Out With The Old
And in with market realities that are here to stay.
During the 1990s the strength of equipment markets spoiled us. We came to expect increases in sales and profits.
Then the bubble burst. The stock market brought investments to their knees. Depending on your market and perspective, the heavy and light industrial equipment bubble burst in the latter part of 1998 or early 1999.
Since then, dealers have tightened their belts. They’re curtailing discretionary spending, reducing inventory and cutting staff. But too many waited for too long to take remedial action.
The problem is that dealers allowed their spending to increase out of proportion with the expansion of their business. Take a look at your business level for 2002. Then go back until you find a year of an equal amount of gross profit. Look at your expenses for that same period.
Are your current operating expenses in line? Probably not. In the departments where those expenses are out of line you’ve lost profit productivity.
When markets are strong, there are several immutable truths:
- High profitability and sales,
- High market share, and
- Product differentiation in the form of availability and structure.
The dilemma, however, is that strong markets also breed:
- The lowest need for productivity,
- The lowest need for support services, and
- The lowest need for selling skill.
But when the market tightens up, dealers have:
- Lower market share,
- Lower profits, and
- Little product differentiation.
But it is in just this type of market that dealership most need:
- Superior support services, and
- Exemplary selling skills.
You can’t just flick a switch and make that kind of change. Many of you are barely holding on, hoping that markets will return to “normal” and everything will get better.
Don’t hold your breath. The market is what the market is. It’s time dealers started managing their businesses in a manner that reflects the new market reality. By most accounts the business levels equipment dealers are experiencing now are here to stay for the next three to five years. The wild card is interest rates, which are certain to go up.
And don’t forget customer and employee satisfaction. It’s tempting to look at parts and service and reduce the number of employees. But look at the gross profit in parts and service and make the adjustment based on those levels.
The overall consumption of parts and service per machine operating hour is going down. That’s good news for your customers because their owning and operating costs are going down. They should be making more money. Dealers need that to be true for their success, too.
Don’t do anything that will jeopardize the level of service and satisfaction customers get from your dealership. If you do, you’ll put the entire business in jeopardy.
Communicate openly and frequently with employees, because they provide the service that your customers expect and demand. If they’re unhappy, customers will see it.
Management is about making decisions. It’s time that dealers started taking action to emerge from the malaise.
I know you can do it. A new year is the perfect time to start.
About CED Magazine
Kim Phelan, Executive Editor, CED Magazine
Construction Equipment Distribution is published by Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada.
With CED, content is king. No fluff, no advertorials – CED just gives AED members what they want to read: business information, industry and association news, plus fresh, original and useful feature articles that they share with their management teams. Our subjects range from rental, product support, sales strategy and customer service to technology, construction markets and legislation – and much more.