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December 2017
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Where do dealers cut back this time?
John Walker
John Walker

For those equipment dealers who do a lot of reading or attend seminars covering their industries, it becomes apparent that many of the industry indicators predict a slowing of economic growth throughout North America and Canada.  Is this rocket science?  If you study industry trends and cycles over the past forty years you know that no matter what your business is, it is bound to down turn on almost a predictable basis.

New equipment sales are down in farm, construction, industrial lift truck, outdoor power and material handling industries.  Lift truck sales are reported off as much as 12%.  Yet as one business writer states: “The reality of ups and downs (business cycles) are inevitable, and wise business managers expect them, plan for them, and try to use them to their advantage.”

Most equipment dealers and most manufacturers in a down turn market recognize the need to cut expenses dramatically.  The question is:  Where/When should these cuts be initiated?  Is it personnel?  Is it hours?  Is it services?  Is it inventories?  If it is people is it by department, by seniority or by plan?  If it is by hours do we question the effect the cutback will have upon our customers?  If it calls for a cutback in customer services, what effect will this cut back have upon our present and loyal customer base?  If it is inventories and if it is the dealership’s parts inventories then that is something the dealership should have considered even when times were good.

In the past most equipment dealerships in a down turn market have looked at their aftermarket as an area for cut backs.  Most equipment dealer principals had a sales background and the easiest way out of a down turn in business was to make more sales calls.  The parts business was guaranteed and the service department was only a necessary evil.  Therefore when business went south, the aftermarket became vulnerable for cutbacks.

Today, most everyone recognizes the difficulty of finding, hiring, training and keeping good technicians.  Therefore, a good service technician has job security and certainly can find employment elsewhere if he/she fails to make the cut.

For the past 35 years we have urged equipment dealers and manufacturers to look to their aftermarket, not only in those great sales years, but in those years when their equipment sales go flat.

To that farm equipment dealer who was making 5% gross profit on a $165,000 tractor and 65% gross profit in his shop, but whose service only represented 6% of his total business, we hope you’ve made the change over the past years and have focused upon your aftermarket opportunities.  If not, the next couple of seasons could be disastrous to a whole lot of equipment dealerships.

It stands to reason that aftermarket sales opportunities should increase during a market down turn.  After all, customers are not buying new equipment and therefore they are making due with their old equipment.  This older equipment will eat up both parts and service.

To this, many dealers reply that during the down turn they also see a decline in their parts and service sales.  We might well reply:  If you weren’t out hustling your aftermarket during the good times, what makes you think the customer is going to automatically buy from you during the bad times?

Do you want some immediate service business?  Try this:  Take a list of customers who have purchased equipment from your dealership spanning a period of five years. Review this list with your service manager to determine who is not using your shop for service on the equipment which you sold, after warranty has been performed.  Now demand that someone, be it your CSSR, your service manager or at least your best equipment sales person out there calling on these clients.  As we pointed out in recent articles the number one reason why dealers are not getting their client’s service business is that no one is out there calling on the customer asking for that business!

Sure, you’ve got to cut expenses but do so with a plan.  Analyze the effect these cutbacks may have upon your dealership down the road and particularly when the market turns around, as it most certainly will!  We know of one successful manufacturer who strongly defended the policy of 24-7-365.  (Service to customers:  24 hours a day, seven days a week, 365 days a year.)  Unfortunately, the minute they faced a downturn in sales the first thing they did was cut back on service hours and personnel, thus making it impossible for their dealers to provide the necessary level of service to their customers.

Is the glass half empty or half full?  Maybe now is the time to step up the aftermarket services you supply to your customers.  Take a hard long look at your dealership’s financial statement.  Play the game of “What If?”  What if you were able to increase your customer service sales by a mere 10%?  What if your service manager were able to improve billing efficiency by as little as 5%?  What if you finally decided to raise your labor rate by nothing more than $5.00 an hour?  What if you decided now was the time to add a second shift to your shop or to add a couple of road technicians?  Measure the effect that any one of these efforts might have on the bottom line of your company.

What effect would any or all of the above have upon your parts sales?  We have written and discussed for years that service is a key element for increasing the equipment dealer’s parts sales.  Sell the service and your dealership will sell the parts. We have surveyed our clients and those who have truly marketed their service departments have recognized an increase in overall parts sales of 16%, 18% and some are pushing a 20% increase.

Think of this:  If your dealership went to a second shift in the shop, not only would it cut back on your paid overtime expense (which unfortunately most dealers don’t bill to the customer) but it would increase your dealerships parts sales.  Someone would have to be there to supply the technician’s parts, so that same person could also provide parts to customers who are searching for parts at unusual hours.

Measure everything:  Before you make those cuts you believe must be made, measure the effect the cuts might have upon your business.  Decisions made in haste can have a dramatic effect one way or another upon your future business.

Recently we finished a series of seminars across the country for over 150 Customer Service Sales Representatives; those representatives whose major responsibility is to increase the dealer’s aftermarket sales to the customer.

Throughout the course of these meetings we continued to hear that these CSSR sales personnel, as a general rule, were not being measured.  Think about that!  Most of these professional sales people were not being measured against any particular standard.

Was this a bit scary to hear?  You bet it was!  Since there is no measurement, no one knows for sure how profitable the position really is and therefore, if cuts are called for and the dealer has no idea as to the success or value of this position, he then has no justification for maintaining the position.  Therefore, we may end up cutting an expense that will ultimately have a disastrous effect upon your dealership’s bottom line.

Look carefully, measure, examine and think thoroughly through any expense or personnel cuts you may have to make.  Don’t cut back on those areas that may provide the opportunities you need to fend off declining equipment sales.

John R. Walker is president of Aftermarket Services Consulting Co. Inc. E-mail to contact John.