What does it all mean?
I smell another paradigm shift…..or it just a continuous disruptive process impacting the equipment business that normally operates through a supply chain made up of Original Equipment Manufacturers (OEM’s) and Dealers (that you).
Since I work in three different equipment venues (lift trucks, construction equipment and rental equipment) I guess I hear and see a lot of material specific to each venue. The problem is it is all starting to blend together, and you start wondering why you are addressing a certain topic for “this” venue when it belongs with another. Or maybe you read something about venue one and think “Didn’t I just see this re venue two?”
For example:
You keep seeing references that “equipment rental” will increase by 30+% by the end of 2018. And then when you review a major rental company’s financial stats you see that 50% of their business is categorized as “industrial.”
Another example may be the request being made by the owner of a lift truck fleet walking into the rental company I work for and asking if we can maintain his fleet. “Of course”, we said.
And it certainly is not unusual for lift truck dealers to be renting construction and ag equipment.
Add the trend of OEM’s to sell direct through national accounts which is a transaction similar to OEM’s selling to rental companies.
Then you hear today that two large Cat dealers merged to form one company that basically covers six states.
Another Cat dealer acquired two other large Cat dealers.
Telematics is changing the way equipment is purchased, maintained, repaired and disposed of.
Certain OEM’s are starting to recondition used equipment back to a zero hour machine which costs considerably less than a new unit.
The overall increase in rental activity scares the banks if “new” rental operations do not have rental savvy management personnel.
I could go on and on but no matter what I list here you have to stop and ask….”Where is all this taking us?” And you?
Well, what do we know for certain?
Consolidation will continue.
OEM’s will sell direct if they can.
OEM’s have to have a rental presence.
Larger dealers mean more efficient dealers with lower costs they can pass along.
National accounts prefer to deal with larger dealers.
OEM’s making investments in dealers.
Technology will drive productivity.
Customers will be attracted to tech savvy vendors.
There are efficiencies waiting to be had.
Outdated technology = employee frustration.
Telematics will change the industry.
I think where I am going with this is the bigger, better capitalized entities, able to attract employees with technical knowledge, will do more with less, better communicate with customers and provide customers with the lowest cost of ownership and operation.
Can smaller dealers’ compete? Sure they can if they embrace technology and spend most of their efforts providing excellent product support. They may find it tougher to compete on equipment sales, but using rental, parts and service provided by experienced, well trained techs can make the difference.
Is it possible that smaller dealers just provide service? How about rental and service? How about rental, only buying used units (20% less than new) for the fleet, and service? How would your model look if you didn’t have the equipment sales drag to contend with? Bet you would be pretty competitive against the other players in your market still trying to sell new units.
How about providing service to rental companies and large industrial fleets, and renting them short-term units when they need it?
All I know is this continuing rental surge will eat into the material handling market as more rental companies push their business into the “industrial” market.
A little far out this month it seems, but when equipment users learn from their telematics what the true cost of ownership is they may switch more to rental and leave the dealers and rental companies with the risks of ownership and operation. Thus, it is possible the sale of new units could slow putting pressure on OEM’s and dealers.
I guess if wanted out before the Big Depression it may be time to address those needs again before you have to invest a lot of bucks in the business to keep up with your peers.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail [email protected] to contact Garry.
