The New Reality in Our Dealerships - Aftermarket
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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The New Reality in Our Dealerships

By Ron Slee

Article Date: 07-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.


Continuing to do what we have always done is no longer sustainable

Last month I proclaimed the death of the business model as we have known it for the past four decades. You know the one. It says that between 60 and 75 percent of the dealership sales will be in prime product. It says that you can sustain your business and make money without too much difficulty. It sure feels difficult now doesn’t it? Now we need to come to the parts and service groups to help us make it through these tough times.

The old model and where we find ourselves now looks something like the table on page 66.

Look familiar? Well there are several issues to the information. First, not all of you get a 33 percent gross profit in parts. That makes your results worse. Second, not all of you get a 65 percent gross profit in service. That makes your results even more distressing. Third, many of you spend more than 10 percent of your dealership sales on administration. You know what that does, too. So what do we do now?

Well, we continue to do what we have always done in times like this: We cut expenses, and we stop spending. Of course, that is understandable, and it has always worked before. So, as with any project, the last two steps of project management usually are executed by punishing the innocent and protecting the guilty. We cut expenses in parts and service and leave administration and sales for the most part untouched. Well, I agree that it has worked in the past, but with a price. But we haven’t understood, and I am convinced it won’t work this time.

You see, there is a difference this time in our markets. We will not see equipment sales at levels we have seen for the past 10 years or so again in many of our work lives. It was and is unsustainable. We were throwing away good value in our trade-ins. We were borrowing money to buy these new assets, and we had way too much leverage in our businesses. I would refer you to two interesting books. One is “The Trillion Dollar Meltdown,” written in the early part of 2008 and the other is “When Markets Collide.” (Both are listed on the reading list on our Web site at www.rjslee.com). I believe thoughtful people will come to similar conclusions about our North American equipment market going forward. 

But it is not all bad. No, there are many things we can and should do. First is to accept and adjust to the new reality.

Adapt your administration operation to take full use of technology and business systems to reduce the unnecessary costs, such as: double entry of work (i.e. payroll) filing documents (i.e. electronic storage), mailing invoices and statements (i.e. use e-mail and electronic transfers). And there are many more.

Adapt your use of technology in the business. I know I have harped on this a few times in the past year. VoIP, laptops and communications in the field service operation, technicians using voice recognition for service reports, technicians posting their own time on jobs, technicians ordering their own parts, and on and on.

Adapt your parts operation. Call the customers and get closer to them. Manage your inventory better. Use technology here and manage the physical inventory and the shipping and receiving functions with scanning and RFID or bar code technology. There is a lot to do.

Adapt your thinking on training too. That is the critical element. Who are your leading edge thinkers? Who has received the latest and greatest training from The AED Foundation courses and training materials? I know that many of you have not kept up with the training for your employees. I know you view this as a discretionary spending item. Well, it is like the old Fram filter commercial: “Pay me now or pay me later,” and the later the payment, the higher the cost.

Take a look again at the table on the left. It tells a grim story. It’s time we took hold of our business and created the model of the future and the future we deserve.


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