Emphasizing Compact and Rental, Terex Crafts Success-Formula with Strong DistributorsBy Kim Phelan
Article Date: 12-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.
In an interview with CED, Bob Desel, Vice President Americas, Terex Construction, discusses how the company is preparing for market turnaround.
Let's begin with something most people have seen Terex in the news about: Its intentions to sell certain construction equipment product lines to help the company become more profitable. What's the status of that plan?
Ron DeFeo, our chairman, has on several occasions, made some pretty candid assessments of the challenges that we face at Terex in construction with the current economic climate. While I'm really not in a position to elaborate on Ron's comments, speaking for myself and my team, we're hard at work every day making the division better, stronger and more profitable.
We've taken some steps to restructure our Americas operations to consolidate all the distribution functions into Southhaven (the Memphis, Tenn., area) and that's resulted in very focused operations in the U.S.: Southhaven concentrates on distribution and interfacing with the customer; and then our Grand Rapids factory (which manufactures our compact track loader line) is very focused on manufacturing and product development. This not only resulted in benefits to the customer – now you have only one place to go, whether you're buying a track loader, miniexcavator, or a truck – but it also allowed us to take some cost out of the operation and streamline things.
What is Terex Construction potentially going to look like by mid-2010?
My area of focus is the Americas, and for the Americas we're going to continue to get more focused on the customer, and more focused on our operations along the lines of the restructuring I spoke of, and we're going to continue to build out our distribution network.
And we see evidence of this in your press releases quite frequently this year. What are the strategy and objectives behind the expansion of your distributor network?
A couple of things: First, an overall greater focus on distributors and distributor development; that's across all of the products we sell in both the compact and the heavy channels. A lot of the announcements you've seen are really related to our full-line compact initiatives, and the ASV acquisition was really a catalyst for that. With the addition of ASV we not only got a great company and great product, but a team that was really focused on compact – a very broad and a very deep line of compact products. We haven't positioned ourselves as well as we would have liked in the market as a full line as opposed to individual product; so our distributor initiative is really about taking the best Terex and the best ASV dealers to build out a network of full-line compact distributors.
Most of the announcements you're seeing are related to the establishment and formalization of new full-line compact distributors, and given the market conditions, we've been pleasantly surprised by the response in the distributor community. We started this activity in the second half of last year with a target of 150 full-line storefronts by the end of 2009 – we've met every quarterly target associated with that goal, and we're well on track to have 150 by the end of the year.
Isn't this kind of a tough time for a distributor to be taking on new product? And why compact?
The compact equipment market has obviously been very significantly affected by the downturn. But our success in moving forward with our distributor strategy around compact will be influenced by a few things, including the fact that distributors and manufacturers alike are trying to simplify their businesses. So we see some distributor candidates coming forward who are consolidating three or four lines, and they see that they can get that same breadth of product with one manufacturer, which is us.
So dealers are dumping other lines to switch over to the Terex line?
In some cases, yes. Again, that's around simplification of their business. I think the distributor [community] sees our commitment to the compact line; our compact team is very focused and really understands the nuances of that business.
We'll continue [expanding distributors], albeit at a slightly slower pace. We've been very conscious of not over-saturating the number of distributors, so we'll continue to add strategically and support the distributor base we're putting in place. We'll also continue to build on the strong product line that we have.
You're going to add new product to the compact family?
Yes. In 2010 we probably have, across both lines (heavy and compact) more new and upgraded models coming out next year than we've had in the history of the business. You'll see new models introduced into existing product families, and you'll also probably see some surprises in the breadth of product line.
Your new Distributor Rental Partnership Program seems to take a very collaborative approach to a potentially combative relationship between construction equipment distributors and local/regional rental houses – what are its key ingredients?
We've recognized that the rental segment is and will continue to be important – it's a large segment of purchasers and users of equipment, and it also builds population and brand recognition, which obviously is important to us. But at the same time we want to support and build our distributors. This is a partnership between us, our full-line compact local distributors and the rental outlets in that distributor's market that we have jointly identified as target or high potential customers.
