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Varity Corporation

Varity Corporation

595 Bay Street
Toronto, Ontario M5G 2C3
Canada
(416)593-381
Fax: (416) 593-3820

Public Company
Incorporated: 1891 as Massey-Harris Company, Ltd.
Employees: 20,375
Sales: US$2.38 billion
Stock Exchanges: Toronto Montreal New York London

Varity Corporation is one of the worlds largest producers of farm and industrial machinery. Often recognized by its former name of Massey-Ferguson, Varity is also a leading manufacturer of diesel engines and, since 1986, components for motor vehicles. From its incorporation in 1891 as the Massey-Harris Company, Varity has developed a worldwide operation. In the 1950s tractor- and diesel-engine manufacturing was added to Massey-Harriss operation by three important acquisitions. With this array of manufacturing concerns, the renamed Massey-Ferguson proved very successful until the late 1970s. In the 1980s Massey-Ferguson and its new chairman and chief executive officer, Victor Rice, fought off collapse while the firm underwent three restructurings between 1981 and 1986. Renamed Varity Corporation in 1986, the company has since directed its efforts toward the manufacture of motor-vehicle components, punctuated by the purchase of Dayton Walther in 1986 and Kelsey-Hayes in 1989, and the closure of Massey Combines Corporation in 1988. Since 1985 the corporation has become a profitable concern once again. Varity is a highly internationalized company; so much so, in fact, that although it is a Canadian company, its financial information is recorded in U.S. dollars.

As Canada was opened to settlers by the railroads in the 1850s, demand for farm machinery in the sparsely populated country grew. Daniel Massey, the son of a New Englander, and his partner R.F. Vaughn founded the Massey Company in 1847 in Bond Head, Ontario. Two years later the company was moved to a new foundry in Newcastle, Ontario. In 1857 Alanson Harris, the son of an American Baptist minister, bought a small factory in Beamsville, Ontario, where he also began producing farm implements.

Massey and Harris were among dozens of small nonspecialized manufacturers seeking to exploit the growing need for farm machinery in the 1850s. Because of their American backgrounds, however, they were able to keep abreast of developments in U.S. farm machinery. Masseys son, Hart Massey, made several trips south to bring back new innovations. Two particularly notable ones were the Ketchum grass mower and the Manny Combined Hand Rake Reaper Mower, brought back to Newcastle in 1851 and 1855, respectively. Through a connection with the D.M. Osborne Company of Auburn, New York, the Harris Company was also able to introduce a steady stream of products into the Canadian market, especially the successful Kirby mower and reaper. In addition Massey and Harris used advertising, easy credit, and promotional devices to boost sales.

Low manufacturing costs facilitated the rapid growth of these two firms, which were able to produce American-type machines for the Canadian market more cheaply than U.S. companies. Canadian tariffs implemented in 1847 and the U.S. Civil War further assisted the Massey and Harris companies by undermining U.S. competition. This was a prosperous period for both Massey and Harris. In 1870 the Massey Manufacturing Company was incorporated, and nine years later it moved into a modern plant outside Toronto. Harris had relocated to new facilities in Brantford, Ontario, in 1872.

In the 1880s the Massey and Harris companies each initiated an export drive. Canadian tariffs on farm machinery reached 35% by 1883, but Massey and Harris both anticipated that they would fall. This encouraged manufacturers to seek new markets other than western Canada where transport costs gave U.S. manufacturers an advantage. Goods could be shipped to Europe, South America, and Australasia at a competitive price, and rising labor costs in Europe spurred demand for farm machinery. The Indian and Colonial Exhibition in London in 1886 introduced Hart Massey and his products to the worlds buyers, enabling him to establish London and Adelaide offices. By 1888 both companies had begun developing systems of foreign outlets.

