April 2013
www.cedmag.com
The Best Dealers Are Team Players
Fleet management veteran Bob Merritt says partnership and transparency are essential attributes that keep dealer and customer on the same page.
Plus:
n U.S. members reveal tax reform priorities n n
Desalination plants represent new opportunity Can safety be bought? Since 1920 Official Publication of
www.aednet.org
1_april_Cover_KP.indd 1
3/25/13 11:51 AM
The Most Advanced Heavy Duty Extreme Terrain Vehicles
Utilities Construction & Maintenance
Forestry & Agriculture
Exploration, Surveying and Drilling Support
Oil & Gas and Mining
• Amphibious • All Season • All Terrain • Up to 6 Passengers • Sales & Rental
• Heavy Duty Quad Tracks • Multi-Purpose, Quick-Change Platform • Low Cost of Ownership • High Operator Safety • Low Ground Pressure FOR DEALERSHIP OPPORTUNITIES CONTACT MARK A. HOLLISTER 813-508-3500 hollister.marka@gmail.com
S I N C E
19 6 7
DAVID J. CAREY 330-802-6811 djc020265@yahoo.com
CLARK RICKE 813-299-2253 clark@federalcontractscorp.com
1-877-274-6288 ARGOutv.com/AED
EX TREME TERRAIN VEHICLE SOLUTIONS -Ad_template.indd 2
2/19/2013 3:19:35 PM
ID-MobileAccess-AD-CED-outl.indd 1 -ad template.indd 1
18/03/2013 10:42:40 3/24/13 12:42AM PM
We saved a spot for you.
THE BEST WAY TO SELL YOUR EQUIPMENT IS TO GIVE IT SOME WELL-DESERVED ATTENTION. We sell equipment from nearly every industry, attracting buyers from all around the world. When it’s your time to sell you deserve the best. Contact Ritchie Bros. today.
rbauction.com
Institutional Ad - Construction Equipment Distributors (Feb Issue)_00016.indd 1 -ad 11 -ad template.indd template.indd
1/18/2012 3:55:15 10/29/12 1:30 PM 1/26/12 2:34 PM PM
Contents
Winner 2012 Journalism Award Construction Writers Association
April 2013 Vol. 79, No. 4
Editorial Team
Executive Editor and Director of Programs Kim Phelan kphelan@aednet.org
Features
from the cover
Get everyone talking about your company’s value.
Contributing Editor Joanne Costin pr@aednet.org
Editor’s Note 7
They’ve got charm and product facts – but is that enough?
Graphic Production eva Belmonte design@aednet.org eva@neggie.net
On the Numbers 47
Gathering your board about you pays excellent dividends.
Columnists
Garry Bartecki AED Vice President of Finance Christian Klein AED Vice President of Government Affairs and Washington Counsel Eli Lustgarten ESL Consultants
Recruitment & Retention 49 U.S. Member Tax Survey Results Help AED Establish Tax Reform Priorities 20 Business deductions and cost recovery issues are among dealers’ top concerns.
Meet fleet management veteran Bob Merritt, global director of equipment at URS’s Energy and Construction division.
Ron Slee R.J. Slee & Associates
View From the Hill 53
House T&I Committee Chairman Shuster is all for innovative approaches.
Inside AED 8 Groundwork 12 Industry Beat 14 Play It Safe 18 Advertisers’ Index 55 Dealer Data 56
Vice President–Sales/ Publisher David W. Gordon 800-388-0650 ext. 334 dgordon@aednet.org
Advertising Sales Manager Albert J. Ramirez 800-388-0650 ext. 311 aramirez@aednet.org
3_April_TOC_KP.indd 3
Aftermarket 51
You don’t hit the bullseye with a nonexistent target.
departments
Advertising Contacts
600 22nd Street, Suite 220 Oak Brook, IL 60523 630-574-0650 fax 630-574-0132 www.aednet.org
How to handle personality testing as a recruiting tool
The Best Dealers Are Team Players 26
Jerry Randecker & Chris Sitter Jordan-Sitter Associates
Production Manager martin cabral 800-388-0650 ext. 313 mcabral@aednet.org
Columns
From the Chairman 5
Plus: U.S. Developing Taste for a New Construction Market: Desalination 30 A $1 billion San Diego County Water Authority project could set the stage for construction of more plants that turn sea water into potable water.
When Disaster Strikes, Dealers Are Power-ful 34
Can Safety Be Bought? 38 An AED-member safety supervisor explores how to create genuine incentives that cultivate a long-term safety culture.
Best Practices 42 The Mechanic Who Cheated Death
Bending the Payroll Cost Curve 44
April 2013 | Construction Equipment Distribution | | 3
3/25/13 11:52 AM
-ad -ad template.indd template.indd 11
12/20/10 PM 2/7/11 11:23 1:45 PM
From the Chairman President & CEO - TOBY MACK Associated Equipment Distributors Oak Brook, Ill.
Why Do We Need a Dealer?
Executive Vice President & COO Robert Henderson Associated Equipment Distributors Oak Brook, Ill.
Be certain every one on your team can answer that.
Officers
Chairman - mike quirk Wagner Equipment Co. Aurora, Colo. Vice Chairman - Tim Watters Hoffman Equipment Co., Piscataway, N.J. Sr. Vice President - Don Shilling General Equipment & Supplies, Inc. Fargo, N.D.
Vice President - Rick van exan Toromont Industries Inc. Concord, Ontario Vice President - whit perryman Vermeer of Texas Inc. Irving, Texas Vice President of Finance Michael D. Brennan Brandeis Machinery & Supply Co., Louisville, Ky. Past Chairman - Larry Glynn CMW Equipment St. Louis, Mo.
At-Large Directors ron barlet Bejac Corp. Placentia, Calif.
Paula Benard C.N. Wood Co., Inc. Woburn, Mass. Gregg R. Erb Erb Equipment Company, Inc. Fenton, Mo. Dennis J. heller Stephenson Equipment Inc. Harrisburg, Pa. Mike Rooney Thompson Tractor Co., Inc. Tarrant, Ala. Michael J. Savastio Groff Tractor & Equipment, Inc. Mechanicsburg, Pa.
Regional Directors Bruce A. Bowman Upper Midwest Reg. Star Equipment, Ltd Des Moines, Iowa
gary frelick Western Canada Reg. Douglas Lake Equipment Langley, BC Patrick McConnell, West Reg. Clyde/West, Inc. Portland, Ore. christopher palmer Northeast Reg. Wood’s CRW Corp. Williston, Vt. Mark Romer, Southeast Reg. James River Equipment, Inc. Ashland, Va. Jeffrey Scott Rocky Mountain Reg. Intermountain Bobcat Salt Lake City, Utah Rick Van Exan Eastern Canada Reg. Toromont Industries Ltd. Concord, ON gary D. Vaughn South Central Reg. OCT Equipment, Inc. Oklahoma City, Okla.
5_fromthechairman_KP.indd 5
By Mike Quirk
Recently I was asked to attend a meeting with a new customer regarding a new product line that we had acquired and would soon be representing. This is a big opportunity for us and I was really looking forward to meeting their management team and introducing them to the key players in our organization who would be working with them on a daily basis. We had been provided a list of specific questions in advance and our team had prepared well. This would be the start of a great relationship. We began with introductions, including the background history of our two companies. We went around the room describing our various roles and responsibilities and what we hoped to get out of the meeting. There was nothing unusual about it. It was something we had done countless times. It was only after we began working through the list of questions when they dropped one that wasn’t on the list: “Why do we need a dealer?” That question should not have surprised anyone. This customer has multiple locations in several states, a long history of buying direct from the manufacturer, and they pride themselves on leveraging their purchasing processes to lower costs and increase efficiency. My response was equally predictable. “That is a very good question,” I said. All I needed then was a very good answer. It truly is a good question that has been asked by customers and manufacturers for as long as machines, engines, parts, and service have been on the market. The answer is a simple one: That a quality dealer brings unique value to the relationship that is tangible and beneficial to the end user. Our team at the meeting brought deep experience, so we were able to provide a thorough explanation of how our dealership’s local investment in people, training, inventories, and facilities would benefit their operations. By all appearances, they could see how our involvement may actually provide significant value to them as long as we deliver what we promise.
We’re confident we can. After all, that’s the role of the dealer. Although pleased with the outcome of this meeting, I wondered how deep the understanding of our value equation penetrates our organization. On the long ride home, I concluded that we certainly could talk about this much more internally to ensure that our employees have a greater understanding of why our business model has survived all these years. I began to think of the many ways our people add to the value provided by our dealership. I also thought of various opportunities to talk with them about it. One came up just a few days later when the first of many groups of our field service personnel came in for several days of training, computer updates, and team-building. I spoke to them about how much value they bring to our customers and how this additional investment on their behalf, and ours, keeps us sharp and better prepared in the highly technical environment that we have today. That’s our role as the dealer, and I encouraged them to feel free to talk about it with the customer. There is a reason our business model has survived. As an AED distributor, it is our role to keep bringing demonstrable value to the marketplace, applying our expertise to enhance and protect the customer’s investment. Without that value, our products become just another commodity and our customers and manufacturers will question why they need us. For more than 90 years, AED has provided resources, services, and a fertile environment to identify and raise the standards for our industry. Let’s make sure that in 2013 we take full advantage of all AED has to offer. It starts at aednet.org.
