Times are tough and they may get tougher!
My name is John Walker and I am the eternal optimist. Right now times are starting to get tough and quite probably this business trend will continue to get even tougher, but all the old-timers, such as myself, realize it is only a matter of time until the market reverses itself. I was born smack-dab in the middle of The Big One and I have survived by my count,12 business cycles, with the 13th coming up. Along with being an optimist I am bullish on the equipment dealer’s aftermarket or product support. Times like these provide the equipment dealer the opportunity to survive and prosper in economic and downturn markets, now and in the future.
During my junior and senior years of college, I took a course in economics entitled: Economics & Communism. Two of the courses’ reading assignments were Karl Marx’s Communist Manifesto and Das Kapital. I vividly recall reading his comments concerning capitalism’s containing the seeds of its own destruction.
What Marx (I believe) was referring to was the business cycles that are common in a capitalist society. Where he misses the mark (I believe) was that he felt these cycles would continue to increase in severity until the economy failed and capitalism was destroyed. Marx wrote this in the late 1800s and early 1900s, but it was communism that failed and not capitalism, the walls came down in Germany and communism failed dramatically in Venezuela and Cuba.
Marx was wrong but he was also (I believe) partially correct. A capitalist society does have cycles. These cycles fluctuate between various industries, but are easily predictable. I know a president of a large lift truck dealership who, early on, developed his sterling reputation by predicting lift truck market cycles and he today readily admits that this is not rocket-science.
Shortly after finishing my military service I took a job selling farm equipment. It didn’t take long to discover that every five to six years the markets would drop off a high. After a year or a year and a half, they would pop-up again. Most all business are cyclical and if you don’t believe me check out your own financial statements; pull five-years, 10-years, 15-years or more and see if you can find the cycles in your own business.
This is my point: As long as we are in business we are going to face market cycles that turn down. That’s the bad news. The good news is that somehow we always come out of these downturn markets. The question is: When will we learn? Despite the fact that we know that slowdowns are eminent, we continue to produce like there is no tomorrow. A recent speaker announced to his audience that there was enough construction and farm equipment out there (in the show rooms & used lots) that manufacturers could go 18 months without producing a piece of equipment for dealers to sell.
The same holds true in other industries. We have seen what we will call overstock in almost all those manufacturers who distribute through a dealer organization. Suppliers continue to seek more sales of their equipment and increased market share no matter what is transpiring within their market places.
We continue to ring our hands and cry that the sky is falling. Like so many times in the past we were told to tighten our belts, cut back on expenses and personnel. This of course makes some sense, but where do we cut? We have a whole lot of equipment in stock and we need sales people to sell it, so we don’t cut there. Maybe we can lay off a few techicians, even though we know it will be hard to hire them back after the market turns upward, so we lay off a couple of counter personnel because that business is guaranteed, or so we think.
With the exception of those dealers who learned during the last down turn that the aftermarket is not the area in which to cut back, all too many personnel hits come in the area of the aftermarket. We have discovered this same situation is true at the manufacturing level and the sacrificing of highly trained and experienced personnel is achieved by the offering of early retirement. These solutions will hit hard in a year or two when the manufacturers will question why they left such experienced personnel leave.
For those of you dealers who have read our articles for the past four to five years it is not too late to change and survive. Look to your product support sales and profitability to help you through your tough time. How many of you have told yourselves at some point that now is the time to focus upon what I have long called the equipment dealer’s unknown opportunity? How many of you have done this several times only to tell yourself you didn’t have the time or personnel to get around to it, and let the opportunity pass you by?
We’ve experienced many dealers who have taken the challenge, they checked their records to discover those customers who operate the equipment they bought from your dealership, they have checked and discovered which of these dealers are not using the dealership’s product support, they have sold that customer on coming back home to purchase the dealership’s quality service and parts availability. These dealerships have asked for and received this lost business and have experienced the tremendous profits afforded by increased sales of parts, service and rental.
These dealers and several of the smarter manufacturers now have a greater understanding of the importance of the aftermarket and how value-added selling of the dealers’ aftermarket can increase market share of their product and overall profitability of the dealership.
Fortunately (although it has taken years) a whole lot of equipment dealers and yes, some manufacturers are showing a tremendous amount of renewed interest in 100%+ Absorption Rate! This means a financially healthy dealer and a dealer who can survive and weather market turndowns. Yes, market share is important. It has always been a chicken and egg scenario. You can’t sell parts and service unless you have sales of complete goods. However, too many forget that if they don’t sell the value-added concept of excellent parts availability and top service response, then the dealership is basically selling a commodity. When this happens price becomes the issue and the dealer makes little profit on the sale, and dealers and manufacturers both suffer.
Strong development of an equipment dealership’s self-feeding profit spiral is beneficial to both the dealer and the manufacturer. A strong and profitable chain of distribution for any manufacturer benefits the manufacturer greatly when seeking new or replacement distribution. It provides the dealer a strong financial statement when he desires to sell and/or retire. The self-feeding profit spiral develops strong customer satisfaction and customer retention through customer loyalty, something which has been missing for years, which in the long run increases that all important market share that all manufacturers covet and we see this as a win-win situation for both dealers and manufacturers.
Hey, dealers, we know it is tough out there and that it well might be that it will get even tougher in the next couple of months. We are out there too, but keep a positive attitude and a smile on your face and get around to it and you will be amazed at how much that helps you get through your day. Focus upon what you must focus upon and that focus will make you profitable. I quote Herb Kelleher, one of the founders of Southwest Airlines, a highly profitable airline, a no-frills airline, which practices both value selling and customer satisfaction: “Market share has nothing to do with profitability. Market share says we just want to be big and we don’t care whether we make money doing it.”
John R. Walker is president of Aftermarket Services Consulting Co. Inc. E-mail [email protected] to contact John.
