Navigating the Next Bend - TogetherCompiled By Mary Sedor
Article Date: 08-01-2007
Copyright (C) 2007 Associated Equipment Distributors. All Rights Reserved.
The dealers and manufacturers gathered at AED's Industry Round Table dialogued openly about trust, planning, rental and more.
The dealer-manufacturer relationship has been likened to a marriage – in which case the May meeting of dealers and manufacturers sitting face-to-face and sharing honest opinions might be considered the AED equivalent to a marriage counseling session. On May 8, AED’s annual Industry Round Table convened to address a host of critical topics that touch both the relationships and individual businesses involved in the CE distribution channel.
Industry forecasting, the impact of Chinese manufacturers and succession planning were among the tough subjects the group addressed.
Essentially, the Round Table is a focus group comprised of senior executives – both manufacturers and dealers – of major construction equipment lines. The group is charged with the task of analyzing, developing perspectives, and providing recommendations for AED on key issues and trends affecting the distribution channel.
In many instances, participants in the dialog shared their candid (and even brutally honest) points of view, and the group did not always arrive at consensus or conclusion. The editors of Construction Equipment Distribution present the highlights from this year’s meeting in an outline format – organized by discussion topics – to give the AED membership an overview of the chief discussions. Round Table members who are quoted are not identified by name in order to preserve and encourage candor and freedom of expression throughout the meeting.
Forecasting changes in demand for construction equipment is a perennial challenge for dealers and manufacturers. How do dealers/manufacturers predict fluctuations in demand? a) What economic indicators are used?
b) How accurate are these tools?
c) Are dealers and manufacturers held accountable to their forecasts?
If so, how?
Manufacturers and dealers alike agreed that neither of them is very good at forecasting change. The problem that occurs with forecasting is that the manufacturers are working to supply equipment to the dealers in a timely manner, and it’s incredibly difficult to predict how much equipment the dealers will need.
How many dealers supply their business plans to the manufacturer?
Of the 10 dealers in attendance at the meeting, six said they provide their business plans to the manufacturer. Most dealers said they found the exercise of having a business plan to be helpful, but say that some manufacturers don’t use the business plans once they’ve received it. Manufacturers responded by saying that they find having the business plan to be helpful.
"In all the years I’ve been putting strategic plans together, once it goes to the manufacturer it’s a worthless piece of paper. We would go through the exercise, spend a day preparing it and find it was a total waste of time. It never became a working document."
"We do a strategic plan because we want to do it. We try to look three years out, and then we do a more detailed plan over the next 12 months. We sit down quarterly and review it and write action plans. Everyone knows what we’re doing and our people are held accountable. We do it because we need to be doing it and to keep everyone on board."
"In the short term, a strategic plan of four or five years is invaluable. I recommend every dealer should look at their strategic plan and see what they can in three years and five years. Even though a lot of this is ‘seat-of-the-pants,’ you’ll have indicators to look at to give you some feel for [how to plan.]
"I think what we’re dealing with is two worlds colliding – the macro and the micro. We do formal business planning and then we never hear about it again other than when we submit an order or we missed the order board. On a macro basis, it would stand to reason that manufacturers would see a more global perspective. Obtain your global data, use your global information to create a trend line, and then consult with the dealer. We could anticipate some supply shortages, but there would be no break in communication."
"All business is local. I think the big challenge in all business is two-way communication. Planning is fine, but it’s what eventually comes out of the planning and how you work together to manage the plan that matters. That’s what we don’t see in our dealership."
The Impact of Chinese and Indian Manufacturers
When will products manufactured in China and India begin to significantly impact the North American market? What will their channel strategies look like?
At this point in time, none of the dealers in attendance represent any Chinese or Indian manufacturers. However, many manufacturers say they’ve noticed an increase in the amount of Chinese equipment at industry trade shows. One manufacturer noted that XCMG is aggressively looking for dealers, and Sany is opening a manufacturing plant in Illinois, meaning the Chinese manufacturers will have an impact – sooner rather than later. Dealers are struggling with what price point the Chinese and Indian manufacturers will come in at, which could impact their ability to retain customers.
