The Highs and Lows of Courting DealersBy Kim Phelan
Article Date: 06-01-2010
Copyright(C) 2010 Associated Equipment Distributors. All Rights Reserved.
If a manufacturer isn’t in the Big 5, how do they position themselves and their value package to gain distribution in a diminishing universe of qualified North American dealers?
Act 1, Scene 1: An economic storm has ravaged the industry, taking some dealer casualties and leaving many others hanging on for life; credit remains tight, consolidation in distribution is underway. It’s a land inhabited by four or five manufacturing giants that dominate the geographic markets, but numerous manufacturers originating from overseas have established presence in the North American market over the years – some as recently as the last few years.
They’re all hungry for a slice of the dwindling market pie, and they know their success hinges on a healthy distribution network. Trouble is, the field of well qualified distributors has diminished, and thus the stage is set for a drama: Hunting for dealers with all the right traits, wooing them with distinctive and attractive value propositions, and securing their brand focus on your products once the deal is inked – and all this before another suitor gets there before you do.
“There is definitely an overcapacity of suppliers and an undercapacity of well financed and viable distributors,” said Jamie Cowin, owner of Cowin Equipment Co., Birmingham, Ala. “Therein lies the conundrum for some manufacturers.”
Climbing into the North American sand box, with Caterpillar, Komatsu, Deere and Volvo as playmates, the small-marketshare manufacturer trying to get a foothold will not find dealers of that description standing on every corner looking for a new product line.
“In order to be a dealer for a manufacturer of heavy equipment, you have to have pretty deep pockets and good lines of financing,” said Bob Hathaway, principal of RECO, a seven-location multiline dealership covering Ohio, western Pennsylvania and recently-added Indiana, carrying the full line of Liebherr heavy equipment, LBX excavators, as well as the Kawasaki brand. “You have to have the ability to floorplan or self-finance these machines and develop a rental fleet – it’s really big dollars you’re talking about. There are very few [dealers] out there, and because of the decimation of the distributor networks in the past few years, a lot of manufacturers are pretty desperate to find equipment distributors that have the ability to buy, finance and rent these big products…I personally get a call every two weeks from a manufacturer looking for us to represent them.”
In some cases, manufacturers that had more robust representation in the past have lost dealers for a number of reasons, including shuttered doors resulting from the downturn, attrition due to principal’s retirement without succession, competitive brands that have dictated exclusivity under the dealer’s roof, as well as the current consolidation activity, which itself can have both positive and negative outcomes for the smaller-marketshare manufacturer. Together these challenges, as well as the aforementioned scarcity of credit for both dealers and end users, make dealer development one tough job.
I Want More of Your Floor
And once inside the dealer’s door and on the floor, the manufacturer’s battle has just begun, because his excavator, wheel loader or what-have-you is likely on display with at least a few other lines, in some cases complementary and in other cases competitive.
Corey Rogers, product development manager for Hyundai, says gaining brand focus at the dealership is indeed a big issue.
“Sometimes we don’t have a choice but to go with a dealer who represents multiple brands because they are capable of expanding our marketshare beyond even what a smaller dealer could who is single-line focused. The best case scenario for us is to align ourselves with a company that’s capitalized, has good resources, and is focused on one line, which is our line. [But] where we have dealers that sell two lines of excavators or two or three different lines of wheel loaders, it can create confusion for the salesman – and then you have to fight for his focus. That’s the challenge.”
Rogers’ strategy: Get in front of the dealer’s sales force with frequent face-to-face product training to gain what he calls, share of mind. Fluent in Spanish, Rogers himself travels throughout North and South America conducting intensive product training to Hyundai dealer salespeople.
“People are going to sell what they know, and if they know Hyundai better than they know another brand they represent…they’re going to sell Hyundai,” said Rogers. “All manufacturers provide training, but we provide a lot of training, and we provide a lot of personal attention to our dealers. It’s one thing that Hyundai does that makes us unique.”
