Hot Off the Press - On the Numbers
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: On the Numbers

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Hot Off the Press

By Garry Bartecki

Article Date: 08-01-2008
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.

Begin your worthwhile plunge into the current CODB with a close review of the Trend Analysis.

AED’s 2008 Cost of Doing Business Report landed on my desk just before the July 4th holiday. Therefore, I am able to supply you with a brief summary of 2007 events as reported by the results. Approximately 140 of you participated, and we thank you for that – remaining AED members are encouraged to do so to make the data even more meaningful. Sure, many of you get reports based on product line, but where can you get a report to benchmark your operation against all the competition, by size, by location, by selling season and by type of equipment you sell? No matter how you look at it, the CODB provides valuable comparative data to help management make the tough decisions. This year I want you to start with the Trend Analysis on page 44 of the report. The Trend Analysis supplies five years of data covering the income statement, balance sheet, gross margins and all the productivity ratios for the period 2003 to 2007. If your company followed this growth and leveling-off pattern your company should be about 50 percent larger then it was in 2002. From a pretax profit standpoint profits should have doubled over 2002 and fallen about 30 percent off of that high point. Not bad overall through 2007. Spend some time reading the trend analysis because it provides a different perspective about the industry in which you do business. A few key results of the current report include:
  • High profit dealers pretty much held their own with only a slight drop in pretax profit. Dealers selling equipment in the “100-hp or less” category took both the biggest sales hits and pretax profit reductions. These dealers have a harder time reducing fixed costs.
  • Once again, dealers with the highest rent-to-rent component produced the highest gross margin numbers and segment contributions.
  • Gross margins held up in all profit centers except equipment sales, where they fell by approximately 13 to 15 percent. This is, again, explained in the Trend Analysis.
  • Return on equity for high profit dealers for 2007 is approximately 30 percent – pretty good even by Wall Street standards.
It appears the type of equipment you sell and where you sell it made all the difference in the world. And as I talk to dealers today I hear the same thing, even though I expect to see less positive results in the 2009 CODB reporting 2008 results.
If you participated in the 2008 Cost of Doing Business Report you received a customized version covering your company compared to your peers. In addition, the report provides two or three programs to follow to increase your return on assets and return on equity. Those of you who did not participate need to invest $395 for this valuable report. While the CODB covers both small and large dealerships, I personally believe dealers in the $50 million-or-less range can use it most effectively. The CODB is a must-read for the CEO and COO as well as the CFO and each of the department heads with line responsibility. The Productivity statistics alone would be worth a full day of meaningful discussion leading to improved profits and cash flow. One great aspect of the CODB is the statistics related to balance sheet management. It is no secret that the dealership game is a balance sheet game, and to ignore this fact could lead to financial hardship. When you go back to consider those sales increases we discussed previously don’t forget that each dollar of sales requires additional capital or borrowing capability to properly fund the additional business. We discuss many of these issues and topics at the CFO Conference coming to Chicago on Sept. 22 and 23. If your CFO has not attended one of these conferences he or she should. The program is filled with industry experts who are willing to discuss current conditions and what to do about them. If you pay
attention, this conference will pay for itself 10 times over. Mr. or Ms. CEO, you are also invited but remember, we limit this program to 25 or 30 people to encourage participation and discussion.
The Executive Forum is another event geared to current market conditions, foreign competition, foreign opportunities and the value of the dollar – all pertinent topics given today’s business environment. After reviewing the topics and speakers I believe this will be a hard-hitting program with some new ideas on how to make money. The author of an article I read recentlyasserts that the U.S. and the world are heading into a new era of doing business, with many changes in the offing. I think he is on the right track, but I also believe our business leaders (that’s you) have the desire and intensity to create these new business processes well before the rest of the world can. We’ve done it before and have come out on top every time. It’s time to do it again!
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Article Categories:  Financial  »  Management