Sunny skies reflected sunny moods at the 2019 AED Summit in Orlando, proving the perfect backdrop to celebrate the association’s 100th year. After a stellar 2018, there were indications throughout the event that while 2019 won’t reach 2018’s heights, it will likely still be a growth market.
“Construction equipment sales were strong in 2018, showing 10 to 25 percent growth across the market depending on equipment type,” said noted construction economist Eli Lustgarten, president, ESL Consultants, during the Summit. “In 2019, we’ll see 5 to 15 percent growth, but 2020 will probably be flat to down. It’s clearly showing down from 2018, and orders will trail shipments, and set the stage for this plateauing.”
The good news for dealers: “It shouldn’t be a terrible downturn, but it will clearly slow down,” Lustgarten said.
Lustgarten said early indications show mild growth in housing, with the National Association of Home Builders placing 2019 housing starts at 1.27 million, up 0.8 million from 2018 and 2020 housing starts at 1.31 million, up 3 percent. “It used to be that 1.5 million housing starts was a normal level, now it’s 1.3 million,” he said.
Lustgarten also cautioned against placing too much hope on the new highway funding bill that’s due in 2020, especially if it resembles the current one, 2015’s Fixing America’s Surface Transportation Act. “The FAST Act did not help machinery demand in 2016 and probably did not help it much in 2017 and 2018,” he said. “It perhaps only lent stability to the highway sector to stimulate state spending.”
He also points out that the Highway Trust Fund spent billions more than it collected in revenues last year and that this year the deficit will be greater. “The next five-year transportation bill needs an additional $85 billion to keep it at current levels,” Lustgarten said.
An AED Foundation research piece, announced during a press conference at the Summit, offered an intriguing look at the future.
“In 10 years, most heavy equipment will be at least partially – and some of them will be fully – automated,” said Barrie Kirk, executive director of the CAVCOE (formerly the Canadian Automated Vehicles Centre of Excellence), which produced the research. “And by the 2030s, 80 percent of the equipment sold will use electric power trains.”
The research piece, “A Study of the Impact of Autonomous Technology,” examined how dealers might begin to prepare for the impact of this emerging technology, and what areas in their dealerships needed careful examination during this preparation.
In response in part to this technology, there will be a trend among dealers away from the sales side to the service side, which mirrors what is happening in the auto sector, Kirk explained to the gathered press conference crowd.
In remarks made to Equipment World following the study announcement, Kirk said a dealer’s business model will change as the equipment itself changes and as both manufacturers and customers move towards the service model. “Dealers have to decide whether or not they want to get into that or leave it to others to provide this service,” he said.
But just as important will be the skills needed by equipment technicians. “Technicians will need a lot more expertise in electronics, electric drivetrains and software,” he said. In fact, the current technician shortage might impact the transition to automated machines. “We’ll have to redefine what technicians do and train them to have a different skill set,” Kirk told Equipment World.
“In the next 5 years there will be a gradual but definite deployment of autonomous technology,” Kirk says. “No one will throw a sudden switch; it will be incremental.” Automation is one of three trends – which also include artificial intelligence and electrification -- starting to deploy in the heavy equipment sector, starting first in mining, Kirk says. (Current automation examples in heavy equipment include Komatsu’s autonomous mining trucks, Volvo’s Electric Site quarry project and Caterpillar’s autonomous mining fleet.)
The AED report recommends that dealers actively look for potentially disruptive trends that will perhaps come from autonomous systems. Other recommendations include:
• Network with industry players – particularly manufacturers -- to develop a great greater understanding of needs and concerns as automation is introduced.
• Be aware of commercial pressures toward a more service-based business model and prepare a business strategy to address it.
• Expand technician training to accommodate as much experience as possible relevant to automation and electrification.
“To me, this is a really exciting time in the industry,” Kirk concluded. “We’re seeing the dawn of a whole new era, akin to when the first Model T Fords ran off the production line. This will be very disruptive. There will be opportunities, challenges, job losses and push back. The winners will be those companies that can stay ahead of the curve.”
There were a number of activities during the AED Summit that encouraged attendees to reconnect with old friends and new opportunities.
While talking with dealers, Equipment World heard of how the technician shortage is having pocket book impacts today. One dealer told us about having put more than $200,000 worth of trade-in machines off to one side because his technicians didn’t have the time to get them ready for sale.
It also goes beyond technicians into the broader dealership workforce. Dealers are also scrambling for sales, training and parts counter people. In addition, they are looking at adding more tech and data savvy people.
For others, developing a succession plan is front and foremost, as is developing ways to take advantage of today’s technology as a way to foster communication and camaraderie between branches. And how to profitably handle the rental juggernaut is a continuing concern.
MANUFACTURERS AND DEALERS
What do manufacturers look for when considering adding or keeping dealers in their network? That question was posed during the Summit at the OEM panel during the opening general session.
Mike Ballweber, senior vice president-commercial business, Doosan Bobcat, told dealers during the panel: “I watch how their people are trained to interact with customers in all aspects, from the parts counter to sales.”
Stephen Roy, president, sales region Americas, Volvo Construction Equipment, said he looks at how hungry a dealer is. Is the dealership on a mission to grow? Do they pay attention to the small things? “I walk in and try to experience what the customer is experiencing,” he said.
And this is true not just within the dealer headquarters and branches, says Jason Daley, global director, marketing and support, John Deere Construction & Forestry. “It involves watching how sales people are engaging on jobsites, how well the customer knows the sales person. A lot of customers don’t come into the dealerships, their employees do. If a dealer knows the customer and the job well, it’s truly a differentiator.”
Jason Daly, global director, marketing and support, John Deere Construction & Forestry, said the best dealers are focuses on the issues of talent, succession and margin suppression, which can be addressed in part by your parts and service capabilities. “Dealers also have to have long term planning for talent, because you have to build a talent pool for the future. We have dealers who looking at unique ways to do this.”
The OEM panel delved into a number of subjects, including how technology has changed the construction equipment business. Peter Mayr, president, Liebherr Construction Equipment, cautioned that in the midst of all the industry changes that it’s important “we as manufacturers stand with dealers and be open with them.”
Added Roy: “Disruption is coming. We’re having discussions with our dealers around the talent that we’re going to have to have, and how their organization is going to address it. While tech is an enabler, it’s still about people.”
Phil Kelliher, Caterpillar vice president, Americas Distribution Services Division, added: “The leading dealers take on the tech recruiting problem themselves and engage local government and schools. Every dealer needs to think about how to do this because techs are a key source of revenues.”
Beyond fleet management will be site management, Roy said. “That will be a core competency with dealers. It’s not just electric machines, it’s how they work together. I see the dealer role in helping that work on jobsites. It’s coming fast, and we have to learn quickly to help dealers understand their role.”
Despite coming changes or the size of the dealer, said Kelliher, “if a dealer is performing well, they will be fine. Some of our smaller dealers are among our best.”
And realize that observation is a key in meeting customer needs, Ballweber said. “There’s a lot of value in just watching customer work. Sometimes they don’t know what they need and you can understand unmet needs through observation.”
“At the end of the day, it’s still about face-to-face,” Mayr said. “I still believe in talking with customers; we are humans who want to interact with others.”