Ultimately, the dealer principal has to make the judgment call when the clamor for brand emphasis from all represented manufacturers puts too great an inventory burden on the dealership. For example, if a dealer has three machines of Product A on the floor and all his manufacturers demand equal exposure, does that make sense if he’s representing six lines? asks Duane Wilder, president of Liebherr in North America. The manufacturer tendency to load too much inventory into the dealer’s pipeline not only jeopardizes the dealer relationship, says Wilder, but does no favor for the manufacturer, especially if their machines are just sitting on the dealer’s lot.
“In my experience, it normally comes around to bite you at some point in time,” Wilder said. “Good dealers that are good business people will look at it and say, ‘I can’t make that work.’ Our philosophy,” he added, “has always been: Do the business that makes sense, which for us means dealers focused on Liebherr. It is difficult to deliver the product support we expect if the dealership is fragmented with too many brands.”
For Hathaway, who represents three heavy lines (including Wilder’s Liebherr) that do cross-compete in a few sizes of excavators, finding the right equilibrium is important if you’re going to “serve” multiple “masters.” Content with the manufacturers he’s got at present and the ease with which he works with them, he isn’t remotely interested in taking on another heavy line.
“You can’t be too many things to too many people,” he said. “It’s hard enough to get your sales folks to focus if you have competing products within your own stores. You would rather have your sales staff more focused, and that’s what we try to do.”
Checking Out the Choices
Dealers begin thinking about taking on a new earthmoving line for a variety of reasons, sources indicated. Perhaps it’s a desire to offer some of their customers a lower priced machine that digs a hole just as competently as an A-grade line but without the bells and whistles. Or in some scenarios, it may be an unhappy relationship, although one dealer indicated that keeping the peace is in his own best interest since there’s usually a vast dealer investment of money, time, and training tied into representing any manufacturer. But “unhappy” could mean something more risky than a personality conflict or warranty disagreements.
“We find that some multiline dealers are concerned about possible mergers/acquisitions in the industry between some of their existing product lines,” said Ron Hargrave, president of Liugong Construction Equipment in North America. “That results in the product no longer being available to them, or they may find themselves competing with the same product but with a different label on the side of the machine.” Hargrave adds that his company seeks to offer dealers an alternative to this situation with a long future for both partners to work toward.
And in some situations, it’s just all about diversifying the dealer’s offerings to spread the risk as well as the opportunity to generate revenue wherever they can.
One source noted that dealers should consider whether it is strategically wise for them to have all their eggs in one basket. If they deem this to be unwise, carrying multiple brands may offer them some flexibility and choices which dealers of single heavy lines do not have.
Regardless of dealer motivation or whether the dealer or the manufacturer makes the initial move to begin the distribution discussion, once the “courtship” commences it’s common – if not expected – for executives from the manufacturer to visit the dealer’s facility. But Hathaway cautions that the dealer’s due diligence should also include a visit to the manufacturer’s plant.
“You really need to go see who they are and what they are,” Hathaway said. In the case of Liebherr, he says going to a show like Bauma, for example, gives the dealer a true global picture of a foreign-based company that may not have the same brand power yet in the U.S.
Hargrave at Liugong knows the feeling.
“The first words we usually hear are, ‘I never heard of Liugong!,’” he said. “We point out that a few years ago no one had heard of Komatsu, Hitachi, Hyundai or Volvo either. We have a story to tell these dealers, and once they realize the size and strength of the Liugong organization they become much more interested in learning about our company and our products.”
What Makes You So Special?
Among all six manufacturers interviewed by CED – including Doosan, Hydrema, Hyundai, LBX, Liebherr, and Liugong (as well as some of their dealers) – a common thread emerges in the value proposition they project for dealer prospects: It’s the sense of a personal touch, quick and easy accessibility to anyone throughout the corporate ladder; smaller-marketshare manufacturers say they have the advantage of less bureaucracy when decisions must be made or special circumstances considered.
