Centenary Bulletin 10 – Forest & Construction Equipment Pty Ltd
October 18, 2018
Once the Timberjack relationship ended, Norman G Clark became an obvious outlet for machinery suppliers looking for Australian distribution.
Towards the end of 1972, we were approached by Col Cagnacci of CIMSA representing Clark Equipment of Benton Harbour, Michigan, asking if we would be interested in taking on a Clark Michigan franchise for Victoria and Tasmania. He was politely informed that we were absolutely disinterested in the offer, as we had excellent recollections of how badly Clark logging machinery had performed in competition with Timberjack. Thanks – but no thanks.
Clark Equipment were a large multinational, producing a wide range of construction machinery. Clark had established distribution through two outlets in Australia ie. Morgan Equipment in NSW, NT and Queensland, and Sandover Pacific in WA. Victoria. They needed distributors to fill the gap in Tasmania and South Australia.
There was no further contact until January 1973, when Cagnacci rang again, and asked whether we had reconsidered his earlier contact, and was once again told that we were absolutely not interested and not to waste our time.
Orlando Alcorso, a director of Norman G Clark, was in the office at the time, and asked for more information on the offer from CIMSA. When he heard that we were being invited to take over a Clark franchise for their Construction machinery in Victoria and Tasmania, his advice was that we should look at it. We told him the reason we had not shown any enthusiasm, was that the machinery had not been terribly successful, and was nothing like as good as market leader Caterpillar, who had about 60% of the worthwhile market in Australia.
Orlando was returning to Sydney that night and suggested that he would like to talk to Cagnacci – just to get a feel for his offer. He was given the details, and the matter was forgotten, as it was felt that nothing more would come of it.
It came as quite a shock some days later to receive a call from Orlando saying that he had spoken with CIMSA, and had also arranged for some of his Italian friends at Generalfin to check out the offer, and that Generalfin were very interested to get into a combined operation to handle the franchise. He had arranged for Cagnacci to visit Melbourne within the next few days to discuss the offer in more detail, and in addition to the Victoria/Tasmania operation, CIMSA would also like to offer South Australia as an extra Territory.
Cagnacci subsequently appeared in Melbourne and made some extravagant offers regarding the operation of their franchise, and made promises as to profitability of such an activity, which was to come with considerable assistance from CIMSA.
Time passed without any special enthusiasm being generated from our end, but discussions continued in Sydney between CIMSA and Generalfin. In February, we were invited to a meeting in Sydney, during which it became obvious that everyone, other than Norman G Clark, were enthusiastic to participate, but they badly needed the Norman G Clark involvement on the marketing side.
It had even got to the stage where Orlando had prepared a budget in conjunction with Cagnacci. Even though this was very unprofitable, it was suggested that there were some incorrect interpretations in the expense area that CIMSA believed were correctable.
In the light of future events, Norman G Clark should have walked away from the operation right then – but unfortunately this was not what we did, and it became a very expensive mistake.
We pointed out that Norman G Clark were not in any way able to fund the proposed operation. the cost of operating the franchise in three states, and from four locations, would be enormous.
Riro Rosa was Generalfin’s front man in Australia at the time, and in February 1973, he and Orlando recorded the fact that Norman G Clark would only be required to input their paid-up share of the total capital, and Generalfin would provide all other working funds.
At the time, we informed them that Norman G Clark would be prepared to go ahead on these terms, on condition that John Clark could select his own marketing team. This was agreed to without hesitation.
Generalfin and Norman G Clark subsequently formed a company, Forest & Construction Equipment Pty Ltd (FCE).
- Clark Equipment – Headquartered in Benton Harbour, MI, and the largest US manufacturer of Fork Lift trucks in the world. They were also engaged in construction machinery production as CLARK MICHIGAN, and at the time of our involvement, they had a complete range of rubber tyred machines including four-wheel drive loaders, logging equipment and mobile cranes. In 1985 Clark merged its business with Volvo, and in 1995 the Clark share was taken over by Ingersoll Rand, who sold the materials handling business in 2007 to Doosan International of South Korea.
- CEA – Clark Equipment Australia were manufacturing Fork Lift trucks and a limited range of rigid frame loaders in Sydney, along with rough terrain and mobile cranes at St Albans, in Victoria. Prior to the appointment of independent construction and machinery distributors, they had been responsible for the sale of all products throughout Australia. However, it must be said, they never welcomed the loss of part of their empire, which contributed to a total lack of desire to see the Distributors succeed. In fact, there was open hostility between Clark Australia and CIMSA, particularly at management level.
