Three Tangible Ways to Re-Learn This business - 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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Three Tangible Ways to Re-Learn This business

By Garry Bartecki

Article Date: 08-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.


How do you run your dealership at 60 percent of last year’s volume?

That’s a good question, a tough question, and a question that will be around for a while.

In my opinion there is a new era dawning regarding equipment distribution. The dealers who figure it out will benefit for years to come. Those who don’t will find it hard to stay in business, and that’s assuming they make it through this equipment market depression.

Ron Slee’s column in CED’s July’s issue reached a similar conclusion. He explains his rational and uses financial schedules to demonstrate how a dealer’s sales mix is likely to change, which affects absolute gross margin dollars, which in turn affects the bottom line. This example clearly shows that decreases in equipment sales gross profits have to be replaced with margins from additional parts, service and rental sales along with severe cuts in overhead to return to reasonable profitability. You are all involved right now cutting expenses, and I know many of you know that parts and service has to pick up the slack, but I am not sure you know how to get where you need to be to get you over the hump.

Equipment sales are not likely to return to previous levels because this promises to be a very long recovery process. Credit will be tough to get until balance sheets are rebuilt. And because there will be so much late-model used equipment for sale anyone who buys anything will look there first. In the meantime, dealers will have to adjust to break even using methods as described above.

AED can help you out with this decision-making process. We have at least three current courses of action you can follow:

  • Attend one of the Prism war game programs, called “Test Drive.” Believe me, every decision you have to consider  can be tried using this simulation tool that allows you to quickly review your results in terms of a balance sheet, income statement and cash flow statement. If you have ideas you want to test, this is the safe way to do it. We all make decisions and sometimes the results we expect don’t show up. Wouldn’t it be nice to find that out before you take action? You bet it would. (details for the Sept. 30 Test Drive at www.aednet.org/testdrive)
  • AED’s Executive Forum is also geared to help you with these decisions. Financing availability, the current status of markets, and a discussion on saving, selling or buying a dealership are the core of this program, because face it, your business is about money. And the truth is, some of you will not want to deal with this new business planning and would benefit from selling out. Some will want to tough it out but will need to take the right course of action to achieve the desired result. Some will be ahead of the game and in a position to buy additional market share. I would recommend getting a front row seat with pen in hand. (details at www.aednet.org/execforum)
  • You can also send your CFO to AED’s semi-annual CFO conference. There is tax money available if you look hard enough. There are methods you can use to improve your chances of receiving financing. There are costs you can cut to reduce your break-even. We cover numerous topics that benefit every dealer who attends.
Call us. We know the industry. We know whom to call if you need help. We can respond quickly and save you a lot of time, effort and professional fees. Members do not use AED’s core knowledge as much as they should. We have addressed just about every issue you can think of and know who has the answers.

Watch Auto’s Pattern

There is no doubt that this new era of equipment distribution means fewer dealers will be required to serve customers. Now that the auto industry is dealing with their problems along with tackling the state dealer-franchise laws, other dealer oriented distribution channels are sure to come under similar scrutiny. It costs money to maintain a large dealer organization, and now when the opportunity is right to “clean up” the dealer issue, I am sure we will hear more about these activities. It will just be too hard to pass this opportunity up.

What should you do in the meantime? Plan appropriately. With the conditions under which we are operating it is virtually impossible to plan more than three months out. So, you need to spend the bulk of your planning time on the next 13 weeks. As markets stabilize you can stretch your planning time accordingly.


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