Ron Johnson, an LBX dealer in Grand Junction, Colo., says this is one of the things he likes best about doing business with this manufacturer.
“It’s fantastic – with one phone call I can talk to anyone from the CEO to the parts or service person, and that means a lot to me as a small dealer,” Johnson said. “When I need something done, I’ve got to get it done for our customers. I love the fact that I can get a hold of anybody with any problem.
“We feed them and they feed us,” Johnson added. It’s kind of an ecosystem that you have to keep intact so we can make it past the troubled times. Everybody’s got to walk in each other’s shoes and help each other out as much as they can.”
The value proposition is straight-forward enough, explains Mike Davis at LBX. “Our philosophy is: We need to make it easy to do business with us,” he said. “The easier we make it, the more comfortable people will be and the more likely they’ll lean on us.”
In addition to the focus on easy, personable communication, manufacturer sources particularly conveyed a strong desire for a long-term relationship with dealers, which they say is indicative of their own staying power in North America, as well as their commitment to dealer profitability.
But there are individual differentiators that they bring to the table, too.
For instance, Kresten Binder, executive vice president of Hydrema U.S. Inc., says it is his company’s uniquely designed dump truck product in the rental market that comprises the bulk value to dealers.
“The only way we can get dealer interest these days is to focus on our niche: The low ground pressure that our trucks have and the compact design – we are really the only company that can offer it,” Binder said. “We are a niche within the articulated dump truck niche; that actually gives the dealer an opportunity to make a really good return on his investment.”
Binder says that with the Hydrema truck, dealers can make nearly as much with the monthly rental rate as they could with a dump truck costing about twice the purchase price. He adds that, “There really isn’t much competition in our segment. I think this will be the best year for us in North America – we started the year off really, really good.”
Central to Liebherr’s value offering is the fact that the company manufactures more of its own components than any of its competitors in the market, says Wilder, including pumps, engines, and electronics. This benefits the dealer directly by ensuring the repair parts business comes straight back to the dealership.
At Doosan Construction Equipment, the predominant value component presented to dealers is the company’s significant investment in the North American market – case in point, Doosan purchased Bobcat Compact Equipment and Ingersoll Rand Portable Power in 2008. According to Dealer Development Manager Steve Ross, the dialogue “begins with communication to dealer prospects our plan to be a Top 3 manufacturer. Obviously, in today’s environment that’s a pretty aggressive statement,” he said. “We are also a customer-focused company. We view customers and dealers as our teachers; we work to understand their needs and build innovative, high quality and profitable solutions for our dealers.”
Ross adds that all functional areas of his company, including finance, sales, marketing, and aftermarket, are tapped whenever and wherever needed to support Doosan dealers.
“With all of these key components rolled into our value offering, we’re positioning our brand so the value can be easily understood by the dealer,” he said.
And, of course, sometimes the manufacturer’s value package so perfectly aligns with the dealer’s business objectives that the product line is adopted as the primary line rather than complementary or one of many. That’s true for Johnson’s LBX focus at Riverbend Machinery in Colo., and for Mitch Nevins at Four Seasons Equipment in Houston, whose main heavy line is Hyundai.
“A few things that made it appealing to us were flexibility, pricing, customer service and support,” Nevins said.
Boiling it Down
It isn’t hard to take on a new product line, dealers say, but it isn’t something to be entered into lightly, either.
“It does require extra work and commitment by everyone in the organization,” said Nevins. “Pioneering by the sales force, parts ordering and stocking of the right parts, service training on the specific equipment – it’s not difficult, it just takes commitment.”
Bottom line, dealers are more or less living in a period in which they must grow or become part of someone else’s growth. Standing still is becoming less of an option.
“Over the last 12 months, because of economic conditions, several lines of equipment have become available,” Nevins observed. “You need to take advantage of those opportunities when they present themselves – if they make sense for your company.”
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