A crucial point in the development of Massey and Harris was reached in 1891. Harris had had great success with a new machine, the open-end binder. It allowed farmers to harvest straw, a very valuable commodity in Europe, from cereal crops. The result was a quickening of the ongoing competition between the Massey and Harris companies in the harvester market. Since they dominated this field, however, the two companies stood to gain considerably by ending this unprofitable competition. In May 1891 the two companies were merged to form the Massey-Harris Company. Hart Massey became president and the three executive positions were taken by men from the Harris Company. This merger was quickly followed by the addition of several smaller companies, providing Massey-Harris with a fuller range of agricultural implements.

The creation of International Harvester Company (IHC) made up of five smaller companiesin 1902 was followed a year later by the establishment of an IHC subsidiary in Canada. This event, and the possibility of trade reciprocity between the U.S. and Canada, led Massey-Harris to purchase its first foreign manufacturing concern, the Johnston Harvester Company of Batavia, New York, in 1910. This acquisition was the beginning of the companys development into the present multinational organization. The death of Hart Massey in 1896, after four decades of leadership, marked this evolution away from the pioneer roots.

As trade between the United States and Canada opened up after 1914, Massey-Harriss position worsened, partly because the company did not produce a good tractor at a time when farmers were shifting to powered farming. Finally, in 1928, the company was able to purchase the J.I. Case Plow Works Company of Racine, Wisconsin, which produced the Wallis tractor. In the process the Massey family was bought out, ending their 75-year connection to the company.

At the close of World War I Massey-Harris committed itself to building up foreign sales, but the interwar period was a time of agricultural depression when quotas, protection, and bilateral trade agreements were introduced. To circumvent these trade barriers the company began manufacturing in other countries, at its own plants or in cooperation with local manufacturers. In 1926 a factory was built in Marquette, France. Similar operations were initiated elsewhere. When Australia closed its doors to imports, Massey-Harris sold its operations there to H.V. McKay Proprietary, Australias largest producer of farm machinery, and then purchased a 26% stake in H.V. McKay.

By 1930 nearly three-quarters of the companys sales were outside Canada. As a result the company was hit hard by the collapse of the international economy after 1929. Despite drastic retrenchment, general manager B.W. Burtsell was unable to stop continuing losses, and in 1935 he counseled the Massey-Harris board of directors to abandon all U.S. operations. James S. Duncan, a second-generation European manager, believed that this would be a fatal mistake. By 1935 Massey-Harris had only a 20% market share in Canada and Duncan felt that the companys survival depended upon international sales. The board agreed, and Duncan succeeded Burtsell as general manager, leading Massey-Harris further into the world market in the 1940s.

During World War II Massey-Harris filled Allied orders, especially at its Racine, Wisconsin, plant, which began to build tanks in 1942. In 1945 the company was ready with a peacetime expansion plan. It had developed a new harvesting machine, the self-propelled reaper-thresher, or combine harvester. In 1922 Massey-Harris had produced the first truly successful combine, the Number 5 Reaper-Thresher, which still depended upon horses or a tractor for tractive power. In 1936 Duncan approved plans for a self-propelled combine, and in 1941 the Massey-Harris Number 21 self-propelled combine was put into production.

Massey-Harris quite naturally wanted to capitalize on its technological lead, hoping to capture the U.S. market for combines. Due to wartime demand, however, steel was in short supply and the company could not launch production on a massive scale. In 1944 Joe Tucker, sales manager of the companys U.S. subsidiary, convinced the U.S. and Canadian governments to release more steel for the Massey-Harris combines in order to demonstrate that the machines used the metal more efficiently than other harvesting equipment. Tucker launched the Massey-Harris Harvest Brigade: 500 self-propelled combines were built and sold to operators who each guaranteed to cross the United States, harvesting a minimum of 2,000 acres per machine. The brigade started in the southern United States in April and fanned out, crossing the country by September. Massey-Harris achieved its harvesting goal and established itself to farmers as the leader in self-propelled combines.

In the years immediately following World War II Massey-Harris gained half of the U.S. market for self-propelled combines. The company began to approach the size of the two U.S. farm machinery giants, John Deere and IHC. Nevertheless, this success was undermined by problems, particularly the companys continued weakness in tractors. As a result, in 1953 President James Duncan began discussions with Harry Ferguson, the first individual to utilize the potential of mechanized plowing with his patented system of tractors and implements.

