability to “leverage assets.”

Chief among those assets, he says, “is our people, and that means our service department and service expertise. You’re seeing more and more ag dealers taking a cue from Cat dealers in developing that capability to go to the customer, rather than the customer coming to him. That’s probably the biggest differentiator we brought to the marketplace — our ability to repair a product in the field in a timely manner.”

“We showed ag dealers why mobile service is important and how to fully outfit their service people to make repairs in the field.”

To do it effectively, he says, requires talented, well-trained technicians with the right tools. “All of our associates are given a laptop,” Butler says. “A big part of being a good service tech today is being able to diagnose problems, not necessarily tearing down a machine and putting it back together. More often than not, repair issues involve electrical problems, so it takes more than a baling wire and a large hammer.”

This, he says, also makes the case for higher service rates. Some dealers need to start paying their people a little more to start with. You’re not going to find technically savvy people for $11 an hour. That means shop rates probably need to be higher.

“We consider our shop rates to be reasonable, but shop rates can be deceiving. If you really think about it, the shop rate doesn’t mean much. What’s important is how long does it take to get the repair done.”

“With talented people and the right tools, we do the repair in half the time it would take another tech to finish the same job. A customer may pay a little more per hour, but our repair will likely be less costly than another dealer with a shop rate much less than ours.”

“This allows us to do more flat-rate repairs. When we can tell the customer the cost up front, the per-hour rate isn’t a discussion point. We’re pushing more and more flat-rate work in our organization,” Butler says.

He has spotted another trend that will pressure dealers to become even more competitive to retain service work. “We’re seeing more farm locations with shop facilities that rival those of the local ag dealer. That includes ours at Butler,” he says.

‘Think Big’ Training

Butler is convinced that the only way to stay competitive with some of the biggest and best dealers in the business depends on the quality of the people in his organization. And this, he says, calls for hiring the right people and investing in their training.

“The 52,000 square-foot building we’re sitting in right now was built to accommodate the continuous training of Butler Machinery associates,” he says, referring to the company’s headquarters in Fargo. “We weren’t expecting a one- or two-year payback when we opened it in 2000. This is a long-term investment.”

Because more than half of Butler Machinery’s total employees are involved in the technical service end of the business, most classes are product or technology based. “We also do some leadership training through the North Dakota Implement Dealers Assn. We believe we have as well informed and talented group of people as as any dealer group in the country. At the same time, we also believe that we can get better.”

Overall, Butler’s training facilities are in use nearly 70% of all working hours. On average, Butler techs average well over 120 hours of training per year, with most classes running 5 days. Most of the company’s techs will attend 3-4 classes a year.

The company employs 3 full-time instructors and a training director.They also bring in outside instructors as needed.

Butler Machinery is also an active participant in Caterpillar’s “Think Big” program for training high school graduates to be service techs. “Today, we’re the only U.S. dealer supporting its own Think Big program through Caterpillar. In fact, we’re supporting two programs that train about 30 students a year at North Dakota State College of Science in Wahpeton and we also have a program at Lake Area Technical Institute in Watertown,” says Butler.

The students are hired as employees of Butler Machinery Co. The 2-year program involves 9 weeks of school followed by 9 weeks working in the shop at one of the dealership’s locations where they’re mentored by experienced Butler staff. They’re paid during the 9 weeks of shop work, which helps pay their tuition in the program. Most of the students that finish the program are offered full-time positions with the dealership. Not all make it, though.

“We have a pretty good retention rate, but we don’t retain them all,” Butler says. “Some just aren’t the right fit for our culture or organization. We’re looking for the best of the best.”

Pressures to Grow

Butler says machinery retailers will continue to face the choice of expanding or exiting the business.

“There’ll be a place for single store farm equipment dealership, but probably not many. That’s the handwriting on the wall that we see. You only have to look at the Cat dealer structure to see the changes that are under way in ag,” he says. “There will be fewer dealer-principals and fewer locations.”

He points to his own organization as an example of the reality confronting ag machinery retailers. “When Butler Machinery became a dealer in the 1950s, there were four other Cat dealerships in our present territory. Today, we have most of North Dakota, all of South Dakota and part of Minnesota as our assigned sales territory,” he says.

And while consolidating dealer networks may reduce or eliminate inline competition, it’s also breeding even more competitive dealership groups where the only real differentiator will be the quality and skills of their workforce.

He says it’s the big lesson that Butler has learned and the only advice he can offer dealers intent on expanding.

“It doesn’t matter if they’ve just started in this business or if they’ve been at it for 50 years. Every associate at our dealerships plays a big role in taking care of our customer base. Just think about it. Who touches our customer more often, my service people or me?

“It’s our frontline people that make the difference and make us successful. It isn’t because Dan Butler or another manager sitting in the corner office is making all the right decisions. We’re succeeding because we have a lot of associates that care very much about our customers and about our company.