"The Chinese manufacturers will have a $2,500 automobile by 2010. There is already a $7,000 no-frills model, and yet we continue to put bells and whistles on our construction equipment. At some point we’re going to hit a price break. We’re at $300,000 and they will come in and offer one at $100,000 that does the same job without the bells and whistles."
"Generally speaking, the Chinese manufacturers pick a couple of products in different product categories in high industry classes. They don’t have a full breadth of product. Would customers gravitate toward that and at what price point? I don’t know the answer. Product support is very high on our customers’ radar screens, and their expectation level is high. I don’t see that getting watered down if the Chinese come in with a low price."
"What’s important for all manufacturers to understand is the product life cycle of the equipment you sell. You can get too enamored with service and support and ignore manufacturers like Sany."
"I think a big factor in how successful Chinese and Indian manufacturers are going to be is distribution. There is always room for new manufacturers with a lower priced product. I think that’s going to be a problem because of consolidation in the distribution industry. Assuming that continues, there are going to be fewer good choices for those new manufacturers."
Issues Impacting Manufacturer/Dealer Relationships
What are the key issues?
The consensus around the table was that trust, communication and clarity are among the most important aspects both manufacturers and dealers alike must work on to improve their relationships.
How will dealer succession issues impact the industry in the next 10 years?
As the dealer principles in the construction equipment industry age, manufacturers must be aware of what the future holds for the equipment dealership. Dealers, on the other hand, must also create succession plans well in advance of retiring simply because it takes time to ensure the talent is in place to run their dealerships.
Rental and Its Impact
Will rental continue to grow as a percentage of how customers consume equipment? If yes, what percentage of <100-hp equipment will be in rental fleets five years from now?
Manufacturers and dealers agree that rental is growing and will continue to grow. One dealer noted that a lot of what the construction industry does mirrors the auto industry. Rental became popular between five and seven years ago in the auto industry, and more and more end users asked if they could rent the equipment. Today, at least one manufacturer says the pendulum is swinging back to the independent dealer.
"Rental continues to grow. As we look at the marketplace, we continue to see a shift from ownership over to rental. I’m not sure how fast that will shift. All of the studies I’ve seen show that the shift continues to grow and more of the fleet will end up in rental than it is today over the next several years."
"If you look back eight to 10 years ago, the amount we were selling versus RPO has increased substantially, and it will continue to increase. Customers are looking more at statements than utilization."
"The more complex a product, the less successful it is in rental. You need a repeatable use of product and a commonality in order to be successful. You can’t be a "one of" rental."
"One of the best definitions I’ve ever heard of rental versus dealer was by Dan Kaplan. He said, ‘Rental is summed up in five letters: G-R-E-E-D.’ You’ve fulfilled your obligation to the manufacturer but not yourself.’ There’s a different dynamic at work in rent to rent versus rent to sell."
"The dynamics over the last 15 years have changed. In the early 1990s the amount of sales that went to crane rental companies was less than 40 percent. Today, in the advent of crane rental companies or just a rental company, it’s upwards of 60, 70, 80 percent of their business. Now we have dealers who have small rental fleets because that’s what people want to do – daily, multi and the RPO side of leasing."
"The pendulum is swinging back. We are seeing people who sold out of the business getting back in. This is a relationship business and it’s done locally – that’s where the dealer excels, and the pendulum is swinging back toward the independent dealer."
"The less-than-100-hp equipment is sold and serviced within a 25-mile radius of where it’s being operated. We’re not selling direct to rental any more than we’re selling direct to dealers. It’s a channel, and it’s here to stay. From our perspective, we see it as a growing market not a scourge."
"Manufacturers that let rental chains talk them into thinking they are only a commodity – shame on them because that’s the kiss of death."
Recruiting and Retaining Employees
How can dealers attract quality employees? How will generational issues play out? How are dealers affected by the technician shortage?
Dealers are still having trouble locating and keeping technicians. Manufacturers and dealers believe the root of the problem lies in the negative stereotype that the public has of equipment technicians. Both manufacturers and dealers agree that they must work more closely with schools to change the image and get the word out about the career opportunities available.
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