Mike Quirk (mquirk@wagnerequipment.com) is vice president of Operations at Wagner Equipment Co., Aurora, Colo.
April 2013 | Construction Equipment Distribution | www.cedmag.com | 5
3/25/13 11:53 AM
It’s our business to know the insurance needs of your industrial equipment dealership. We help you create flexible, custom-made risk management solutions to protect you when you need it most, including employee safety, equipment and inventory management, and employment practices liability. With Sentry, you’ll spend less time worrying about insurance and more time focusing on your industrial equipment dealership. And that’s good business. 1-888-976-0283 • sentry.com/ced Property and casualty coverages and safety services are underwritten, issued and/or administered by a member of the Sentry Insurance Group, Stevens Point, WI. For a complete listing of companies, visit sentry.com. Policies, coverages, benefits and discounts are not available in all states. See policy for complete coverage details. 73-25
-ad template.indd 1
729249 03/07/13
3/24/13 12:43 PM
Editor’s Note
Personality is Good, But Not Entirely Good Enough
The effective dealer sales rep needs more than natural charisma – but product knowledge alone doesn’t cut it either. By kIM pHELAN
When my oldest son was in high school I began remarking that he had what I called “a sales personality.” I meant it as a compliment and even hinted that he might bear this in mind as he made future education and career choices. The traits I observed in him included – beyond his natural ability to schmooze – a gregarious nature; a healthy self-confidence; an ease in starting conversations with strangers and then moving those into friendships; a genuine concern for others and desire to solve their problems – sometimes going to great lengths to do so; and good verbal communication skills. And last, while I seldom enjoyed the effects of this trait, I have been told he is a young man who possesses good manners and respect for others, particularly his elders. I hold the “sales personality” in high esteem, especially the circuit in their hardwiring that protects their psyche from rejection; I wonder if some sales people are even energized by customer rejection, as though challenged to win a battle. While mingling about at the World of Asphalt show in San Antonio last month I picked up some interesting insights about the subject of sales in our industry from a few different sources. For example, a vice president at a well-known road building equipment manufacturer was explaining some operator-friendly features about a product, which had been specifically added to the newly-designed machine for the purpose of helping operators familiar with highway paving make the transition more easily to other types of paving. The machine is aimed at capitalizing on the trend of contractors taking on more diverse types of
jobs outside their usual comfort zones and shortening their learning curve to do them. It was an example of machine features designed to benefit certain people in certain types of scenarios, thus underscoring the importance of sales people really knowing their products inside and out, but equally necessary, I inferred, the importance of listening to customers very carefully before you start trying to sell them anything. While this was going on in my head, the VP with whom I was speaking came right out and asserted that this is not an uncommon problem in the dealer sales force. Every machine solution does not solve every contractor’s dilemma or fit every job’s applications. Product expertise is the dealer’s trademark, of course, but it isn’t enough. Only the ability to ask good questions and quietly listen to what the customer is saying gives the account rep the complete set of black and red jumper cables (s)he needs to put a genuinely satisfying deal together. Now granted, OEMs have a responsibility in this to offer good training to their dealers. Dealer sales managers have a responsibility to take advantage of it and get all reps continuously trained on all product developments (not to mention continuous AED training on sales skills, too). To aid in keeping up his side of the sales training bargain, my manufacturing friend described a cool method to deliver effective product and solution training to his dealers’ personnel: webcasts. Besides the brilliance of keeping sales reps onsite in their territories and eliminating travel costs, he keeps the sessions short and digestible – usually around 30 minutes a pop. Seems like a sensible way to use technology
to communicate some very crucial information upon which sales success depends. It’s also probably very applicable for all you multibranch dealers needing to stay connected with your managers and sales people throughout your state or region. (There’s also Skype and Facetime to consider.) Speaking of technology and sales, that subject cropped up at a dinner conversation on the Riverwalk one evening. The owner of a company involved in the equipment industry shared a recent success that has catapulted his sales volume fourfold over the past two years roughly. His silver bullet? Purchasing licensing to a cloud-based customer relationship management system, Salesforce. The technology has revolutionized his firm’s ability to place useful customer data in the hands of every single person in his small, privately held organization. Some might have considered his significant investment disproportionate to the size of his family-owned business, but, he said, it absolutely saved the company from near-certain demise. Because it’s a lease agreement, he automatically gets updates, and therefore his investment will never become obsolete. Only one veteran sales guy refused to adapt and became the sole casualty of the decision. But the company got rid of its sacred cows, secret lists, and information silos – and this business owner couldn’t be more thrilled and proud. If you’re using technology in some innovative way, I’d love to hear about. Thanks for reading! Kim Phelan (kphelan@aednet.org) is the executive editor of Construction Equipment Distribution and director of programs for AED.
April 2013 | Construction Equipment Distribution | www.cedmag.com | 7
7_editors note_KP.indd 7
3/25/13 11:54 AM
Inside AED
2013 Tax Law is Full of Potholes for Rental Dealers AED’s CFO Conference experts smooth your path to profitability.
AED Rental/CFO Conference - May 2-3, 2013 DoubleTree by Hilton Hotel Chicago - Oak Brook Registration: $895 members $1,295 nonmembers
Day 1 8 a.m. - 5 p.m. The Importance of Rental Metrics and Industry Reporting How Rental Adds to Dealership Value n Making the Most of 2013 Tax Opportunities n Dual Use & How It Relates to You n Major State and Local Tax Issues n How to Use Technology to Manage Your Rental Operation n How to Manage Rental Cost with Extended Warranty n Rental Industry Growth & Outlook: Secrets Found in the 10-K n Healthcare Reform: What It Means and How to Prepare Your Organization n n
Day 2 8 a.m. - Noon n n
Economy and State of the Industry Rental Department Operations, Including Compensation
Midwest potholes are small in comparison to the potholes facing AED dealers with growing rental income. At the same time construction equipment rental is hitting record levels, new tax laws threaten dealer cash flow and tax liability. Are you prepared to deal with passive loss issues that could potentially add a 3.8 percent tax to your rental income? Are you prepared for the gain on the sale of rental machines to be 100 percent taxable? Are you prepared for how rental income will be added to your flow-through entity? No worries. AED has the experts on the case. At AED’s CFO Conference they will prepare you to handle the critical issues presented by rental income growth in 2013. Steve Pierson, owner, Seldon Fox, and Ron Hodgeman, tax partner, WTP Advisors, take on federal tax questions and explore what dual use machinery means for dealers. Jim Margner, president, Tax Advisory Services, examines major state and local tax issues. Case studies provide examples to work out your own tax scenarios. “This year we are going to really zero in on the details,” said Garry Bartecki, AED staff vice president, Finance and Administration. “C-level executives have to know how rental finances work because small errors can have a significant effect on cash flows.” Also on the agenda is perennial favorite, Market Analyst Eli Lustgarten of Longbow Research, who will provide a forecast for the construction equipment industry, including rental. Supplementing his content will be an analysis of the rental industry based on 10K reports of publicly held rental firms, presented by Joe Box, Joe Box KeyBanc Capital Markets. Shriram Rajagopal of e-Emphasys provides a hands-on look at how technology can help dealers manage the rental business, while Kevin O’Brien from EPG shows dealers how extended warranty works to manage rental cost. Growth in rental is one of the most important trends in the construction equipment distribution business for 2013. Only solid financial preparation will keep dealers out of the potholes. “The cost to attend the CFO Conference is small compared to the amount of time and money you will save by having the right financial and tax strategy in place,” said Bartecki. “AED’s CFO Conference is education you can’t get anywhere else.” To register, visit www.aednet.org/events or call Pat Novak at (800) 388-0650, ext. 347.
Proposed New Members Telsmith, Inc. Mequon, Wis.
Dispatching Solutions, Inc. Upland, Calif.
This list is published each month as required by AED bylaws. Comments on the applicants should be directed to AED President Toby Mack at 800-388-0650 ext. 326 or jtm@aednet.org.
8 | www.cedmag.com | Construction Equipment Distribution | April 2013
8_inside AED_KP.indd 8
3/25/13 12:35 PM
Stronger. SANY America is bringing global equipment leadership to North America. We offer our dealers and customers equipment solutions, including crawler cranes, rough terrain cranes, crawler excavators, port container reach stackers and empty-container handlers. We’re expanding our world-class dealer network. We invite you to learn more about SANY America and the global SANY brand. Together, let’s change the world.
