Dave Baiocchi

2019 awaits!

Posted on Oct 20, 2018 in Features

This is the time of year when we turn our thoughts and efforts to trying to forecast what will happen in the upcoming year. 2018 brought this industry a lot of opportunity. Both OEM’s and dealers alike posted some record performances.

Will the ground in 2019 be just as fertile? We are all cognizant of recent political and economic developments that have had both positive and negative effects on our businesses. I want to take a minute and discuss some of the recent events and trends that should be on our radar as we attempt to develop our forecasting for 2019. Some of these are positive, some are negative, all need consideration.

Geopolitical and Economic Events and Trends

• 2018 Tax Break!

There isn’t a dealership in the country that wasn’t affected by the fact that the IRS will only require 20% of your hard-earned net profit in 2018! Many dealerships in expectation of this windfall reinvested in their businesses, improving facilities, updating rolling stock, and hiring additional team members to take advantage of a surging economy. Will this continue? It’s hard to say. By the time this column is published the mid-term elections will be upon us. Political power could swing one way or the other, with tax consequences surely hanging in the balance.

• GDP Growth!

Without regard to the political outcomes, our economy has not seen this type of growth in a long time. Long term predictions of 3 to as much as 4% growth will continue to stoke the fire that drives our industry.

• Interest Rates!

The federal reserve will no doubt continue their 2018 trend by trying to control an overheated economy with multiple raises in interest rates. Many dealers have reaped the benefits of low interest rates for more than a decade. In doing so, we have grown accustomed to having plentiful inventory of both parts and machinery. It seems logical to me that the increasing cost of funds will lead to adjustments in OEM incentives and flooring programs. When formulating a forecast, adjusting your inventory expectations will be a key component of maintaining profitability. Now, may actually be the time to borrow funds, or participate in a rate swap, in order to lock in lower rates on longer term financial obligations, instead of using short term operating capital that may be affordable today, but will no doubt get much more expensive in the future.

• Section 179 accelerated depreciation!

In recent years, the section 179 bonus depreciation provisions helped dealers and customers alike. The only downside was that the depreciation value was capped at $500K. These accelerated depreciation allowances were reinstituted by the government with the passage of the Tax Cut and Jobs Act in December of 2017. The new law increases the cap to $1M, and also widens the range of equipment that qualifies. These provisions have also been extended through the year 2022. The effect of the new law should provide ample incentive to lift truck customers to update their rolling stock as they look for ways to curb their tax obligation in an improving economy. The law also makes it more attractive for dealers to expand both their short and long-term rental fleets.

• Tariffs!

The 2018 tariffs on foreign steel and aluminum had a direct (and some would say devastating) effect on our industry. It still remains to be seen how all of this will play out. Existing inventories may give some OEM’s a short-term advantage, but the bottom line will most likely be an increase in price for all OEM’s, which subsequently will mean a larger than normal year over year increase in retail pricing. Both parts and machines will be affected. When forecasting for 2019, it makes sense to formulate a pricing policy that accounts for the effect rising prices will have on your inventory as a whole. It pays to remember that tariffs are a tool being used by the government to evoke a particular result. The short-term pain we may feel as a result of the tariff may in fact lead to a solution that serves us well in the years to come. It is however a reality to be dealt with. Proper inventory control and consistent pricing policies are the keys to success in this regard. Remember that EVERYONE in this industry is facing the same problem.

Industry Specific Events and Trends

• Evolution of Lithium Ion technology!

I’ve seen this coming for some time now. Lithium Ion is the technology of the future. We don’t yet have long term performance data, but by the end of 2019, we will know what kind of an effect L-ion batteries will have on our overall sales plan. Currently there are only a couple of manufacturers that have active current production equipment utilizing these batteries. L-ion lacks the minimum weight that most conventional electric forklifts require so units have to be completely reconfigured. New models are already being engineered and field tested by the major OEM’s, so we can expect that their next iteration of an electric forklift will be powered by the new technology.

What does that mean to you? Think about it. L-ion is vastly different from lead-acid. Starting in 2019 you need to start crafting a game plan to phase out of old technology and phase into the L-ion world. Consider the ramifications it will have on your rental fleet, charging systems, customer fleet conversions, used equipment values, and lease returns, not to mention new equipment inventory. Knowing when your OEM plans to make the jump is a good place to start. Already having a conversion plan in process is even better.

• Manpower and Recruitment!

This continues to be the crises of the moment. If customers who are sensitive to the rising price of equipment, choose instead to extend the use of their current machines, the benefit to the dealer is increased service opportunities. It’s difficult to exploit that opportunity when you can’t find qualified mechanics to perform the work. We all complain about the technician shortage, but there are very few easy answers.

I would suggest the following 5 ideas to grow your service ranks:

1. Automotive Technical Schools. Trade schools like UTI and Wyotech have expanded their curriculums in recent years to include more industrial training in hydraulics, diesel power, and electrical systems. Although many of these graduates want a job at the Ford dealer, you will always find some that are attracted to a more industrial setting. This however takes diligence and “showing up” and the job fairs and events that the schools sponsor.

1. MHEDA education partnerships. MHEDA has partnered with the Manufacturing Skills Standards Council to create a program that trains and certifies technicians for our industry. The certified logistics technician (CLT) and certified forklift technician (CFT) programs will fully train competent candidates for the overabundance of technical positions currently available. To find out more on this program visit: https://www.msscusa.org/cft/.

1. FFA and 4H programs. Go to the county fair. Talk to the kids that won the awards for welding and farm power projects. These kids usually have a head start over your green apprentice PM employee, and like working with their hands.

1. Military motor pool. Although the available talent here has been thinner than it was in years past, having contact with a liaison at the local air force base, or navy yard isn’t a bad idea. These men come with good training and are looking for life after the military.

1. Home Grown. If you don’t have a continuous development program with new employees ramping into entry level training on a quarterly basis you will run out of candidates in a hurry. The oil and grease guys at jiffy lube may not look like your best option, but if you invest in them over a longer term, you will have a better than 50% shot of developing a pretty good employee. This takes more time and money than most dealers have been willing to spend, but it really is your only long-term sustainable option. You must also task your shop foremen, and senior techs with training duties on an ongoing basis, and move these newer guys toward self-sufficiency as quickly as possible.

2019 will REQUIRE more boots on the street, and more vans on the road. I would estimate at least a 10 % increase over current FULL staffing levels. Put your tech development program in place as a part of your 2019 forecast. You cannot grow a service department without hiring technicians. Their hours are the department’s only stock in trade.

Forecasting is no easy task, and it shouldn’t be. It should require a historical analysis, resource and investment planning, and consideration of industry, political, and economic conditions that could affect the final results. That’s a much more daunting process than adding 5% to last year’s numbers……but the outcome is normally worth the work. 

Dave Baiocchi is the president of Resonant Dealer Services LLC.  He has spent 35 years in the equipment business as a sales manager, aftermarket director and dealer principal.  Dave now consults with dealerships nationwide to establish and enhance best practices, especially in the area of aftermarket development and performance.  E-mail [email protected] to contact Dave.