Although possessing only a limited formal education, the energetic Ulsterman had designed and built a motorcycle and an airplane by the time he was 25. After supervising the use of tractors on Irish farms for the British government during World War I, Ferguson had begun to develop his own tractor. In 1945 he established the Harry Ferguson Company to engineer and distribute these tractors. The crucial element in the Ferguson machine was the three-point linkage which attached the plow to the tractor. Hydraulic controls provided manual adjustment of the plow. More importantly, the linkage facilitated the use of smaller tractors and better plowing as the implement automatically adjusted itself to differing soils, thereby protecting the machinery from damage and ensuring the drivers safety. In the development of mechanized farming the Ferguson system proved to be as important as Massey-Harriss self-propelled harvester.

Fergusons company faced many problems with labor, management, and distribution, in addition to an acrimonious lawsuit against the Ford Company. Ferguson apparently decided that his company could not continue alone and in August 1953 he agreed to merge his company with Massey-Harris. Unable to agree with Massey-Harris executives on the book value of his companyFerguson had argued that his company was worth $17 million while Massey-Harris Executive Board Chairman W. E. Phillips claimed its value was $16 millionFerguson suggested a coin toss. He lost and the value was set at $16 million. Harry Ferguson soon sold his stock in the new company which was dominated by Massey-Harris. With this acquisition the renamed Massey-Harris-Ferguson became the second-largest farm-machinery company in the world behind IHC.

The company had clearly outgrown its old organization by the mid-1950s and its regular U.S. operations were not profitable. In July 1956 the ailing James S. Duncan was forced to retire as chairman, president, and director after 21 years at the helm. As the directing force behind this move, W. E. Phillips became chairman and chief executive officer. He had been Duncans friend and neighbor when he was brought into Massey-Harris during the 1942 reorganization. An overhaul of the firm to suit Massey-Harris-Fergusons global operations soon followed.

In 1959 the again-renamed Massey-Ferguson purchased the tractor operations of Standard Motor Company of Coventry, England and the diesel manufacturer F. Perkins of Peterborough, England. Standards large factory boosted Massey-Fergusons tractor production capacity by 100,000 units a year; yet over the years the Perkins acquisition has proven more important. F. Perkins was established in 1932 and by the late 1930s it was producing the successful six-cylinder Perkins P6 engine. As large manufacturers sought to establish their own diesel production instead of subcontracting with Perkins, the company began to experience difficulties. To survive, a 1957 Perkins memorandum admitted, the firm needed to merge with a complementary company with surplus capital. Perkins proved very important to Massey-Ferguson because it was a successful diesel manufacturer at a time when farm machinery was switching from gasoline engines to the new, lighter diesel engines. Massey-Ferguson also gained an international network which complemented its own. As a separate operation under Massey-Ferguson, Perkinss output tripled by 1963.

The two decades that followed these late 1950s acquisitions were Massey-Fergusons best years. It held 20% of the agricultural-machinery market and had the worlds best-selling tractors and second-best-selling combines. This position was based upon strong sales in every geographical market. The largest number of employees were located in Great Britain, but the company had major operations in France, Italy, Canada, the United States, Australia, and South Africa. The companys stock was also increasingly owned by non-Canadians, particularly Americans. The only significant departure for Massey-Ferguson in this period was its entry into the construction-machinery market in the late 1960s. In 1969 it built a factory near Liverpool, England, to manufacture these products. The buoyancy of the farm-machinery business provided Massey-Ferguson with rising profits, peaking in 1976.

When the agricultural-machinery market collapsed in 1979, Massey-Ferguson was caught unaware and was nearly destroyed by rising interest rates on an accumulated debt of $1.6 billion. That year the company recorded a loss of $262 million. In 1980 Victor A. Rice, president since 1978, was made chairman and CEO to handle what The Wall Street Journal described as one of Canadas worst corporate financial disasters. Born in 1941, the son of a chimney sweep, Rice quit school at 16 to start work, beginning as a mail boy at Ford of Europe. After five years as a comptroller at Perkins Engines, he was moved to Toronto in 1975 as Massey-Fergusons comptroller.