Equipment. Performance. Dealers. Innovation. SANY.
To learn more about SANY America dealer opportunities, contact Kirk Erlinger (kerlinger@sanyamerica.com) for cranes and port equipment, or Eric Teague (eteague@sanyamerica.com) for excavators and earthmoving equipment.
318 Cooper Circle, Peachtree City, GA 30269 Tel: 678-251-2869 | Fax: 770-632-7820 Email: sales@sanyamerica.com www.sanyamerica.com
-Ad_template.indd 2
2/21/2013 10:27:16 AM
Inside AED
The Best Way To Be Sure Your Voice is Heard in Washington Is To Be There AED’s Washington Fly-In is May 22-23, 2013 Attend the Fly-In to become a more effective advocate for your business and your industry. You can make a difference. If not you, then who will be talking to your elected officials? Register online at www.aednet.org/fly-in or call (703) 739-9513 for more information.
mark your
calendar
For information on any upcoming AED events, visit www.aednet.org or call 800-388-0650. April 2-4 The Four Pillars of the Sales Profession Dayton, Ohio | Presented by Don Buttrey April 11 Webinar: Targeting Customers Digitally 2-3 p.m. CDT Presented by Ed Steenman and Dave Pavlu April 11 Webinar: Report on the Current State of the Industry and the Economy 2 p.m. CST | Presented by Eli Lustgarten April 16 Product Liability 10-11:30 a.m. CST | Presented by James Waite April 23 Market Driven Strategy: Practical Solutions for Today’s Distribution Challenges 10-11:30 a.m. CDT | Presented by Mike Marks May 2-3 AED’s CFO Conference: Financial Issues for Distribution Executives Oak Brook, Ill. May 14 Webinar: Sell Process – Your Defense 10 a.m.-11:30 a.m. CDT | Presented by Don Buttrey
May 21 Webinar: ‘Expose Yourself’ – Aftermarket Marketing and Sales - Part Two 10-11 a.m. CDT | Presented by Rich Jilek May 22 Webinar: Employment Practices – Managing Performance 2-3:30 p.m. CDT | Presented by Troy Tepp May 22-23 AED’s Washington Fly-In Washington, D.C. June 11 Webinar: Delivering Superior Customer Service – Aligning Your Dealership for Results Through Teamwork 10-11:30 a.m. CDT | Presented by Christine Corelli June 12 Webinar: Industry Financial Updates for CEOs/CFOs 2 p.m. CDT | Moderated by Garry Bartecki June 17-18 Parts Management Unit II: Performance Excellence (PE) Dallas, Texas | Presented by Ron Slee June 19-20 Service Management Unit II: Performance Excellence (PE) Dallas, Texas | Presented by Ron Slee
10 | www.cedmag.com | Construction Equipment Distribution | April 2013
8_inside AED_KP.indd 10
3/25/13 12:35 PM
Equipment that pays off! Explore dealership opportunities
Move your business forward with trusted Wacker Neuson products. The Wacker Neuson brand has a solid reputation for long service life, outstanding reliability, low operating costs and ease of use. With over 300 products spanning all phases of the construction process, we have the products and innovative technology to improve your bottom line.
y’s Industr
MOSTED TRRUamSmTer
www.wackerneuson.com www.wackerneuson-dealer.com
Find us on:
4.02.08 updated
-ad template.indd 1 CED-AED ad Feb2013.indd 2
1/28/13 10:43 AM 1/18/13 1:29 PM
Groundwork Officers
Chairman Chris Pera Eastern HighReach Company, Inc. Horsham, Pa.
Vice Chairman A. Roy Kern Equipment Corporation of America Coraopolis, Pa. President Bob Henderson The AED Foundation Oak Brook, Ill. John Crum Treasurer Wells Fargo Equipment Finance, Inc. Pittsburgh, Pa. Immediate Past Chairman Walter Berry Berry Companies, Inc. Wichita, Kan. AED Board Representative Whit Perryman Vermeer Equipment of Texas Irving, Texas Executive Director Steve Johnson The AED Foundation Oak Brook Ill.
Directors
Gary Bridwell Ditch Witch of Oklahoma Edmond, Okla. Mike Festing-Smith NORTRAX, Inc. Tampa, Fla. Mike Hayes Komatsu America Corporation Rolling Meadows, Ill. Timothy Kramer Kramer Ltd. Regina, SK Dr. Wayne Longbrake Former Dean, Penn. College of Technology Williamsport, Pa. Sonja Metzler Ohio CAT Broadview Heights, Ohio Kenneth Silverman Volvo Construction Equipment Shippensburg, PA Mark teel Caterpillar, Inc. Peoria, Ill. Keith Tippett Kirby-Smith Machinery, Inc. Oklahoma City, Okla.
Minnesota School is Latest to Earn AED Accreditation Local dealer support and achievement of rigorous standards bring another quality diesel program into the ranks of colleges producing high-quality techs for dealers.
The AED Foundation congratulates the Diesel Mechanics program at Alexandria Technical & Community College in Alexandria, Minn., which recently received AED accreditation. Faculty and staff worked hard to achieve this industry distinction, and The Foundation is proud to be affiliated with this fine program. The college’s Diesel Mechanics program is designed to provide students with the best available diesel/equipment technology education and provide equipment dealers with well-educated, entry-level technicians. Coursework and lab experiences offer students a well-rounded curriculum from the standpoint of theory, hands-on lab work, safety and related skills. Industry partnerships also provide opportunities for scholarships
and sponsorships. Alexandria Technical & Community College Equipment Program Partners in Education include Cummins NPower LLC, General Equipment & Supplies, Inc., RDO Equipment Co., Titan Machinery Inc., and Ziegler CAT Inc. AED Accreditation means the program meets rigorous technical academic program standards as defined in The AED Foundation’s “Standards for Construction Equipment Technology.” Developed and updated by a volunteer taskforce of AED member dealers, manufacturers and technical colleges, these standards address the needs of the equipment industry. AED Accreditation is only conferred after a rigorous application process that includes an onsite program visit from an AED evaluation team leader.
Web Winners Target Customers Digitally A brand new webinar exclusively designed for AED will be presented on Tuesday, April 16 – mark your calendar and sign up to hear Ed Steenman and his colleague, Dave Pavlu, Ed Steenman show you how to raise the bar on your Internet marketing effectiveness in the wild cyber chase for equipment buyers and renters. Anyone involved in marketing, IT, sales and rental will benefit from this first-ever AED webinar event. “The shopping funnel isn’t a funnel anymore, it’s a ping-pong process that’s about much more than search,” said Steenman. In this one-hour webinar you’ll learn about:
n Search Targeting, Behavior Pixel Targeting and Re-Targeting – what these digital tools are and how they can effectively be used to catch customers at key points in their online shopping process n The expanding opportunities for video search targeting, mobile advertising and other PPC display opportunities Ed Steenman, owner of Steenman Associates near Seattle, Wash., is an internationally recognized speaker on digital media. He presented at both the 2011 and 2012 AED Executive Forums. His digital marketing co-presenter, Dave Pavlu, is the owner of Ads Up Now, a leading provider in the digital automotive marketing space. Register for this program at aedu.org or call Pat Novak at (800) 388-0650 ext. 347.
12 | www.cedmag.com | Construction Equipment Distribution | April 2013
12_groundwork_KP.indd 12
3/25/13 12:49 PM
Sell More Equipment Increase Your Profits Grow Business EPG Offers Total Dealer Fleet Protection Component failures can result in large capital expenses and can wreck a profitable sale. Protect your dealer fleet from these potential added costs with EPG Extended Service Protection Plans.
EPG Extended Service Protection Plans:
• Offer multiple coverage options for new and used equipment • Provide parts/service revenue opportunities • Are transferable • Increase machine retail value
Extended Service Protection Plans Dealer Corporate Package Loss Damage Waiver Physical Damage Insurance Dealer Fleet Protection Dealer E&O Certificate Tracking Service
Learn more about EPG at www.epginsurance.com or call 901-685-3100
-adtemplate.indd template.indd 11 -ad
10/29/12 1:39AM PM 2/1/12 11:00
Industry Beat
Wells Fargo Releases Optimistic U.S. 2013 Forecast Modest improvement overall is expected.