- CIMSA – Clark International Marketing SA. Was a classic American watch dog company that large US operators love to establish in foreign lands to safeguard their marketing interests.
- Generalfin – Reputed to be a very wealthy Italian public company (Listed on the Milan Stock Exchange) who had spread their wings to Australia. At the time of our involvement, they had contracts for the Melbourne Underground Train Tunnel and Sydney Eastern Suburbs Railway. Codelfa being the operating company and a subsidiary. They were also heavily involved in wine making activities in South Australia.
- Clark Finance Corporation – Existed to provide “Floor Plan” finance to distributors and retail finance for customers. This facility was generally only used by customers unable to obtain accommodation from other finance houses for a variety of reasons.
- Norman G Clark – Fifty percent owner of FCE along with Generalfin.
Norman G Clark had finally agreed to become involved based on a proposal presented by Cagnacci in March 1973.
In broad detail, the proposal was as follows:
- FCE to establish four Sales Parts and Service outlets in these three states – Victoria, South Australia and Tasmania.
- FCE would stock spare parts at each location, which would be fast moving items for machines operating in the immediate area.
- Service personnel to be employed at each outlet, and they would be specially trained by CIMSA for the machinery operating in their areas.
- CIMSA would recommend the initial spare parts to be supplied to FCE, and these would be backed up with parts held in CEA stock in Sydney. This stock to be returnable after 12 months, if found unsuitable.
- CIMSA would arrange for 25 assorted Clark machines to be delivered to FCE outlets, ready for start-up on 1st July 1973, so that they could make a start in the machinery market.
- CIMSA would be responsible for approving warranty repair claims. These would be evaluated, incorporating labour, parts used and travelling expenses. The dealer would be expected to make a nominal profit from such work.
Note: It had been pointed out that there was no blanket arrangement under which FCE would recover labour for repairs under warranty, as labour was only recoverable for specific rebuild or repair programs.
We indicated that subject to Generalfin approval, Norman G Clark would go along with these rules and the die was cast.
John Massey the Victorian Manager of Moore Road Machinery, agreed to join the new venture as Sales Manager. He was a very experienced construction equipment man, who had been in the game for years, and was well known in the industry. He immediately invited Wayne Thomas and Bob Kirk to join, as Tasmanian and South Australian Managers respectively.
We had an enormous task to set up four outlet operations in three states. The easy one was in Whyalla, South Australia where we took up an existing Clark operation, complete with spare parts, stock and people, and it was ready to go immediately.
In Melbourne, we finally settled on a building at the southern end of Moorabbin Airport, which had previously been used by a road transport outfit. This was a good building with a large backyard, and the added attraction was that it had a taxi way right up to the back gate, where Airchart could deliver passengers and airfreight when circumstances required.
In Adelaide and Launceston, we had to build suitable premises. We just made the start-up date in Adelaide, and were about six weeks behind with the Tasmanian operation. Not that it mattered very much because once we said, “OK we will do it”, we were dead ducks and the famous CIMSA rules were being rewritten.
In Melbourne, we employed people, fitted-out buildings, purchased motor vehicles and service tools etc. Whilst in Sydney, Generalfin were misled by CIMSA into purchasing approximately $200,000 worth of parts, alleged to be suitable for fitting to equipment in our area. However, there proved to be a very low demand for some (which was no doubt the reason CEA had them in stock). The problem was magnified by Clark, failing to meet their obligations under the parts returned program, as the useless inventory was clogging our shelves, and restricting our ability to stock required items.
The great tragedy was the failure by CIMSA to provide the committed initial inventory. We had met our commitments at considerable expense, in facilities, people, tools and equipment, motor vehicles and a substantial amount of capital on useless spare parts stock which we couldn’t sell.
We even resorted to purchasing some superseded demonstrator models from Clark to give us some stock.
Right from the start we were getting off on the wrong foot, and we were bitter about both our CIMSA treatment, and the incompetent performance of our Generalfin partners. What a great way to start a relationship.
