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Dealers attending the AED Summit this year got an inside look at how three $200-million-plus contractors view their equipment assets.

 
A panel discussion was moderated by Stephen Sandherr, CEO of the Associated General Contractors of America, with panel members  Dirk Elsperman, CEO and executive vice president of Tarlton Corporation, St Louis; Bob Lanham, president of Williams Brothers Construction, Houston, Texas; and Brian Herold, controller, Power Construction, Chicago.

There have definitely been changes in how these contractors manage their fleets. “We used to buy the equipment that we would use every day, or that was going to be used on every single project,” said Elsperman, who also serves as the current AGC president. “But the rental market has become much more financially feasible for us, so we shifted our strategy. Now we rent our cranes and large excavators because we can get exactly the right size for a job.”

“If we can’t sustain the utilization of equipment over a certain threshold, it doesn’t make sense to buy,” Power Construction’s Herold told the group. 

Highway contractor Williams Brothers still heavily leans on owned equipment. “Almost all of our leases or rentals have a rental purchase option,” said Lanham. “We buy a lot on resale value and we look at everything from how it affects our cash position, which affects our ability to get additional work, which in turn affects our need for additional equipment. All of it has to work together.”

Lanham called a dealer’s ability to service equipment “the litmus test.” He says, “We use both rental companies and dealers because they have the infrastructure to support us. If they don’t, they usually don’t get a second shot at it.”

This support has become especially critical as Williams Brothers is in the midst of a massive, double-shift project. “We’re doubling down on the hours of our equipment,” Lanham said, “which means if we miss five days we’re missing 10 shifts and downtime is twice as important.” To meet the demands of the job, the company is asking the dealers it’s using to have a technician stationed on the job. 

Another thing that’s changing: a contractor’s in-house equipment service people. “We have our own shop and our own mechanics,” Elsperman told the group, “but that number has been dwindling as it’s been harder to get someone that can handle the universe of what we do.” 

Added Lanham, “We live in an internet-paced society where everyone wants it done right now, so we need every available resource. I see the [technician work] I’m doing internally shrinking because of those pressures. I can’t hire technicians. They’d rather work in your shops.”

So what does it take for a dealer to get a contractor’s attention? Not so much your latest deal on a piece of equipment, Elsperman said. He then outlined what would intrigue him: “Know our equipment, help us work with what we have and take an interest in what we’re bidding. We don’t know what we don’t know, and if there’s a machine that you have that would help a project and make us more competitive, we’re interested.”

Lanham also advised dealers to “understand the makeup of our fleet and the psyche of our company. Understand why we use certain pieces of equipment in certain applications.” For example, he said, Williams Brothers’ dozer selection is not based on the amount of dirt that needs to be moved, but rather what machines can get a permit to move easily through a downtown.

Herold asked dealers to “tell me something I don’t know. Make me look good when I go back to the board. Bring me something that’s going to help our business.”

Also realize how critical subcontractors are to a contractor’s business, Herold said. 
“If you help make them more productive so we can get better pricing, we can get more work.”

Dealers should also be prepared for some fundamental changes in the industry, adds Lanham: “We’re on the cusp of some fundamental change. I can’t tell you what you ought to do, but be ready to take some bold steps because some things are going to shift.”
 
Educational sessions

Summit attendees always have a wealth of choices in educational sessions. Here’s a synopsis of a few that Equipment World sat in on:

Right to repair: Like a legislative twister, the movement known as Right to Repair (R2R) is zigzagging across the continental U.S. with varying degrees of force – touching down so far in 14 state capitols with bills written so broadly that the CE industry has been pulled into the political storm, said an AED Summit panel.

Five states have been identified as medium risk for R2R legislation by the Coalition Opposed to Illegal Tampering, the multi-industry coalition against R2R. Another eight states have some vulnerability to becoming future battlegrounds, says the coalition. Today, Maine and Minnesota are the two most volatile theaters.