Construction contractors and equipment distributors are optimistic that local nonresidential construction activity will improve in 2013, according to a survey by Wells Fargo Equipment Finance, Inc., a subsidiary of Wells Fargo & Company. As part of its 2013 Construction Industry Forecast, Wells Fargo’s Construction Optimism Quotient (OQ) – the survey’s primary benchmark for measuring contractor and equipment distributor sentiment – is at 106 for 2013, marking the second consecutive year with an optimistic reading. An OQ over 100 is considered optimistic sentiment towards year-over-year improvement in local nonresidential construction activity. “It’s great to see that contractors and equipment distributors expect nonresidential construction activity in 2013 to retain the improvements they experienced in 2012,” said John Crum, senior vice president and national sales manager of the Construction Group at Wells Fargo Equipment Finance, Inc. “For most parts of the country, we expect to see modest improvement in overall construction activity and contractors anticipate acquiring additional heavy equipment to support this activity.” Highlights of the 2013 Construction Industry Forecast include the following: Construction is moving ahead. The Optimism
Canadian Chamber Identifies Obstacles to Progress The Canadian Chamber of Commerce (CCC) released a report detailing the obstacles impeding Canada’s economic progress. “Tackling the Top 10 Barriers to Competitiveness,” identified public infrastructure planning as one of the chief barriers undermining productivity. The report bemoaned the lack of a long-term national investment strategy, warning that the cost of the crumbling infrastructure is enormous. The CCC called for greater intergovernmental cooperation, a long-term federal commitment, and policies to encourage private sector investment.
Quotient – is a very positive 106. Although the number is down from 114 in 2012, it represents the third highest national optimism reading in the past 13 years with only 2012 and 2005 being higher. The industry expects rental fleets to continue to grow. About half of distributors (50.5%) indicated that they expect to increase the size of their rental fleet in 2013. Only 5.5 percent said they expect their rental fleet to decrease in 2013 compared to 2012. Residential could lead the way. Optimism about the residential side of construction was slightly higher than for nonresidential. More contractors expect residential activity to increase (46.7%) than to remain the same (45.5%) or decrease (7.8%). Contractors will buy new and used equipment. In 2013, 80.9 percent of contractors indicated that they anticipate buying new equipment and 80.3 percent indicated that they will buy used equipment. These numbers are down slightly from 2012. Conducted between Jan. 4 and Jan. 18, 2013, the survey includes responses from 347 construction industry executives from across the U.S. The complete report is available for download at www.wellsfargo.com.
The Impact of Sequestration on Federal Construction Budgets in FY 2013 Program Highway Trust Fund (core) Highway Trust Fund (General Fund payment)
FY 2013 Budget Authority $40.2 $6.2 billion (Sequesterable amount of Highway Trust Fund)
Federal-aid Highways (Contract authority) Highway Emergency Relief
$739 million (Sequesterable
Budget reduction Exempt $316 million (no impact this year, but will reduce future year HTF balances) $38 million
amount of Highway Trust Fund) $2 billion
$101 million
from Hurricane Sandy Bill Transit Formula Program
$8.5 billion
Exempt
Transit Capital Programs
$1.9 billion
$96 million
Army Corps of Engineers
$2.3 billion
$250 million
(Construction) Airport Improvement
$3.515 billion
Exempt
Program (Core) Airport & Airway Trust
$1 million (Sequesterable amount
Fund (grants-in-aid)
of Airport Improvement Program)
>$50,000
Automatic spending cuts known as sequestration took effect March 1, chopping billions from federal programs. While a few programs like the Highway Trust Fund and the Airport Improvement Program are largely exempt, the majority of government investment accounts will suffer cutbacks of nearly 5 percent. The table above illustrates the impact of sequestration on federal construction program budgets in FY 2013.
14 | www.cedmag.com | Construction Equipment Distribution | April 2013
14_industry beat_KP.indd 14
3/25/13 2:11 PM
-ad template.indd 1
11/26/12 8:57 PM
Industry Beat
Kirby Smith Paving Seminar Promotes New Technologies and Best Practices Kirby Smith Machinery and Wirtgen America recently hosted more than 450 Texas governmental, state highway and highway contractors at a free educational paving seminar to learn the most current technology and best practices in paving, compaction, asphalt recycling and soil stabilization. Held at the Arlington Convention Center in Arlington, Texas, more than $8 million in state-of-the-art paving equipment, heavy construction equipment, and cranes were on display. Kirby-Smith Machinery has service locations in Abilene, Amarillo, Dallas, Ft. Worth, Lubbock, and Odessa, Texas, as well as, Oklahoma City and Tulsa, Okla.; and St. Louis and Kansas City, Mo.
Kolberg-Pioneer Recognized as Patriotic Employer
From left to right: Frank Giganti (South Dakota Employer Support of the Guard & Reserve), Randy Blunck (maintenance supervisor), Wade Peterson (mechanic) and Mark Folkers (production manager).
Kolberg-Pioneer (KPI-JCI), along with Randy Blunck, maintenance supervisor, was honored for its contributions to America’s national security and protection of liberty and freedom by the South Dakota Employer Support of the Guard & Reserve (ESGR) organization. Blunck and KPI-JCI were nominated by Wade Peterson, mechanic, who is a sergeant in the DET 1 147th FSC National Guard unit. This is the third time KPI-JCI has been recognized as a Patriotic Employer by the South Dakota ESGR. The company employs 63 men and women who have served or are currently serving in the military.
In the News McCann Industries, Inc. announced that Jim McCann has been named president of the company, effective Feb. 21, 2013. Dennis Kruepke, the former president, remains in the position of chief executive officer. Jim McCann McCann began working with the company as an outside sales representative in 1991 and has assumed progressively more responsibility over the past 22 years. The company is the Case dealer for the Chicago area and sells and rents numerous additional equipment brands and contractor supplies. Honnen Equipment will celebrate its first 50 years in business in 2013. The company was founded in 1963 as a single location John Deere construction equipment dealership in Denver, Colo., and has grown to 10 locations throughout the Rocky Mountain region. Honnen Equipment represents John Deere construction and forestry equipment, John Deere Commercial Worksite Products, Hitachi construction equipment, Manitowoc, Grove and National Cranes, Wirtgen milling machines, Vogele pavers and Hamm rollers and compactors as well as other allied products and equipment. Titan Machinery Inc. acquired Adobe CE, LLC, a single Case Construction equipment dealership located in Albuquerque, N.M. Adobe CE, LLC generated revenue of approximately $8 million in 2012. Titan Machinery Inc. also acquired Tucson Tractor Company, a single Case Construction equipment dealership located in Tucson, Ariz., which, in its most recently reported fiscal year, generated revenue of approximately $7 million. The State Department released a draft Supplemental Environmental
Impact Statement (SEIS) that found the new route for the Keystone XL Pipeline project would have “no significant impacts to most resources.” The draft SEIS was issued in response to TransCanada’s May 2012 application for the section of the Keystone XL pipeline that would run from Canada to Nebraska. The document reviews potential environmental impacts associated with the proposed project, including construction and potential spills, as well as the project’s effect on climate change and the economy. IronPlanet has acquired Asset Appraisal Services (AAS), an inspection, appraisal and online auction services company serving customers across the used capital equipment markets, with a key focus on the commercial truck sector. The company will operate as a wholly owned subsidiary of IronPlanet and continue to use the respected Asset Appraisal Services name. The Internal Revenue Service has released a favorable private letter ruling related to a common tax strategy referred to as a Like Kind Exchange (LKE) program. The ruling was requested by, and issued to, WTP Exchange, an affiliate company of WTP Advisors. The new IRS ruling (201308020) makes it clear that WTP Exchange is permitted under the tax law to provide both LKE software and qualified intermediary services. Modern Group has appointed its President and COO Paul Farrell to the additional role of CEO effective May 1. Dave Griffith remains on as Chairman of the Board. Cashman Equipment is officially a legacy Bucyrus Mining Products dealership, allowing the company to provide mining customers with a complete range of products as well as parts, service support.
16 | www.cedmag.com | Construction Equipment Distribution | April 2013
14_industry beat_KP.indd 16
3/25/13 1:33 PM
Industry Beat
Whit Perryman
On March 14, two AED board members testified before the House Energy & Mineral Resources Subcommittee about the impacts of the shale gas and oil boom. Whit Perryman (above), CEO of Vermeer Equipment of Texas-Louisiana and Don Shilling (below, right), president of General Equipment & Supplies and AED’s 2013 senior vice president said shale energy development resulting from improvements in hydraulic fracturing has led to new business activity and growth for their companies, the construction industry, and their communities. Don Shilling
35 Wounded Warriors Attend a Weekend of Activities to Honor Their Service & Sacrifice HALO for Freedom Warrior Foundation and Ride 2 Recovery recently honored 35 veterans with an exciting weekend that featured an opportunity to “play in the dirt” operating a Caterpillar bulldozer, backhoe, and skid-steer loader provided by HOLT CAT and its Hiring Our Heroes Program. The event began with the performance of the U.S. National Anthem by Country Western artist Aaron Tippin, with a choreographed skydiving jump with Team Fastrax into Texas Motor Speedway with American flags.