CEA were really running the show in Australia with CIMSA as the parent company watchdog. They remembered Norman G Clark from the Timberjack days, years earlier when we basically eliminated the Clark Ranger from the market, and cost them a lot of money and prestige. We had little doubt that they saw the opportunity to repay us for that, when we came under their control as a Clark Dealer outlet.
The spare parts situation was not as CIMSA had represented it, and CEA would not stock anything that had not previously been ordered by a customer. The price we paid them for all imports was list price less 25%. Of course, CEA set the list price, which had absolutely no relationship to the US list price, and as a result, we were trying to sell common components at prices much higher than Caterpillar, who, up until our entry, had been regarded as the industry leaders selling gold plated spare parts. Quite apart from the cost of the parts, we could never provide them when needed.
Morgan Equipment, the Clark distributor for NSW and Queensland, did not suffer from the same problem. Their US parent simply purchased the parts from Clark in the USA, at much more sensible price, and shipped the items direct to them in Australia.
As far as FCE was concerned, CIMSA was supposed to be a rubber stamp processor of any warranty claims we lodged. However, we soon got the message that this was not the case, and practically every warranty job we were involved in became a major loss to FCE. There were so many machinery problems, mainly due to poor quality, that the incidence of failure on new equipment was enormous.
Inevitably, the replacement required for any part that failed would not be in FCE or CEA’s stock, and in addition to the locally inflated list price, the component would eventually show up with a heap of air freight and handling charges added. We would be invoiced as it was shipped, and had no alternative but to pay the invoice amount on due date. We had no hope of recovering even part of that cost for many months. Ultimately, what we could expect to recover on warranty repairs would never be even close to the price we had to pay for the component.
Labour recovery became a disaster area, as we eventually found out, that even in situations where warranty labour was granted, there were standard times that CIMSA allowed for warranty repairs. The time allowed was estimated on work shop time, which was measured on nice clean machines sitting on a factory floor with lifting equipment etc. etc., which was totally unrelated to the real world.
That was not were Michigan machines flew apart, and it probably would have cost us more just to get to the machine than was allowed in the final wash up for the full repair.
To summarise the situation that FCE found itself in, the initial Clark proposal changed from the moment we started. The 25 promised machines didn’t exist. The CIMSA parts recommendation was mainly junk that CEA wanted to get rid of, and the “fast moving” stocks, that Cagnacci had spoken of, didn’t materialise – therefore, neither did his profit projection.
CEA carried inadequate stock of any backup item, and their pricing policy was such that CEA were the only outfit likely to make any money out of a transaction.
The frightening aspect was that FCE was quickly in financial trouble. Norman G Clark had paid up its share of capital and even Generalfin had contributed theirs. That money was quickly spent on setting up the company, according to the establishment agreement, and there was nowhere to go.
It was a bad scenario, and there was no way out. Apart from the purely mechanical problems, there was a much more serious personal situation that impacted a lot of people who joined FCE because of their belief that it was an honestly established operation, and that the principals of the company could be trusted to produce a viable workplace.
Generalfin had no more money for working capital. They got some on overdraft from the ANZ bank, and then made some fancy deals with Clark Finance which really related to machine finance. This was academic, as we had nothing to sell.
Generalfin’s did not have any idea what the industry was all about, and they were continually interfering in the sales area and changing rules, and of course promises on a regular basis.
FCE did not need that sort of an environment, but we had it all, and spent most of our effort on arguing with CEA, CIMSA and our own administration, and generally getting nowhere.
Jim Huntington, who was the president of Clark Michigan, appeared in Australia in July 1973, and made an unannounced visit to FCE. His purpose was to ask how we were going. As might be expected, he got a very severe run down on the performance and the ethics of his Clark Michigan representatives in Australia, and during the four hour visit, hardly had an opportunity to open his mouth.
He was quite shocked at the claims we made, and no doubt made some enquiries regarding the inefficiencies of CEA and CIMSA. The next day he returned to the States, and did something about correcting our machinery deficiencies, by filling a couple of ships with loaders, scrapers and dozers. These arrived about two to three months later at our various locations, just as the previously buoyant Australian construction machinery business followed the economy into a slowdown.
While we were waiting for Huntingtons’s stock to arrive, we had nothing else to do, so took some old stock from CEA and sold it immediately. This made us wonder what CEA had been doing with it while it had been sitting in their yard over the years. Sure, we made no money out of the sales, but that was mainly because CEA and CIMSA over-priced the units. However, it was probably worth something for the experience, and gave us something to do.
