Keeping the Dialogue Going - From the Chairman
Construction Equipment Distribution magazine is published by the Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada. AED membership also includes equipment manufacturers and industry-service firms. CED magazine has been published continuously since 1920. Associated Equipment Distributors
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SECTION: From the Chairman

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Keeping the Dialogue Going

By Walter Berry

Article Date: 07-01-2005
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.

Input from both manufacturers and distributors is critical to our future.

AED has had an Industry Round Table, which meets every spring in Chicago, for as long as I can remember. Its
purpose is to ferret out and analyze critical issues affecting our industry. This analysis is used to plan services, products, and activities for AED in the future and to help achieve the association's strategic objectives.

This year's meeting was held on May 17. The Round Table was co-chaired by Gale Plummer of Shanahan Equipment Co. and Tiffany Sewell-Howard of Charles Machine Works, the manufacturer of Ditch Witch Products, and included eight manufacturers and seven distributors.

Some of the topics discussed were the economic recovery, profitability and margins, technology, channel-to-market, product support, and workforce development. This month, I would like to provide a very brief overview of our discussions on the first three subjects and then next month, I will follow up with the last three.

The Recovery
With respect to the recovery, we observed that few people predicted the magnitude of the rebound over the last 15 or so months. The growth in unit volume for our industry was significantly ahead of the underlying markets, i.e., housing, commercial, and infrastructure.

Did this occur because of pent-up demand or was there a certain "piling on" or "herd" behavior, whereby end users
perceived a need to buy machines because they saw others doing the same? This "herd" behavior can occur in both good times and bad. It can create a manic/depressive buying behavior that contributes to the cyclical nature of our business. This, in turn, makes it very difficult to forecast unit sales volume, which makes it very challenging for manufacturers to plan long-term plant capacity.

If contractors do not send clear signals to the distributors, then distributors cannot send clear signals to manufacturers. The result is production rates that do not match the market. I think every manufacturer has seen both extremes of this phenomenon in the last five years. This problem did not get resolved at this meeting!

Profitability And Margins
On the topic of profitability and margins we discussed the overall profitability of this industry and the margins on new equipment. AED's 2005 Cost of Doing Business Report is being compiled as we speak. Perhaps it will show that profitability improved in 2004. If it doesn't, we must ask ourselves: If not now, when?

As to new equipment margins, the consensus is that with a tightening supply of equipment, margins do not appear to be improving (this is not what they taught me in my college economics classes). Even with shortages, competition seems to be as strong as ever. This magazine has published articles pointing out that if we as dealers are not fully passing on the price increases that we are receiving from our manufacturers, then we will be eroding our margins.

The technology discussion focused on the additional data that is available on machine usage and condition with the proliferation of cell phone and GPS technology. The relative cost of capturing this data is dramatically
different for heavy equipment vs. compact equipment.

The questions of who owns this data, who will have access to it, and what will we do with it have yet to be resolved. The future will be interesting.

These Round Table discussions are very helpful to AED. Input from both manufacturers and distributors is critical to our future. These interactions reinforce our interdependence on one another. We will keep the dialogue going.


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