Coast Crane Company, the SANY America crane dealer for California, has expanded its SANY territory across the western United States and Canada. For SANY crawler cranes, the territory now includes Alaska, Hawaii, Oregon and Washington; the Canadian provinces of British Columbia and Yukon Territory; and the U.S. island territory of Guam. For SANY rough-terrain cranes, the Coast Crane territory now includes British Columbia and Yukon Territory. Hawkins-Graves Inc. has been named a SANY excavator dealer in Lynchburg, Va., the first Virginia-based excavator dealer for SANY America Inc. Tar Heel Machinery has been named the company’s excavator dealer in North Carolina. Wajax Industrial Components, a division of Wajax Corporation, and Kaman Industrial Technologies have formed a strategic alliance, strengthening the services offered to customers that have business assets in the U.S., Canada, Mexico and Puerto Rico. The companies will remain independent entities, but join forces under the name Sourcepoint Industrial, to compete for business-to-business and supply agreements with customers in multiple jurisdictions.
William Swanston Dies at 84 William Doyle Swanston, 84, of Fargo, N.D., died on Feb. 27. Bill or “Swanny” to his friends, passed away after a life of love, family, business and golf. After serving honorably in the U.S. Army he returned to his native Fargo, N.D., where he joined his father’s company, Swanston Equipment Company. Swanston Equipment was one of the first Bobcat distributors in the U.S. Swanston was a pioneer in pavement markings, helping to privatize the road and airport marking industry. He active in AED, the AGC and the American Traffic Safety Services Association (ATSSA). His son Mike Swanston serves as president of Swanston Equipment Company.
Richard McCann: 1939-2013 On the morning of March 12, Dick McCann passed away after a long battle with cancer. Dick’s wife Lynn and his four children – Terry, Kathy, Sherry and Jim – were at his side. Dick founded and owned McCann Construction Specialties and also started McCann Power & Equipment when he purchased three Chicagoarea Case company stores in 1994. In 2000, he and partner Dennis Kruepke merged the two companies to form McCann Industries. McCann held leadership positions with AED, the Illinois Equipment Distributors, the Underground Contractors Association and Concrete Contractors Association of Greater Chicago. He also served on the board of the Boy Scouts of America, Three Fires Council. His legacy of a solid work ethic and moral integrity can be seen throughout the business today.
April 2013 | Construction Equipment Distribution | www.cedmag.com | 17
14_industry beat_KP.indd 17
3/25/13 2:14 PM
Take Control Early in the Claim Process If there’s an accident of any kind, have well-defined procedures for managers to follow, and proactively keep in touch with your injured employee. By Eric Stiles
Proper investigation and case management after an accident can help prevent a repeated occurrence and reduce the total cost burden. Most dealerships today have a written policy requiring employees to report any accidents immediately. Often, this procedure is followed and an investigation is conducted to verify the contributing factors of the incident (and legitimacy of the claim). This process should be followed even for an injury that appears minor at first. Any injury can take a turn for the worse later, causing lost time, wages, and occasionally constituting dealer negligence. Consider the following case: A field service employee performing work at a customer location loses his balance and falls 5 feet to the ground below. There were no witnesses. The employee comes to his feet and feels some pain in his knee and elbow, which took the brunt of the fall. Not thinking he is seriously hurt, the employee finishes the service job and heads back to the office. After returning, he tells his manager about the fall but states he feels OK, so the manager takes no additional action. Over the next week, the employee continues to work but the pain gets worse, eventually landing him in the hospital where it’s determined he tore several ligaments in his knee along with
a fracture in his arm. The employee receives surgery as well as work restrictions, which the dealer won’t accommodate. After additional complications, the employee is off work for more than a year and retains an attorney. The case is eventually settled and he never returns to the dealership. While the injuries sustained were recoverable, losing control of the case early in the process contributed to higher medical expenses and a disability rating that led to an incurred total claim of $500,000. Written Claim Reporting Procedures Dealers should have clear requirements for the reporting and investigation of claims: n Outline specific timeframes by which employees’ injuries need to be reported and investigated. n Develop a documented reporting process including scene photos and interviews to help proactively manage claims. n Provide training to staff on claim investigation and reporting practices. n Emphasize the goal of preventing future incidents rather than assigning blame.
18 | www.cedmag.com | Construction Equipment Distribution | April 2013
18_Play_it_Safe_feature_KP.indd 18
3/25/13 12:00 PM
s
Play It Safe
Actively Managing Medical Treatment How you manage the treatment of injuries or illnesses can play a major role in controlling medical and indemnity expenses. (lost time, disability, etc.) Specific practices should include: n Develop and enforce a claim management program that outlines guidelines for supervisors to be in periodic contact with injured employees. These guidelines should actively demonstrate the dealership’s concern for the well-being and quick recovery of the employee. n Interview local physicians to identify a list of sources for your employee to consider if treatment is sought for an injury. n Direct injured employees to a PPO
network of physicians for treatment (if allowed in your jurisdiction). n Invite local physicians to tour your facilities to learn firsthand about job tasks and physical demands. Modified Duty Programs Developing and enforcing a written Modified Duty program to return an injured employee to work as soon as practical is critical to reducing the overall cost of the claim. Lastly, the dealership should provide documented management training of these requirements and enforce annual performance goals to effectively administer the program’s guidelines. This training can help prevent the mismanagement of claims and potentially help defend negligence claims by the injured employee. n
This document is made available by Sentry Insurance a Mutual Company and its subsidiaries and affiliates (collectively “SIAMCO”) with the understanding that SIAMCO is not engaged in the practice of law, nor is it rendering legal advice. The information contained in this document is of a general nature and is not intended to address the circumstances of any particular individual or entity, nor the best practices applicable to any particular individual or entity. Legal obligations may vary by state and locality, and best practices are unique to specific items and situations. No one should act on the information contained in this document without advice from a local professional with relevant expertise. As the endorsed P&C carrier for the AED, Sentry Insurance offers superior coverage options and services to meet your dealership needs. Randy Dombrowski is Sentry’s lead account executive responsible for maintaining the AED/Sentry relationship.
As the endorsed P&C carrier for AED, Sentry Insurance offers superior coverage options and services to meet your dealership needs. Eric Stiles is Sentry’s lead Account Executive responsible for maintaining the AED/Sentry relationship. He can be reached at eric.stiles@sentry.com.
Leverage your bottom line... with every lift!
At Vacuworx, the objective is very simple – to provide the safest, most efficient heavy-duty lifting equipment in the industry. Vacuworx lifters increase load and unload cycles 7-12 times, with a fraction of the number of ground personnel vs.
...the global leader in innovative lifting solutions. Phone 1-918-259-3050 | requests@vacuworx.com | www.vacuworx.com 10105 East 55th Place, Tulsa, Oklahoma 74146 USA
conventional methods. Vacuworx offers financing and rental options, and our service and parts departments are available 24/7 365 days a year. With 14 years of proven track record, no one offers a better selection or quality than Vacuworx.
April 2013 | Construction Equipment Distribution | www.cedmag.com | 19
18_Play_it_Safe_feature_KP.indd 19
3/25/13 12:00 PM
Research
U.S. Member Tax Survey Results Help AED Establish Tax Reform Priorities
Findings will also be used to demonstrate distributors’ role in the broader economy. By Christian A. Klein
More than 100 members responded to our recent tax survey, making it a very successful AED research project and providing a highly reliable industry sample. The data you provided has allowed us to complete one of the most comprehensive analyses of equipment distributor tax issues ever. The association’s lobbyists are putting the data to good use advocating for dealers on Capitol Hill as the tax reform debate heats up this spring. Here is what you told us and here’s what we think it means: Revenues, Employment, Impact What you told us: Respondents reported collective annual 2011 revenues of approximately $11.3 billion and more than 20,000 employees. Average sales per employee were $562,108. What it means: AED projected those numbers across
our entire membership to estimate that the association’s U.S. dealer members earned $26.67 billion in total revenues in 2011 and employ close to 47,000 people. Based on an earlier economic study that found each dollar spent at an equipment distributorship creates $3.19 in direct, indirect, and induced economic activity, we estimate our membership’s total economic impact at $85 billion. Those figures will help lawmakers, the media, and other key audiences understand how equipment dealers fit into the broader economy and will help us make our case as AED seeks policy solutions favorable to the industry. Dealer Revenue Streams What you told us: New and used equipment sales account for just under half of the average survey respondents’ revenues, while parts, service, and other product (continued on page 24)
20 | www.cedmag.com | Construction Equipment Distribution | April 2013
20_Tax_Feature_KP.indd 20
3/25/13 12:04 PM
“Having a lender that understands this industry is important – to me and my customers.”