Amongst the old stock was a model 475A Front End Loader which was sitting in Perth. It was an obsolete model and had been in CEA stock for a couple of years. John Massey got Robin Keath very interested in a big loader for a mine site in Western Victoria, and as the most experienced construction machinery buyer and user in the Southern Hemisphere, Robin eventually accepted a modified deal to purchase the machine and the delivery disaster began.
The machine left Perth on a low loader, which got as far as Norseman before the Mack transporter blew up. It was then transferred by various means to the train. Halfway across the Nullarbor it was left in a siding because it was too wide on the train to pass a station.
$18,000 later, it was delivered in Melbourne, and we were introduced to the Clark warranty philosophy in no uncertain fashion.
The Model 475 Michigan was a very large machine, and at that time, was by far the biggest front-end loader that had ever looked like operating in Victoria. It was looking very old and tired on arrival, and Keath predicably refused to accept it in its current visual state. He demanded it be repainted and nominated the new colour would be WHITE.
This was the equivalent of painting a three-storey block of flats, and consumed days of hard work by a whole bunch of skilled painters. CIMSA and CEA said “no, there is no warranty on painting, and as that machine is obsolete it is your problem to repaint it if your customer requires that sort of attention”.
Eventually the machine started work and at that stage it was fitted with a 12 cubic yard bucket, it would pick-up about 20 tonnes of material, and this it did for a week before inevitably it blew one of the very large diameter hydraulic hoses, and instantly emptied 240 gallons of very expensive hydraulic oil all over the quarry.
Naturally there were no hoses in stock, and Keath didn’t like that, but CEA came up with some equally ancient replacements and the same thing happened again.
FCE got “Dealer Nett” for the hoses and probably a couple of hours of labour, but we had to pick-up the cheque for the hydraulic oil.
Eventually the 475A finished up as a very good machine, but it generated some very acrimonious discussion with CIMSA, as they certainly did not accept any responsibility for maintenance or repair on what was technically a new Michigan machine.
About this time, I recall we finally realised that we were going to be on our own as far as the Clark interest were concerned.
It was hardly the ideal environment for a success story, and although, to some extent, most Dealers have disagreements with their Principals, our relationship was much stronger, and mistrust is perhaps the most generous interpretation.
The struggle for product continued, as some areas of the market were still buoyant, and CIMSA’s failure to meet stock commitments, caused us to miss out on what would have been a level of profit that could have altered the whole outcome of the venture.
Later that year, John Massey visited Benton Harbour in Michigan, and after considerable unpleasant discussion obtained an allocation of some 18 small four-wheel drive loaders from Japan, plus a limited quantity of assorted products from USA/Canada.
While this was going on, the market was changing, and had become very much a buyers’ market, with suppliers carrying too much stock, a situation made worse for FCE by Clark shipping machines against orders we considered long cancelled.
The effect of this turn was compounded by Clark Finance lifting their rate on floor plan finance from around 7.5% per annum to around 17%. At these levels any stock we held for a few months could never be sold at a profit.
It is important to understand that we needed something more than just Clark Equipment products to build the viability of our business, and the Fiat Crawler Tractor franchise offered FCE this opportunity.
We took this operation on for South Australia, initially with the plan to accept the Victorian franchise a year later. Unfortunately, in the interim, with no warning to us despite the friendship of our partners, with the Fiat people in Sydney. Fiat had merged with Allis Chalmers, forcing us to withdraw from the field, where we had good potential, and had already made some sales of the Fiat product.
At this early stage of our Clark association, it was becoming clear that CIMSA had practically no authority. The real authority was CEA, who specialised in doing exactly as they wanted, ignoring any arrangements or promises that had been made by the CIMSA group. We also discovered that we now had to order all spare parts through CEA. Also, warranty claims had to be approved by them, so they really had us by the throat, and there wasn’t a thing we could do about it.
CEA set the spare parts list price for Australia, and the parts had to go into CEA in Sydney, where they were blessed by someone, and finally they were sent to one of our four spare parts outlets, in one or other of the three states where we were operating.
FCE received 25% off the list price of parts, however, we never really knew how much CEA grabbed for changing the address on the box, and adding considerable extra cost to the items by shipping them around Australia to any of four possible locations, at FCE expense!