In 1980, Rices first job was to conduct a worldwide search for financial assistancefrom bankers and the British and Canadian governmentsto save the company from sinking under its debt. With President Vince Laurenzo, Rice then implemented a retrenchment policy, cutting costs and closing or selling many plants over the next several years. The British construction-machinery plant and a combine plant in Scotland were closed in 1980. Massive redundancies at the Coventry tractor plant and at Perkins were cut, as was nearly all North American farm-machinery production. The effect was dramatic. Employment was cut 75% from its 1979 level, factory space was cut by two-thirds, and long-term debt was reduced to under $400 million by 1988, down 400% from 1979. In addition, Rice allowed units within the company to operate autonomously in order to quicken decision-making within units.

In 1984 Massey-Ferguson purchased Rolls-Royce Diesels International from Vickers PLC. This year also marked the return of profitability for the first time since 1979. Two years later the company acquired Ohio-based motor-vehicle-components manufacturer Dayton Walther Corporation. In 1985 Massey-Ferguson had placed troubled combine production under newly created Massey Combines Limited, which later went into receivership.

In 1986 Rice further distanced the company from its recent history by adapting a new name, Varity Corporation, a reference to the talented Englishman, William Verity, whose plow company was purchased by Massey-Harris in 1892. Varity Corporation made its largest purchase in November 1989 when it bought Kelsey-Hayes Corporation for $577 million from Fruehauf Corporation. Kelsey-Hayes is the pioneer and world leader in the burgeoning fields of antilock braking systems and aluminum wheels.

With the changes brought in the 1980s, Varity Corporation stood ready to take advantage of its improved position. After cutbacks and modernization, the farm-machinery operations, limited to Britain, Italy, and France, are in much better condition. No longer primarily a farm-machinery manufacturer, 40% to 50% of Varitys business was generated by automotive components, the remainder split between farm machinery and diesel engines, in 1990. The company remained geographically diversified, although Europe now accounts for over half of all sales. No farm-machinery production occurs in Canada, and about 80% of Varity stock is traded in New York. Management has discussed moving headquarters to the United States.

The automotive operations of Perkins and Kelsey-Hayes hold great promise because of their technological excellence in expanding markets. Perkins scored a triumph in 1989 when it unveiled the worlds first direct-injection diesel engine for passenger cars. Varitys extensive European contacts should benefit the company as the European Economic Community moves toward a single market and capitalism revives in Eastern Europe.

Principal Subsidiaries

Agricredit Acceptance Corporation (U.S.A.); Dayton Walther Corporation (U.S.A.); Kelsey-Hayes Corporation (U.S.A.); Massey-Ferguson Credit Corporation (U.S.A.); Massey-Ferguson Finance Company of Canada Ltd.; Massey-Ferguson Inc. (U.S.A.); Massey-Ferguson Industries Ltd.; Massey-Ferguson Industrial Ltd. (U.K.); Massey-Ferguson Manufacturing Ltd. (U.K.); Massey-Ferguson Perkins Finance Co. Ltd. (U.K.); Massey-Ferguson SA (France); Massey-Ferguson SpA (Italy); Massey-Ferguson (United Kingdom) Ltd.; Perkins Engines Group Ltd. (U.K.); Perkins Engines Ltd. (U.K.); Varity Inc. (U.S.A.); Varity GmbH (Germany); Varity Nederland NV (Netherlands).

Further Reading

Denison, Merrill, Harvest Triumphant, New York, Dodd, Mead & Co., 1949; Phillips, W.G., The Agricultural Implement Industry in Canada, Toronto, University of Toronto Press, 1956; Neufeld, E.P., A Global Corporation, Toronto, University of Toronto Press, 1969; Byrne, Harlan S., They Almost Bought the Farm, Barrons, May 2, 1988; Davies, Charles, Rice Harvest, Canadian Business, May 1989.

Neal R. McCrillis

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