EqUipmENT FiNaNCE inventory and fleet rental finance programs Retail finance programs Loans and leases for capital asset acquisition manufacturer subsidy programs
The right equipment finance programs are critical to helping you sell equipment. So talk to an equipment finance company that has experience in and a commitment to the construction industry — one that has the stability and flexibility to support you through all economic cycles. Not only do we know the difference between a dozer and a grader, but we understand that making the purchase process quick and easy for your customers is essential. Whether you sell equipment in the U.S., Canada, or both, we can help. To learn more about what the Wells Fargo Equipment Finance team can do for you, start a conversation with us today by calling Sidney Sexson at 480-784-9667. wellsfargo.com/construction
© 2013 Wells Fargo Equipment Finance, Inc. All rights reserved. All applications are subject to credit approval. Canadian coverage provided by Wells Fargo Equipment Finance Company, a company that is not regulated as a financial institution, a bank holding company or an insurance holding company in Canada. MC-5533
MC-5533_WFEFI_CED_ad_8.25x10.875_comps.indd 1 -ad template.indd 1
3/1/13 12:46 1:49 PM 3/24/13 PM
-ad template_Spread.indd 2
1/29/13 1:13 PM
-ad template_Spread.indd 3
1/29/13 1:13 PM
Research
(“U.S. Member Tax Survey Results Help AED Establish Tax Reform Priorities” continued from page 20)
support account for almost one-third of revenues. (See chart below.)
What it means: Dealers help make their customers more efficient by providing a wide range of equipment acquisition options. Congress and the Internal Revenue Service (IRS) need to understand that our members do more than just sell equipment. Tax laws and IRS rules must provide sufficient flexibility to allow our members to serve a wide array of equipment markets and types of customers. LIFO What you told us: Thirty percent of survey respondents reported using the last in, first out (LIFO) inventory accounting method and 28 percent use first in, first out (FIFO). The average reported LIFO reserve was $8.16 million. Survey respondents reported combined LIFO reserves of $220 million. AED projects that its members have approximately $588 million in combined LIFO reserves. What it means: Were Congress to get rid of LIFO, as President Obama has consistently requested in his proposed (but never passed) budgets, AED estimates that our members would be subject to roughly $200 million in retroactive tax liability. That would be a big tax hit at a time when the industry is still recovering from the recent construction depression. AED is a founding member of the LIFO Coalition and serves on its steering committee. We’ll continue to make the prevention of LIFO repeal one of our top tax priorities. Structure of AED Member Companies What you told us: Two-thirds of survey respondents classified themselves as either S-corporations, Limited Liability Companies (LLCs), or Limited Liability Partnerships (LLPs); 34 percent of AED dealer member companies are
C-corporations. The respondents classifying themselves as either C- or S-corporations had 5.5 shareholders on average; partnerships had an average of 2.4 owners. What it means: The equipment industry is dominated by closely held, pass-through entities. There’s a lot of talk about corporate tax reform in Washington, D.C. That is good news because the tax code is a mess. But tax reform cannot focus solely on C-corporations and publicly traded companies; it must also benefit the pass-through entities and smaller businesses that are the lifeblood of the economy. Rental and Like-Kind Exchange What you told us: Respondents reported $1.29 billion in total rental revenues in 2011, an average of $12.03 million per company. From this AED projects its members’ 2011 rental revenues exceeded $3.3 billion. The total estimated acquisition cost of respondents’ depreciable rental fleets (including rent-to-sell units being depreciated) as of Dec. 31, 2011, was collectively $3.13 billion, an average of $31.26 million per company. The total estimated combined acquisition value of member rental fleets was $9.02 billion. Approximately one-fifth of respondents reported having a like-kind exchange (LKE) program in place for their rental fleets. Respondents reported combined LKE deferrals of $295 million, an average of $12.3 million per company. AED projects its members have more than $720 million in combined LKE deferrals. What it means: These findings reinforce that our members are serving their customers well by providing an array of equipment acquisition options. Lawmakers and regulators need to understand the broader benefits members deliver and not erect artificial barriers that undermine efficiencies for our members and their customers. LKE is a case in point. It is a long-established tax tool that allows capital gains and recaptured depreciation taxes to be deferred when replaced with like-kind real and personal property. Over the last decade, LKE has become popular in the equipment industry. Unfortunately, LKE is under attack on multiple fronts. The Center on Budget and Policy Priorities, a liberal think tank, released a report entitled “Tax Expenditure Reform: Essential Ingredient of Needed Deficit Reduction” that urges Congress to restructure a number of tax expenditures as a means of raising new revenue to offset mounting federal budget deficits. It states that, “Policymakers also should close various tax breaks that allow wealthy people to pay much lower or no taxes on certain forms of income.” LKE is on the list of tax breaks targeted for elimination. At the same time, the IRS continues to question the way some dealers depreciate equipment held out by the dealership for both rental and sale. The Internal Revenue Service recently issued a call for comments on whether “dual use” equipment should be eligible for depreciation and for LKE. The message from AED will be loud and clear: yes and yes.
24 | www.cedmag.com | Construction Equipment Distribution | April 2013
20_Tax_Feature_KP.indd 24
3/25/13 12:04 PM
Research
Business Interest Deduction What you told us: The combined interest expense deduction for 2011 reported by survey respondents was $92 million, an average of $872,000 per company. By contrast, the total interest expense deduction reported by respondents for 2007 was $163.19 million, an average of $1.75 million per company. The total projected interest deduction for all AED members in 2011 was $232.05 million, while the total estimated interest expense deduction in 2007 was $468.53 million. In a separate question, respondents identified protecting the business interest deduction as their top tax priority. What it means: Credit drives the equipment industry and is critical to our members’ ability to keep the doors open for business and to finance their rental fleets – and also to their customers’ ability to buy equipment. Business interest tax treatment is on the table as lawmakers hunt for new revenues to make up budget deficits. A strong offense is a strong defense. The equipment industry needs to be aggressive in educating lawmakers about why the business interest deduction is so important to distributors and their customers. Estate Tax What you told us: Forty-four percent of survey respondents said that their company had purchased life insurance for the current owners to protect the company from the federal estate tax. The total expended by survey respondents on estate tax-related life insurance was $11.3 million. The average was $221,100 per company. Similarly, 45 percent reported having hired attorneys and accountants to create estate plans to protect their business from the federal estate tax. The total spent by respondents on estate planning lawyers and accountants over the past three years was $2.83 million, an average of $54,000 per company. We project that AED members annually spend a combined $31.82 million on estate tax-related insurance premiums and that over the past three years our members have spent a combined $6.69 million on estate planning lawyers and accountants. What it means: As AED has documented in study after study, the federal estate tax takes an enormous toll on the capital-intensive, family business-dominated construction equipment industry. Earlier this year, the Taxpayer Relief Act permanently fixed the top estate tax rate at 40 percent and the personal exemption at $5 million, indexed for inflation. Restoring predictability to the estate tax was a good start, but Congress needs to do more. AED maintains that the tax is fundamentally unfair because it disproportionately penalizes family businesses and amounts to double taxation. We continue to believe that it should be repealed in its entirety. However, in the alternative, Congress must come up with a simple way to mitigate the negative impact on family companies, for example, by allowing assets to pass from generation to generation without being taxed and only being taxed at sale.
Tax Reform Priorities What you told us: Respondents identified their top priorities for the tax reform debate as protecting the business deductions (especially business interest), cost recovery issues (e.g., preventing Congress from tampering with depreciation periods for construction equipment, Sec. 179 small business expensing, and the depreciation bonus), and identifying new user fees to support federal surface transportation investment. What it means: AED will focus its tax-related advocacy resources on: n Ensuring that tax reform includes improvements to the tax code for pass-through entities, not just C-corporations n Promoting capital investment by protecting the business interest deduction and Sec. 179 expensing n Preventing Congress from extending cost recovery periods for construction equipment, repealing LIFO, or changing LKE rules n Working with the IRS to ensure consistent tax treatment of dealer rental fleets and the permissibility of LKE n Further reforming the estate tax to protect family business assets from being taxed upon the owner’s death n Extending the depreciation bonus for one additional year (if economic conditions warrant) n Creating new user fee revenue streams to support federal surface transportation infrastructure investment Methodology and Respondent Profile The survey was conducted in November and December 2012. Survey forms were mailed to all U.S. AED dealer members, who were given the option of returning the survey to the association’s Government Affairs Office by e-mail, fax, or regular mail. Each survey had a unique identifier to prevent multiple responses. Ultimately, 115 distributors responded to the survey (representing 28 percent of the association’s dealer membership). We made the membership-wide projections by taking the reported percentage of members in a given dues category who said they behaved in a certain way (e.g., used LIFO) and multiplying that by the total number of AED members in that dues category. We then multiplied that figure by the average answer (e.g., average LIFO reserve) for the relevant dues category and added together the results for all dues categories. Thanks to all our members who took the time to fill out the survey. We hope you will agree that the results we generated were worth the time and effort. n Christian A. Klein is AED vice president of Government Affairs & Washington counsel. He can be reached at caklein@aednet.org, (703) 739-9513.