This arrangement was bad enough, but it got worse as CEA did not have much of an inventory of Michigan parts. Emergency situations always seem to involve either importing the part from USA (inevitably by airfreight), buying from Morgan equipment, or stealing the item from a stock machine. All these remedies were expensive and unsatisfactory.
Our final shock came when we delivered our first machines to customers, and major failures commenced. Contrary to what we had been told, it was an FCE problem and not a Clark Michigan one. We had to fix them and then claim warranty. What a laugh – we were unlikely to have the part and CEA certainly didn’t have it. There were enormous delays. The customer hated us and let everyone around the area know what sort of service Michigan offered. There would be frustrating delays in getting the machine back on the road which everyone was able to see.
The accounting problem was immense, as CEA sold FCE the warranty parts at list price less 25% which we had to pay for. They had made a packet on the part anyway, and all that would be allowed to the dealer was the amount they had paid for the part which was the dealer’s nett price. The fact that it had been airfreighted half way round the world was just our bad luck, as that was not considered a recoverable expense.
They also, had an interesting warranty labour cost allowance philosophy. It was based on actual time taken by skilled people working on machines under ideal conditions. The warranty book said, “it will take 2 hours and 20 minutes to remove the transmission from a 668B and 2 hours to replace it”. That was okay in a nice clean workshop, with overhead cranes and all the correct tools, but what if the 668B was upside down in a freezing cold creek, 300-400 ft down a 30-degree slope?
One machine operator had backed down a slope, quite legitimately, to hook onto a log and had parked the machine while the winch rope was run down to a log. He then heard a noise, looked up and saw 4 ton of machinery coming straight at him. He was lucky to get out of the way in time before it wound up in the creek.
The parking brake was a built-in machine fault, which FCE identified, and had devised a fix. However, Clark did not like outsiders fiddling with their designs.
The 668B was recovered from the creek about a week later, after we had expended 120 hours of labour, 500 miles of travel, accommodation for two service people, plus a changeover transmission because CEA didn’t stock the parts. The final indignity was a claim from the customer for use of his machinery to transport components up and down the hill.
CIMSA allowed us about $400 for this exercise. It would have cost us about $4,000 (in 1970’s money) and produced another very unhappy customer, who now had a badly bent nearly new machine – particularly as the same thing happened again, a few weeks later!
Scrapers were the real disaster. They were absolute junk, and simply fell apart after a very short time in the field. Again, there were parts problems and enormous labour costs. The machines never failed driving along the road, of course. It was usually only when they got into heavy operating conditions in the field somewhere.
The real clinchers were the 3 x 475B loaders FCE sold to BHP Whyalla, where they were experiencing enormous operating problems. The hydraulic system was powered by two big hydraulic pumps, and the failure rate was enormous. The pumps had a dealer net value of approximately $4,000 each. We had at least 50 failures which, under CEA’s parts philosophy, cost FCE $200,000.
FCE identified the problem as overloading. The buckets were such that, with material of 4,000 pounds per cubic foot, the machines were picking up 32 tons per lift, which was within their capacity. However, we learned that the material weighed 6,000 pounds per cubic foot, which meant about a 40% overload. The machines would pick it up okay, but if the bucket was stopped on the way down, the back pressure in the system was frightening. It was calculated we were looking at spikes of 5000 PSI in the system, which straightened out two-inch diameter bent pipes, blew hoses and spectacularly sprayed 240 gallons of hydraulic oil all over the quarry, which itself, represented an additional clean up and refill cost of thousands of dollars.
Clark Equipment privately agreed with us that the problem was OVERLOAD, but they were never prepared to push this line with BHP, as BHP was a very big Clark customer in Australia, and they didn’t want to rock the boat.
Finally, we were able to unload the franchise before Clark themselves departed the construction machinery business.
So that was the end of FCE, which was a pity because it did have a very good group of marketing people. Had there been co-operation from the people who made its products, it might have had a chance.
In retrospect, it really had nowhere to go, as the products were not good enough, and that is another reason why FCE doesn’t exist today. Morgan Equipment survived in California, and Sandovers in WA, got out of the game about the same time as FCE.
Norman G Clark were reasonably lucky to get out, of FCE with as small a loss as we did. If we had continued, it would have cost millions. Product quality and warranty policy were the real killers. We never heard how Generalfin and Clark Equipment resolved the FCE mess, but we feel lucky to survive what could have been a company ending disaster.