Dealer Consolidation - Customer Frustration?By G.C. Skipper
Article Date: 03-01-2010
Copyright(C) 2010 Associated Equipment Distributors. All Rights Reserved.
Mike Bates, president of Cajun Equipment Services, says it doesn’t have to be that way – as long as dealers are conscious of end-user parts and service needs, for example. He discusses this and other industry trends – from the asset management perspective.
From Baton Rouge, La., Mike Bates, president of Cajun Equipment Services LLC, manages equipment for all Cajun Industries LLC subsidiaries, which include Cajun Constructors Inc., Cajun Deep Foundations LLC and Cajun Maritime LLC. Cajun Industries LLC is a soup-to-nuts conglomerate that has completed more than $2 billion in contracts.
As if his routine job wasn’t demanding enough, Bates, like other contractors, finds himself constantly confronted with unprecedented changes – in the industry, in equipment, in dealer relationships, in technology, in environmental issues – all of which have a sobering impact on the way business is done in today’s “new reality.”
A barrage of factors has altered numerous construction industry landscapes, but one of the most impressive developments during the past few years, Bates said, is in the products rolling off the production lines of many of today’s equipment manufacturers.
“These products are the best I’ve ever seen,” Bates noted. “Quality, reliability, durability, technology – they’re all outstanding. I’m seeing the cream of the crop from OEMs and I’m very impressed.”
That said, however, the biggest problem facing Cajun in this well-equipped industry is dealer support, Bates said. There are various and valid reasons for this, he acknowledged, but nevertheless it is an obstacle right in the middle of the factory-to-end user road.
“Manufacturers talk about training programs and product support, but what we are seeing,” Bates commented, “seems to be a breakdown at the dealer level. It’s not across the board, and it is not true of every dealer we work with,” Bates said, “but it is very situational throughout the Gulf South in several states.”
Bates has two concerns that fall within the framework of this contractor/distributor breakdown. One, he said, is that equipment technology is moving faster than the training necessary to keep technicians up with it. Two, is the consolidation trend among distributors.
From his perspective, “all your dealers are going away,” Bates said. “During economic times like this, they’re either buying out each other and dissolving one of the businesses or going out of business altogether. Others are becoming factory owned,” he said.
This consolidation trend has made Bates cautious about becoming “heavily invested in a particular product,” he said. “I don’t know what that scenario will look like over the next few years when the economy starts to settle.”
Such distributor changes, explained Bates, are causing both positive impacts and negative aftershocks. “I’ve seen it go both ways,” he said. “In a lot of cases, you lose long-term working relationships due to personnel changes. Suddenly your ‘go-to-guys’ are gone. Smaller dealerships that were vital to your operation are now part of a bigger corporation. Sometimes corporations don’t always focus on your company’s individual needs. That can be bad.”
Flip the coin over, however, and you see the positive results that can occur. Depending on the dealer with whom the contractor has been working, Bates pointed out, the manufacturer comes in, raises the professionalism of the distributorship and contractors have easier access to necessary technician training and factory support.
“It can go either way,” Bates said. “I’ve seen both.”
Doing business in such rocky economic terrain is bound to leave the contractor feeling a bit battered. For Cajun, keeping its fleet productive during 2009 meant overcoming the challenge of parts availability, Bates said.
“No one seems to be stocking parts,” he said. “From an economic standpoint, I understand that. Parts are a very expensive inventory to maintain. With cash flow being what it was in 2008 and 2009 new machines weren’t selling, so older machines had to be repaired. It seems that everything we needed had to be ordered,” he said, “and that created our biggest problem: downtime waiting on parts to arrive.”
To give an example, Bates said common wear items could take 24 to 48 hours, but “if something more expensive breaks down, it can take a lot longer than that. “By comparison, he said, several years ago distributors moved to just-in-time parts delivery. Typically, they could get whatever the end user needed overnight.”
That’s a good arrangement, Bates said, if the manufacturer is stocking parts. “But today, with all the manufacturer cutbacks in everything from personnel to number of units, it seems to me – and I don’t know how those guys run their business – that manufacturer inventory is down. We don’t have that parts availability from manufacturers,” said Bates. “The dealer, who was the middle man, kept some inventory, fast-moving items, and what he didn’t have he could typically get overnight. Now, the dealer’s supply that comes from the manufacturer is drying up.
“I know it is economy driven,” he added, “but that is the reality we, as an end-user, are faced with.”
These difficulties naturally have a direct impact not only on fleet productivity but also on the purchasing decisions of fleet managers. Among the questions that come up are: Should a quarter of a million dollars or more be spent on a machine? What’s going to happen three years from now when parts are needed for that machine? “And you will need parts,” Bates said. “Is your distributorship going to have them and, if not, is he going to be able to get them?”
