Articles

For the past few years there has been a rather disturbing shift within our businesses. It has started slowly and perhaps has not yet been experienced by some of you. But of one thing you can be certain. The consumption of parts per machine operating hour is in decline.

For many of you the overall business has been growing so this is a very difficult shift to detect. But it became obvious in my consulting business starting as early as 1996.

Many of the larger dealers with strong market shares are seeing the drop in parts volume and are beginning to be alarmed. Why? Well, I believe the answer is quite obvious. The profit contribution from the parts departments in most dealerships is very substantial. In fact, it is the bedrock on which most of the business models in use in our industry have been based. Without this contribution we will be searching out differing ways to run the dealerships.

What Causes The Drop?

This drop in consumption has been predicted for some time now. Why is it happening now as opposed to earlier? To answer that question we have to look at three significant changes that have taken place over the past 10 years.

First is the quality of the equipment. Machines are so much more reliable today than ever before. Manufacturing methods are more precise. Specifications are more stringent. Materials in use are better. Computerized manufacturing processes and robotics have made results more predictable. Computer controls on components, such as engines, have minimized abuse of operation. There are many measurable, factual changes that have contributed to this improvement.

Second is the change in the type of equipment in use. The machines are smaller. As more capability is built into machines there is less need for all the “heavy iron” that used to be working. Excavators and loaders are performing a much stronger ratio of total hours worked than before, and tractors and scrapers are performing a weaker ratio of the total hours worked. The trend to the use of first loader backhoes and now skid-steer loaders and miniexcavators takes us further down in size.

Finally is the age of the machines in use. Contrary to what is happening to us humans, fleets of machines in use are getting younger. One of the interesting results of the increase in rental activity is that the equipment used by contractors is quite a bit newer than once was the case. Remember, there are some who believe that the consumption of parts on machines manufactured in 1999 is less than half what it was on a machine manufactured in 1979. Isn’t that a frightening thought?

Dealer Management Measures

At least since the early ’80s many dealers have been following a series of differing, yet consistent, business models. Most of these models were predicated on financial measures and were aimed at helping dealers understand how to operate and manage their dealerships without risking the devastation that happened between 1981 and 1985.

The measures are financial in nature, typically, and as a byproduct of this we are operating at staffing levels that make our job in the marketplace difficult. Sales per employee have put a cap on the number of people in the parts departments at the expense of customer service. The cost of a personal sales call has limited the number of salesmen we have in the field. The concern for profitability has minimized if not eliminated our use of apprentices and helpers in the service department, which is a significant contributor to our shortage today of skilled technicians.

With the reduction of consumption of parts in the operation of equipment, the only way that we can maintain our current parts volume is to increase the percentage of the parts business that we attract. To attract more parts business we have to have better market coverage and better inventory support. These two items have been severely challenged by the “financial measures” imposed on dealers by the use of static business models.

The arrival of the public rental companies has significantly shaken the traditional levels of new and used equipment sales. Get ready for the next body blow. The volume of parts sales in your dealership is starting to go down.

I was sitting with a distributor one evening a few weeks ago and was listing all of the things that have changed and are currently being challenged within our industry. It became a long list. At the end of this expose I stopped and said, “Imagine how lucky we are to be working in this industry at this particular time.” My client, Jim, looked at me and with a straight face replied, “Only a consultant could say such a thing.”

It is a daunting challenge but one that has many, many different solutions. The question, really, is will we get ahead of the curve or will we wait until there is a sense of urgency to do what needs to be done? Management’s role is to see into the future and protect the customers, employees and owners from the pitfalls. Let’s not wait too long.