A Winner or a Loser?
I spend hours on a daily basis reading and listening to information regarding the equipment industries, rental industries, and the economy in general. Summing up all that has transpired and presented to me by various sources since the beginning of the year have provided me with enough to write a book about. But don’t worry, we will cover the major points in this month’s contribution to MHW.
I decided on the Winner/Looser title after attending an online seminar presented by Nomi Prins via Rouge Economics. I really enjoy her almost daily emails and find them quite useful. In an event, Nomi started the presentation by stating that every time Congress passes a major spending bill both private and public companies will EITHER fall on the “WINNER” side or the “LOSER” side because of the changes in our laws or plans contained in the spending bill. Kind of makes sense. Nomi then went through a few examples, and it even made more sense.
For example. As EV products increase the demand for the materials to produce batteries increases as do the prices for these materials. WINNER – Mining companies as well as EV parts suppliers. LOOSER- Car or vehicle manufacturers will have to increase the price of their products as well as lose future parts and service business.
I also read an article in the European rental magazine and find that OEMs in Europe are selling more and more products direct to rental companies and end users. In another publication, I see that the demand for EV products is in high demand. Selling direct means dealers are being transformed into service providers, who are going to lose work because EVs require less maintenance and are made up of fewer parts. What do dealers do with their current fleets and how will the valuation of those units impact dealer sustainability and solvency?
Another comment in the EU publication noted that there is a buying frenzy in terms of OEMs. If this takes place you have to believe that the consolidation of dealers is close behind.
You get the drift…..The demand and requirements of conversion to EV are creating both “WINNERS AND LOSERS”, which can generate benefits if dealers plan to put themselves on the W side. Dealers with access to capital can do this. Hedge funds will jump on the bandwagon to assist as they have been with related industries.
This consolidation may already be in the works. I work in Chicago and in the rental business and within the last five years the major public rental companies have bought out privately owned dealers and rental companies to the point where there are only a couple of independent rental companies in the market. As they say on TV….”What’s in your wallet?
Some good news on the manufacturing front. The growth of annual reshoring and foreign direct job announcements increased from 6000/year in 2010 to 350,000 /year in 2022. Who will be the W or L regarding this change? All I know is after seeing the internal operation of the Tesla plant in Texas I did not see a lot of people or lift trucks moving materials through the process. Robots were doing most of the work. How will your company plan for this opportunity? Material handling dealers benefited from the expansion of distribution centers to bring completed products closer to end users. Do your products and services supplied on the distribution side carry over to the manufacturing side? Are OEMs addressing this opportunity to help you understand this new revised market? You have to assume that EVs will be a big part of the manufacturing question as well.
I also listened in to the Davos meeting last week. They had Jamie Dimon from JP Morgan Chase on and asked him about his comments regarding a recession in the offing. He replied, “As CEO of JP Morgan Chase I have a responsibility to plan for any and every event they can think of”. A recession. Expansion. Interest rates. Inflation. Deflation. The length of the rate hikes. China coming back into the world economy. Energy costs. Customer exposure and so on. In short, do not stick to one program without having an “out” if you need it. Dimon said they are reviewing their risks three years out.
Speaking of China, what happens this year in China will impact the war on inflation and the number of rate hikes. If China’s consumption rebounds, it could drive prices considerably higher. And the L could be manufacturers and distributors who find another round of price hikes to deal with.
So where do material handling dealers fit into this crazy economic maze? Probably on the W side in some cases and the L side in terms of EV and solvency issues. What you can probably count on is the inflation battle will be longer with interest rates higher for some time, especially if China steps up economic activity.
As part of your thought process, I would get a handle on what your company is worth. What you can do to improve that value. How you can blend in with the EV dynamo. How you can add value to current customers. How you can add value and provide needed services to manufacturers. And one last off-the-wall consideration is whether you have any children interested in the material handling business.
I ask about the children because I work on a number of M&A projects and find that a well-run profitable business isn’t being passed down to the next generation. When I ask “why?”, I am told they are not interested. Unfortunately, I find this to be the case 80% of the time. Drives me nuts.
A lot to think about. …..and plan for.
About the Columnist:
Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail [email protected] to contact Garry.