April 2013 | Construction Equipment Distribution | www.cedmag.com | 25
20_Tax_Feature_KP.indd 25
3/25/13 12:04 PM
Contractor Connection
The Best Dealers Are
TEAM PLAYERS
URS EC’s top fleet decision-maker reflects on what makes for a successful dealer-customer relationship. By Giles Lambertson
Though the new engine technician was fresh out of diesel mechanic school and not long off the farm, management saw something a little extra in the young man and quickly moved him up to front-line supervisor of six mechanics. It was a good move. Forty years and many promotions later, Bob Merritt is the global director of equipment for the Energy and Construction (EC) division of URS Corp. The international engineering, construction and technical services company had revenues in 2012 of nearly $11 billion. There might be a lesson in there somewhere for
equipment dealers looking for good people around whom to build a company: Look in the maintenance shop. “It kind of evolved,” Merritt says now, looking back on his career. “I thought I would be a mechanic forever.” And that would have been just fine for someone who derived great satisfaction from working on machinery at his father’s dairy farm and loved dirt-bike riding. However, mentors and prescient bosses had other plans for him and Merritt bought into them. “Opportunities came along and I was ready, and I took them,” he said with his usual plain-spoken understatement.
26 | www.cedmag.com | Construction Equipment Distribution | April 2013
26_Contractor_Conn_Feature_KP.indd 26
3/25/13 12:08 PM
Contractor Connection
Now Merritt is responsible for several thousand pieces of URS equipment, from small generators to excavators and heavy mining equipment. Evaluating Dealers Any company with an equipment fleet numbering in the thousands has stories to tell about dealers that have ably served, or underserved, it. Day to day, Merritt deals less with individual dealers than he once did, but he still is a point man in URS EC conversations with equipment suppliers in the U.S. and abroad. So what, in his estimation, characterizes a good equipment dealer? “To me,” Merritt says, “it is someone who is willing to engage, to take part ownership of a project, to do all he can to make sure we work together as a team and are successful.” That does not describe every equipment dealer in his experience. While most dealers do the right thing, some create unique issues – and even difficulties. Quite frankly, it is difficult to imagine why a dealer would not go extra miles to nurture a working relationship with a company the size and strength of URS. Merritt says that in his experience, dealerships in the U.S. are “a little bit more up to speed” in partnering with customers than are their overseas counterparts, though some dealers abroad also have worked out satisfactorily. What goes wrong most often in these relationships? A key failure is a lack of openness that leads to misunderstandings, says Merritt. “The biggest issue is making sure that we are on the same page and understand each other’s needs. Some dealers are afraid to tell us what isn’t working in a team relationship; they fail to coordinate with us. When they are doing repairs on equipment or inspecting it, for instance, we like to know everything they are doing and what’s needed. Even if we don’t do anything about it at the time, we like to know.” There probably is not a perfect dealer – or a perfect equipment owner – but Merritt cites a dealership in the
URS operators run a Komatsu excavator and haul trucks at a mining site in Canada.
URS equipment is put to work at a waste storeage facility in Texas.
Western United States that, in his estimation, gets it right more often than not. “They are very agreeable about doing everything they can to help us,” he says of the unidentified heavy equipment dealership. “Like whenever something comes out that deals with machines we own, they let us know about it. They seem to make it a priority to satisfy us as a customer.” Merritt isn’t looking for perfection. “Look, there always are going to be problems with equipment. That’s the nature of machinery. It’s how you resolve those issues that’s important. It’s being able to say, ‘Yow, we made a mistake, and this is how we are going to fix it.’ This dealer I mentioned is always the first to step up and say, ‘This is what’s wrong and we’ll take care of it.’” The URS EC executive adds that a readiness to find solutions and truly partner with a company is not rare among dealers, with a high percentage of equipment distributors meeting every high standard set for them. There are others, however that, are problematic. Turnover Happens Maintaining an enormous fleet is not a static proposition. Merritt indicated that a fair amount of URS equipment needs replacement annually, though he declined to be specific. The exact percentage varies from year to year. Most machines are disposed of through virtual and physical auctions wherever in the world the equipment is sitting, though URS sometimes finds buyers directly for the premium-priced machines in its inventory. Disposal decisions always are made in real time, of course, reflecting what is going on out there. Equipment replacement timetables in the industry have been skewed, for example, by costs tied to the re-engineering of diesel engines to meet EPA particulate matter emissions regulations. As the various tiers have been phased in, companies sometimes have delayed equipment purchases to postpone the financial hit, or accelerated their purchases to beat the latest compliance deadline. (continued on next page)
April 2013 | Construction Equipment Distribution | www.cedmag.com | 27
26_Contractor_Conn_Feature_KP.indd 27
3/25/13 12:08 PM
Contractor Connection
(“The Best Dealers Are Team Players” continued from page 27)
Merritt says the Tier 4 factor “has not been a deciding factor yet. It changes our maintenance schedule some, but not our equipment-buying strategy. We understand where we have got to be and I think we will be OK. We are environmentally sensitive and understand our role in the matter.” However, what the Tier 4 regime and other economic factors have done is encouraged more equipment renting and leasing. Rather than counting out a six-figure sum for a new excavator and trying to convince oneself what a good deal it is, equipment executives at URS and elsewhere are more often choosing to amortize the cost of renting one. “We do quite a bit of rental and have done a lot more of it in the last couple of years,” Merritt says. “It’s been driven by the economy. Sometimes renting just makes more sense in the financial model – weighing such things as how long we’ll need a machine, the capital expenditure for a new one versus rental, net return, and so on.” The comparative bottom lines often favor rent, rentto-own, or lease options over outright purchase. Merritt doesn’t see much change in that in the near future. “I see it becoming a bigger part of our industry because of the high capital outlay.” Economic slowdowns affect procurement, of course. The current economy certainly has not warranted iron-buying sprees at URS, but neither has it meant that the fleet is aging. Merritt says the slowdown in the U.S. and elsewhere so far hasn’t really affected the company’s fleet strategy. Workforce and Technology Issues Forty years in the industry – at every level, from manual laborer to mid-management to executive director – gives Merritt perspective on workforce questions. He literally has “been there, done that” in many workplace situations and
Bob Merritt, AEMP’s 2013 Chairman, would like to see more AED dealers involved with the fleet managers’ association to complete the “Equipment Triangle.”
URS fleet is parked after a day’s work at a Washington State reclamation project.
has a good idea of what it takes to succeed. And his experience recruiting quality employees mirrors the rest of the industry: There is not a plethora of candidates to fill critical positions in equipment operation and maintenance. While URS companies have talented and skilled people in these positions, Merritt says “there is a general lack of skill out there.” The company has 50,000 employees in about 50 countries, so training programs are de rigueur, including certified training programs for new and veteran equipment operators. Recruiting capable people to the maintenance side of operations, however, is something else. “Finding people who are willing to give maintenance a try is a little harder,” Merritt said. “I think it is going to be challenging to get those maintenance-type people, those technicians. It takes highly qualified and intelligent people to work on equipment today. The day of using a big hammer to fix something is gone.” All of which means that companies like URS will keep turning to equipment distributors for help in keeping machines running. “A lot of work is going to be put back on the dealers,” acknowledged Merritt, “and they’re trying. Dealers are making a concerted effort to meet the goal of keeping our equipment operating.” Basically, the pressure to employ heavy equipment technicians is shifting from owners of the equipment to equipment suppliers. Responsive dealers are recruiting to expand their shop and field maintenance work crews and are upgrading their support equipment. Like it or not, for companies like URS it’s the new paradigm in maintenance. In theory, today’s bigger, more agile, and more versatile pieces of equipment do more work more efficiently than the old ones – and in some cases are engineered to run longer with less maintenance. In fact, when a GPS unit goes haywire, a laser-guided mechanism shuts down, or some other electronic guidance or operational system fails, whipping “a big hammer” out of the toolbox is not something a machine operator can do. He just climbs down from the cab and calls for a field repair truck, which as often as not is dispatched from a dealership. One technology that excites Merritt is telematics, which integrates GPS, computers and
28 | www.cedmag.com | Construction Equipment Distribution | April 2013
26_Contractor_Conn_Feature_KP.indd 28
3/25/13 12:08 PM
Contractor Connection
telecommunications to monitor the activity of heavy equipment or other remote units. Information is sent, received, and stored, and the data is used to boost productivity, control costs, and manage projects more efficiently. “I think it is going to explode in use,” he said. Not every new technology lives up to its potential, of course, and Merritt cites earlier flawed attempts to electronically monitor fuel use in a fleet. “But telematics has come so far from what it was initially. It is pretty much giving us more data and information than we really know how to use.” The same wireless technology keeps URS and dealers instantly connected via smart phone texting and e-mailing. Twitter and other social media? Not so much, he says. “We haven’t really explored Twitter.” Looking for an Alliance Six years ago, Merritt attended a symposium sponsored by the Association of Equipment Management Professionals (AEMP). He subsequently thought that becoming a Certified Equipment Manager might be a good thing, so he sat down and – always the quick learner – passed the AEMP certification test in a single sitting. In pretty rapid succession, he became chairman of the organization’s Education Committee and, this March, moved up to chairman of the association. Now he has his eyes on equipment distributors. They are, as Merritt puts it, one leg of a three-legged stool, the other two being original equipment manufacturers and end-users, like URS. This “equipment triangle,” as AEMP calls it, can only work if equipment transactions are a “win-win” for all three dimensions of the industry. Because too few distributors are involved in the association’s work, the stool is not as strong as he would like it to be. “We have a really good relationship with the OEM, the manufacturers, but we would love to see more dealers involved,” Merritt said. “We have to do a better job of selling ourselves and of showing how we are a benefit to them and them to us.” He believes wider acceptance among dealers will come from just showing up for a gathering of equipment industry peers. “Every time I leave a conference, I come back with a whole binder of stuff. I tell people, we have to look at this procedure, or at how long to keep equipment, or a million other things.” Insight comes from such gatherings, he says – revelation, almost. Of course, it comes easier to people with open minds and career ambition, people like Bob Merritt, who just decided one day that he “really could do more than just turn wrenches.” And, evidently, he could. n Giles Lambertson is a retired journalist and freelance writer whose interest in the construction industry goes back to his carpentry days. He can be reached at geepeela@yahoo.com.