While on its surface R2R has a ring of equipment-owner fairness and common sense to it, the language of these bills offers little sense for CE manufacturers, dealers and customers, according to the panel.

The potential stakes are high, said panel members. Such legislation could give unrestricted access to a machine’s embedded software and digital componentry and affect equipment safety and emissions compliance. A dealer’s aftermarket business could also suffer – some bills, like the one in Minnesota that narrowly averted a House vote, would mandate that OEMs sell repair parts direct to owners and independent repair shops at dealer net price, according to George Whitaker, manager of state governmental affairs for CNH Industrial. He said it’s nothing short of government overreach.

“Right to repair is really a misnomer,” Whitaker said during the panel. “We support the right to repair as OEMs, and I know you, as dealers, support your customers; you help them in any way to reduce downtime and keep them operating. So fundamentally we all support the quote-unquote right to repair. What we can’t support is what we see too frequently in the language of these bills, and that’s the right to tamper; the ability to get into the operating code of the machine, to change the emissions controls, to change safety, to change the operating specs of the machines.”

ASC 842 Lease Accounting changes: Over the course of about five years, the Financial Accounting Standards Board has been evolving a new accounting standard (ASC 842) about leased equipment, and both lessees and lessors will be impacted. According to an informational website, leaseaccounting.com, ASC 842 represents a significant overhaul of the accounting treatment for all equipment leases across the U.S. 

Lauren Gibson, CFO at Gibson Machinery, said the best news presently is that the standard has been deferred and will now take effect for company calendar years starting after Dec. 15, 2020. The other good news for CE dealers is that ASC 842 does not affect equipment leases for periods of less than 12 months.

Where ASC 842 gets sticky is on the balance sheet – Gibson explained that today when a unit is leased, it’s simply an expense to the person leasing it, and it’s rental income to the dealer, who is the lessor. But with the new standard, “the lessee would have to put that machine as an asset on their balance sheet,” she said. “And since an asset can’t exist for two different companies, the lessor who owns that piece of equipment will have to de-recognize it from their balance sheet.”

Needless to say, the sudden disappearance of assets on the books might stir up some scrutiny and “difficult conversations” with dealers’ banks and credit institutions, Gibson noted, but the ensuing ASC 842 explanation will be clear enough.
 
She added that all leased equipment applies, including things like the copy machine dealers might lease from an office supply company. 

“I would advise you to speak to your accountants about this, because it is much more complicated than just looking at your equipment rentals,” Gibson said. “The first step of applying the standard effectively is to build a population of all of your leases. Again, this is something best left to professionals – I will be consulting with my accountant.”

Advancing technicians: While the demand for equipment technicians continues to far outpace the available supply in many regions of the U.S., Vermeer Southwest implemented a new initiative last year that turns transparency into a tool – one they believe will make them a more competitive employer, according to Larry Kayton, who manages the dealer’s IT and finance departments. 

The dealership created a tier-based program for the service department that clearly spells out for new and existing techs what it will take for them to advance within the department. Similar to a college system of credits, the dealer’s new incentive package puts most of the onus on the employee to work toward and manage their own promotion strategy.

“On Day 1 when you walk through our door, you now have a document that will let you know what it’s going to take to work from Tier 1, 2, and 3 to the Master Tier,” said Kayton. “For example, there might be 100 credits available and you need 80 credits to move from one area to another.” 

A credit, he added, could range from having the right tools and demonstrating the ability to change oil to having skills to train others. Taking required online classes and passing various tests in hydraulic and electrical systems, for example, are also part of the program’s process for earning credits. 
 
“They can move up at any point in time,” Kayton said. “We’re leaving that to the technician to develop on his own with his manager.”
 
So far, Kayton says the advancement road map has been well received by younger, new technicians. “They love walking in the door knowing what it’s going to take to get from Point A to Point B within our dealership,” said Kayton, “and be able to grow at whatever rate they choose.”

Vermeer Southwest’s program isn’t mandatory, but he said it’s an “extreme gain” to give their people a clear option for growth within the dealership.

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