One of the unique requirements of this group is that they like to buy their equipment direct from the manufacturer, but often these small local and regional rental operations don't have the full complement of parts and service that they would like to have to keep the equipment up and running in order to maximize their return on investment.
Once we identify the rental customers in the distributors' area that they want to go after with us, we put feet on the street with independent reps to go and make those calls on behalf of the distributors. We sell direct to that customer; the distributor PDIs the equipment; and the rental house then gets all their parts and service needs from the local distributor.
If Terex is picking up the tab on the manpower for those sales calls, that sounds like a pretty substantial financial commitment.
It is a big commitment. But it's a reflection that while rental is a very important segment, we recognize that our distributors are critical for our success – and I don't believe those two are mutually exclusive. This is the kind of program that takes advantage of market opportunities, but it also acknowledges how critical our distributor base is to our long-term success, and we have to work with them to take advantage of the market opportunities.
And so far, the distributor response has been very strong; and the response in the market from the local and regional rental companies has been equally strong.
What are your Top 5 goals or objectives for 2010?
In no particular order: Obviously improving our distributor support, and by doing so, the support our end customers receive is clearly one of the big objectives for 2010. With the number of new compact distributors we're signing up, we have to continue to work to support them with programs like DRRP and other things.
I mentioned we've got a lot of new models coming in 2010, so successfully launching those has to be in my Top 5 list.
We've started to put a lot of focus into our remarketing efforts, with people, technology, and capital; so really making those resources and the investment in those resources pay off is going to also be in the Top 5.
Another is the concentrated focus on our heavy side, really preparing fw or the market turnaround – because the market will come back. I think the shifting in gears when the market turns is going to be important – whoever does that better is going to capitalize on the upswing. For some areas that have been particularly hard hit, like material handlers and articulated trucks, getting ready for that gear shift when it comes is going to be a big focus in 2010. We know it will come, and we don't intend to be caught flat-footed when it happens.
And lastly, continuing to build out compact distribution networks through next year – supporting the distributors we've signed up, and adding new distributors in a thoughtful manner.
Are distributor inventories, in general, well aligned at this point with the sharply reduced demand?
It varies by segment, and I can probably comment on our distributors better than I can on the entire industry: Our compact distributors are fairly well aligned with the current demand from an inventory standpoint, but I'm not sure the rest of the industry is there yet. We've worked very hard to (1.) not overstock our new distributors, and we encourage them to be as lean as possible, and (2.) for distributors that we've had for a long time, we've worked with them to move out inventory and to only restock what they really need. So, our compact distributors are in good shape.
I think in the heavy segment, particularly in artic. trucks, the rental fleets are still quite large and/or underutilized for the current level of demand; so I think there is still some more work to do there. We will continue to strive to have as lean a distributor inventory as possible; distributors that have rental fleets that are working and generating income, that's great; but having equipment sitting at a distributorship that isn't producing revenue isn't really in anyone's best interest – not the manufacturer nor the distributor.
What's going to be the No. 1 challenge for distributors in 2010?
One of the big challenges is going to be that gear shift that all of us have to do as the market returns, even if slowly, to make sure that distributors have availability of equipment, that manufacturers have availability of equipment. But at the same time, we've got to make sure we don't repeat sins of the past and we don't overload any of the distribution points in the channel. We really must focus on the efficient and lean distribution of product to the end user.
Before that, however, managing cash flow for distributors will be another big challenge, particularly in the winter season in any part of the country that has some seasonality. I think managing through what is traditionally a slower period is going to be a big challenge through the first quarter of next year.
Personally, I'm hopeful that we're starting to see some signs of life, and if we continue to see those, by the second quarter, we'll see some tangible recovery – not extreme, but tangible. Something distributors can put their hands on and say ‘Okay, things are firming up a little bit and I can see it in my business, not just in the newspaper or on the TV.'
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