Territory Protection Policies in Heavy Equipment Sales

[MikePhua]

The Origins of Dealer Territories
Territory protection policies in the heavy equipment industry stem from manufacturer strategies to maintain market stability and dealer profitability. Brands like Caterpillar, John Deere, and Komatsu have long assigned exclusive geographic zones to their dealers, known as “areas of responsibility.” These zones are designed to prevent internal competition, ensure consistent service coverage, and incentivize dealers to invest in local customer relationships.
Historically, this model emerged in the post-war era when manufacturers sought to expand nationally without saturating markets. By the 1980s, territory protection had become standard practice among major OEMs (Original Equipment Manufacturers), especially in North America.
How Territory Protection Works
Under these policies, a dealer is granted exclusive rights to sell and support equipment within a defined region. If a customer from outside that region attempts to purchase new equipment, the selling dealer may face:

• A penalty fee or commission paid to the dealer whose territory the machine is entering
  
• Restrictions on warranty service, where only the selling dealer is obligated to perform repairs
  
• Manufacturer-imposed market share targets, which discourage cross-territory sales
  

For example, a John Deere dealer selling a new excavator to a contractor in another dealer’s zone might be required to pay a 5% surcharge to the local dealer. This fee compensates the servicing dealer for future warranty obligations and discourages poaching.
Used Equipment and Loopholes
Used equipment typically falls outside territory restrictions. Dealers can sell pre-owned machines across regions without penalty. This has led to a thriving secondary market where buyers seek better deals from out-of-state sellers. However, even used equipment sales can trigger tension if they interfere with a dealer’s private resale arrangements or undercut local pricing.
In one case, a contractor bypassed a local dealer by purchasing a used backhoe through a newspaper ad. The dealer, who had been negotiating with the seller privately, was outraged. While legal, such moves can strain relationships and complicate future service support.
Manufacturer Differences and Exceptions
Not all manufacturers enforce territory protection equally:

• Caterpillar, Komatsu, and John Deere maintain strict territory rules with formal penalties and service obligations
  
• CNH brands (Case, New Holland) assign areas of responsibility but do not penalize cross-territory sales
  
• Kobelco and other smaller brands often allow more flexibility, leading to frequent inter-dealer competition
  

Some manufacturers allow exceptions for large construction firms with multi-state operations. In these cases, the “home office” may handle purchases centrally, and service is coordinated across regions.
Customer Impact and Controversy
Territory protection policies can frustrate buyers who feel restricted in their ability to shop for competitive pricing. Contractors often complain that:

• They are forced to buy from unfamiliar dealers
  
• Local dealers quote higher prices than out-of-region competitors
  
• Warranty service becomes complicated when machines are used outside the selling dealer’s zone
  

This has led to accusations that the system is “un-American,” limiting free-market competition. Some liken it to monopolistic behavior, where dealers are shielded from market forces.
Navigating the System as a Buyer
To work within territory protection policies:

• Build strong relationships with your local dealer to improve pricing and service priority
  
• Negotiate add-ons and support packages, where dealers have more flexibility than on base machine pricing
  
• Consider used equipment for cross-territory purchases
  
• Ask about service agreements if buying out-of-region, especially for warranty coverage
  
• Document all communications to avoid misunderstandings between dealers
  

Conclusion
Territory protection policies are deeply embedded in the heavy equipment industry, balancing dealer stability with customer access. While they can limit price competition, they also ensure consistent service and accountability. For buyers, understanding the nuances of these policies—and negotiating strategically—can lead to better outcomes without sacrificing support. In a business where uptime is everything, knowing who will stand behind your machine matters as much as the price you pay.