Kubota Forecasts U.S. Tractor Market to Contract

By Masumi Suga and Masatsugu Horie

March 25 (Bloomberg) -- Kubota Corp., Asia’s largest tractor maker, expects the U.S. market for the machinery will shrink 15 percent in 2009 as a recession saps demand.

The tractor market “may deteriorate further” unless a slump in sales stabilizes in the second half, Managing Director Tetsuji Tomita said in an interview. A 50 percent drop in demand for mini excavators in the U.S. and Europe may continue for the next six months, he said.

Farmers and consumers in the U.S., Kubota’s largest overseas market, have delayed buying tractors used in agricultural production and to mow lawns. The company is reducing product lines, freezing hiring and shifting its focus to China and other emerging markets as the deepening recession reduces sales in North America and Europe, Tomita said.

“We’re being hurt by both declines in demand and the increased value of the yen,” Tomita, in charge of the farm and industrial machinery division, said yesterday in an interview at the company’s headquarters in Osaka.

Kubota plans to cut output of tractors at a rate of 6 percent to 9 percent in 2009, compared with last year, less than the drop in overall demand, as it gains market share, Tomita said. The company and Moline, Illinois-based Deere & Co. are tied as the top sellers of tractors of less than 110 horse power in the U.S., Tomita said. Kubota sold about 102,000 tractors in the U.S., about 34 percent of the market, in 2008.

Kubota fell 1.4 percent to 562 yen as of 1:34 p.m. on the Tokyo Stock Exchange. The stock has dropped 11 percent this year, compared with a 4.2 percent slide in Japan’s benchmark Nikkei 225 Stock Average.

Profit Decline

Profits at Kubota’s farm and industrial machinery division will be “severely affected” in the year starting April 1, though the business won’t incur a loss, Tomita said. Kubota forecast last month overall net income will fall 27 percent to 50 billion yen ($511 million) for the year ending this month.

Tokyo-based Komatsu Ltd. and Hitachi Construction Machinery Co., Asia’s two largest makers of excavators and other earthmovers, forecast a loss in the January to March quarter as the financial crisis damps global construction demand. Kubota holds the top market share for mini excavators weighing less than seven tons.

“Demand for mini construction machinery has collapsed” except in China, Tomita said.

The U.S. economy shrank 6.2 percent last quarter, the most since 1982. Economics surveyed by Bloomberg News this month forecast gross domestic product will contract at a 5.2 percent pace from January through March.

Asian Markets

Emerging Asian markets are less vulnerable to the deepening financial crisis with sustained growth in sales volumes of farm tractors and construction equipment, Tomita said. Kubota plans to triple annual sales from machinery in Asia outside Japan to 300 billion yen by March 2014.

The company forecasts unit sales of tractors will exceed 40,000 this year in Thailand, the world’s largest rice exporter. Kubota, which dominates the rice-growing machinery market in Thailand, sold 37,000 tractors last year, surpassing its home market for the first time.

“We expect long-term grown in the Asian region,” Tomita said. “The business opportunity there is quite huge.”

In China, Kubota is searching for land to start assembling mini excavators in the second half of 2009 and plans to double unit sales in the country this year, Tomita said, without specifying the target.

To contact the reporters on this story: Masumi Suga in Tokyo at msuga@bloomberg.net; Masatsugu Horie in Osaka at mhorie3@bloomberg.net