Remember the TV program “Hill Street Blues?” It was one of the most popular cop shows on TV. At the beginning of each show the sergeant would brief the troops and his last statement to end the briefing would always be “Let’s be careful out there!” Good advice for their line of work.
This month I am going to give you that same advice. Lift truck dealers…..Be careful out there. Why? For a lot of reasons. Some of these being:
Disruption is with us
Business is very good right now but as we all know the lift truck market can turn on you at any time. But this time is different because the entire material handling industry is going through disruption just like many other industries. Consequently, just riding out the storm (recession) that is sure to come may not be enough this time.
I believe we can all agree that OEM’s would love to have fewer dealers to deal with. So they will help consolidate the industry and as a result be able to improve their marketing and sales effort, increase the number of national
It is also no secret that the equipment distribution model is moving to a more value added service as opposed to a transaction where customers have to own or lease units. In short, they would rather just have units available as a service to move product when they need to move it. If they could avoid negotiating to purchase or lease units with associated maintenance services, and still find a way to have the utility of the units on hand to move product, I am sure they would consider it. Does this sound like a pure RTR transaction?
It does sound like a pure rental transaction because that’s what it is. A rental company owns 100% of the equipment and the associated ownership and operating risks. It a unit breaks they fix it or replace it. If a customer needs more units the rental company will add them. If the customer needs fewer units they can return the excess units to the rental company. The customer only gets what they really need and want – to move product when they need to at the lowest cost possible.
Could your company deliver this type of transaction? Maybe, but only after a lot of changes are made, some of which will lead to interesting discussions with OEM’s.
The point here is, even though you have plenty of experience riding out recessions, this time your ability to recover lost gross profits that get you back to a 100% absorption rate may not be there to take advantage of. Unit sales margins will be further squeezed. Parts sales may not recover and your ability to renew profitable rental transactions may be almost impossible to do.
It will take time for a lot of these changes to take place, but they are on the way and require every dealer CEO to take steps to investigate and mitigate these industry changes so that company profits and shareholder value are at least maintained at current levels.
The value of a dealer seems to ride with the economic cycles. And most of you are pretty good making it through the recession and recovering lost value caused by the downturn. But what it is worth today may not be attainable five years from unless ownership takes steps to go with the flow and adjust their income steams to meet projected market conditions. From my perspective if you are close to getting out, now may be the time to investigate that option.
How to protect your investment
Really evaluate where you are with your dealership. No BS allowed. Be realistic. The numbers should be good right now, good enough to prepare a reasonable estimate of what it is worth.
Also evaluate your ability to find other income streams you can sell to your customer base other than lift trucks. See if you find some related lines you could give you a higher absorption rate.