A Customer Who Intends to Remain Profitable
Despite the questions and uncertainties of the times, Cajun Constructors made a profit in 2009, according to Bates. “We are a very financially solid company, and although our volume is less than we like to see it, last year was another profitable year,” he said.
For every challenge, of course, there are opportunities, said Bates. Among them is that Cajun, “is poised and in a position to build on some good work that’s coming out,” he said. “We are aggressively seeking that work. We have the personnel, we have the equipment in place, we are continuing to bid work and we’re ready to go. I can’t get specific without getting into proprietary information, but we are positioned to accept backlog.”
He explained that Cajun, as a company, does a wide range of business through a number of operating companies and owns everything from pile driving equipment to tugboats to drill rigs.
As for heavy off-road equipment, Cajun owns about 80 percent of its units and rents about 20 percent, Bates said. And the large majority of rentals, he pointed out, consist of smaller equipment such as small compressors and welding machines.
“We feel we’re in a position to take advantage of whatever the work is,” he said. “We are looking for work across all scopes of our industries. Where is the money going to hit? I don’t know, but we are ready when the turn-around comes.”
Bates said he is personally optimistic about requests for proposals and bids in 2010. “I see no reason to believe that 2010 won’t be the beginning of better opportunities in the near future,” he commented. “We are seeing more opportunities because the vital [economic] signs are improving.”
Other contractors throughout his marketing area are seeing the same thing, he said. Some are handling the opportunities better than others, but many of them recognize the opportunities of the changing landscape caused by some of the area’s contractors shutting their doors and others buying out their competitors, he said.
“Some OEMs and distributors wake up one morning and find out there is a whole different customer than the one they used to have,” Bates observed. This scenario had been infrequent in his area – that is, until the last year or two, he said.
Tools of the Asset Manager’s Trade
To deal with all this and still manage a fleet efficiently, Bates said, an equipment manager has to budget what he knows. “We stand on our historical data and what we have learned from an equipment cost standpoint. Some things are not going to change; you have to run a machine a certain amount of hours if you are going to move X amount of dirt. That’s not going to change. If you are laying pipe at a certain elevation you need a certain machine. That’s not going to change. Technician rates are not going to fall through the floor. Cost of new equipment is not going to be cut in half because steel isn’t cheap. Certain things are fixed, so you go with what you know.”
Another very positive sign of the times when it comes to keeping track of all the necessary data to run an efficient and profitable fleet is the advanced technologies that have sprouted throughout the industry. Like the impressive OEM products Bates mentioned earlier, new technology, such as telematics, has become critically important.
Wikipedia defines telematics as “The integrated use of telecommunications and informatics...More specifically it is the science of sending, receiving and storing information via telecommunication devices. Telematics includes but is not limited to Global Positioning System technology integrated with computers and mobile communications technology in automotive navigation systems.”
But to Bates it is simply a management tool that allows him to keep up with computer-generated, transmitted information that tells him equipment hours, location, percent of load, fuel consumption and condition of the machine, among other things.
Telematics has become so critical to Cajun’s operation, Bates said, that he has actually changed the way the company handles its equipment maintenance program. “We had the same maintenance program for 20 years and I can show you the financial impact of what changing that program had on the cost of our maintenance program.”
Typically, Bates said, Cajun always scheduled maintenance based on 250 hours. “The OEMs came in and told us we could get away with extending that to every 500 hours. I wasn’t sure I was happy with that,” he said, “because we like to see our technicians put their hands on the machine, look at the condition of the machine. They are our first line of defense, so to us, this was like skipping a routine maintenance.”
But telematics showed Bates a critical difference. “We were getting 250 engine hours,” he said, “not 250 working hours. The engine key was turned on, but without looking at fuel consumption we couldn’t know if the machine was working or not.”
Bates changed his PM program to 500 hours of running time or 250 hours of working time, whichever came first. “That cut our maintenance cost by 25 to 30 percent. That’s real money,” he said.
What the Future Holds
On a much broader scale, one of the biggest future concerns Bates has falls into regulatory realms. In two words: Emissions regulations. “I’m watching closely what’s going on with emissions,” he said, “because that will have a direct impact on us. I think it is here that you are going to see an uptick in equipment rentals. What the Feds do when it comes to off-road equipment – and how fast they do it – is going to determine if a fleet manager rents equipment, uses existing equipment or buys new units. It all depends on what emissions restrictions are placed on a particular jobsite.”
One other positive development is taking place in the industry, says Bates, who is also the former president of the Association of Equipment Management Professionals (AEMP). Associations such as AED and AEMP are attending each other’s meetings and opening up lines of communication.
“This is being done through the initiatives of the associations’ executive directors. I’d like to see more of this and see it expanded to include OEM and distributor groups,” Bates said. “People who are in that loop will fare the storm better.”
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