A Great Way to Connect With Your Customers Equipment dealers have a new opportunity to strengthen their bond with customers while simultaneously beefing up their own fleet management expertise. It’s a certification credentialing offered by The Association of Equipment Management Professionals (AEMP), whose membership is comprised of North American fleet managers with vast collective purchasing and fleet decision-making authority. The Certified Equipment Support Professional (CESP) program was created in 2011 as a tool to educate equipment suppliers on the challenges equipment managers face when making their dayto-day fleet decisions. The newest credential offered by AEMP, the program reinforces the association’s cornerstone philosophy, The Equipment Triangle, which underscores respect and profitability among equipment end users, dealers and manufacturers. “We want to ensure suppliers truly understand how an end-user makes a purchasing decision, be it the purchase of equipment, parts, maintenance, and so on,” Stan Orr, president and CEO of AEMP said. “This certification is designed to enhance a supplier’s understanding of the expectations of an equipment manager. Similar to other AEMP certifications, the CESP covers the 17 core competencies necessary to be an effective equipment professional: Benchmarking; Customer Service; Employee Training; Environmental requirements as they apply to fleet management; Financial Management; Human Resources; Life Cycle Analysis; Negotiations; Outsourcing; Parts Management; Preventive Maintenance; Risk Management; Safety; Shop/Facilities Management; Specifications; Technology; and Warranty. AED dealer sales people and management wishing to achieve CESP certification must complete the application, purchase and study the “Career Equipment Fleet Manager Manual” (guest-edited by CED editor Kim Phelan), and pass the exam. To assist with exam preparation, CESP participants can attend the Professional Development Institute, as well as take other optional educational classes offered at AEMP conferences and online through AEMP University, aempu.org. For additional information, contact Vice President of Education Jim Phillips at 970-384-0510, ext. 202, jim@aemp.org.
April 2013 | Construction Equipment Distribution | www.cedmag.com | 29
26_Contractor_Conn_Feature_KP.indd 29
3/25/13 12:08 PM
Sector Check
U.S. Developing Taste for a New Construction Market:
Desalination
The billion-dollar desalination plant in Carlsbad, Calif., may be the beginning of a wave of desalination projects in the U.S. By Joanne Costin
After 12 years of planning and more than six years working through the state of California’s permitting process, the largest desalination plant in the western hemisphere finally broke ground in December 2012, in Carlsbad, Calif. There’s a lot riding on the success of the $1 billion project, which will turn seawater into high quality drinking water. The San Diego County Water Authority (SDCWA) has agreed to a 30-year purchase agreement for more than 50 million gallons of water a day – about 7 percent of its water supply. It will pay about $2,000 per acre-foot or per 326,000 gallons. The Authority is banking on the fact that the costs – which are now double those of the most readily available alternative – will eventually be competitive. Globally, desalination represents an $18 billion market. However, most of the world’s high-capacity desalination projects are in the Middle East, where energy is cheaper and environmental regulations are more lax. To date, most U.S. desalination plants process inland brackish water from underground aquifers. The first major seawater desalination plant built in Tampa, Fla., in 2002 was fraught with problems including the unexpected bankruptcy of the development firm and construction firm. However, the plant now supplies the region with 10 percent of its drinking water. The desalination industry is
hopeful the Carlsbad project will demonstrate that desalination is a reliable and affordable technology that can provide a high quality, local source of water for seaside municipalities. Success, they contend, may help move along more than a dozen desalination plants proposed in California, as well as numerous others in Texas and Florida. “Having this project move ahead after a decade-long process of developing and permitting is definitely going to be a benefit to future projects in California,” said Bob Yamada, water resources manager for SDCWA. “Having the experience of building a project in the U.S. and going through a very challenging, very stringent public permitting process is a plus for potential development opportunities.” Mark Lambert, CEO of IDE Americas, the company that will design and operate the Carlsbad plant, believes the U.S. is a strong growth market for desalination. “The U.S. is a $2-2.5 billion market annually and it may double in size over the next five years,” said Lambert. “The next desalination plant in California won’t take that long.” Evidence of a wave of desalination activity is apparent. According to John Loveland, vice president of Engineering for Poseidon, developer of the Carlsbad plant, another plant as large as Carlsbad is set to move forward in Huntington Beach, Calif. During the next six
30 | www.cedmag.com | Construction Equipment Distribution | April 2013
30_Desalination_Feature_KP.indd 30
3/25/13 12:13 PM
Sector Check
desalinated water should be part of the water supply and more than 58 percent would be willing to pay more for water. Yamada concurs that reliability is the biggest advantage to desalinated water. “It doesn’t matter if it rains or not; we’re going to have this water supply to count on.”
to nine months they will seek qualified contractors with construction expected to begin in late 2014. Water Scarcity Drives Demand Lambert says the key drivers for desalination in the U.S. are drought conditions, less availability of fresh water supplies and, increasingly, the economics of the existing water system. In a recent press release, the publisher of Global Water Intelligence reported that the United Nations expects 14 percent of the world’s population to encounter water scarcity by 2025. A combination of lower cost membrane desalination and increased water scarcity has led to increasing interest in large desalination plants in the U.S. The Economic Viability of Desalinated Water As water from all sources becomes more expensive, desalination becomes more economically feasible. While desalination doesn’t have to be on a large scale, plants such as the one in Carlsbad and Huntington Beach offer economies of scale. Loveland contends that the price the San Diego County Water Authority will pay for the water is affordable, still pennies per gallon. “While it is more costly than current standards it is on par with any additional sources of supply,” said Loveland. According to an analysis completed by the SDCWA, the costs for desalinated water may be on par with standard treated water by as early as 2024. The biggest advantage to desalinated water, according to Loveland, is that it’s a drought-proof local source of supply. A public opinion poll conducted in late 2012 confirms that residents are on board with the plan. Eighty-two percent of the public in San Diego County felt
A lot is hinging on the success of San Diego’s desalination plant – it will provide a model for more facilities in California and other coastal states, and hence opportunities for equipment dealers.
Carlsbad Financing Project Named “Deal of the Year” The unique financing for the Carlsbad project provides a glimpse into how future infrastructure projects may be funded. The SDCWA has no capital investment in the plant itself. Instead, the project is a result of a creative public partnership agreement between Poseidon Resources and the Water Authority – the transaction features a 30-year water purchase agreement between the two parties that allows the SDCWA to transfer certain key risks to Poseidon while supporting project financing at the investment-grade level. Poseidon bears responsibility for the design, construction and operation of the plant; the Authority will not pay for any water not meeting stringent quality standards. The project’s costs are financed by $734 million in tax-exempt bonds the California Pollution Control Financing Authority issued on behalf of Poseidon and the Water Authority. Private equity investor Stonepeak Infrastructure Partners provided the remainder of the project capital. The SDCWA will own the 10-mile, 54-inch water delivery pipeline that will travel eastward from the seawater desalination plant through Carlsbad, Vista and San Marcos to the San Diego County Water Authority’s Second Aqueduct connection facility in San Marcos. In total, the SDCWA will be responsible for approximately $80 million in project costs. Project Finance magazine recently awarded “North American Water Deal of the Year 2012” honors to the Carlsbad Desalination Project, recognizing the innovation, deal repeatability, best practices, problem-solving, risk mitigation, value for money, and speed of delivery in the financing of infrastructure projects. Meeting Construction Challenges Once the financing was secured, Poseidon awarded contracts for engineering, procurement and construction to the joint venture of Kiewit Shea Desalination. The joint venture is comprised of Kiewit Corporation and J.F. Shea Construction. The plant’s main process design (water pretreatment, reverse osmosis filtration, post-treatment and instrumentation and control systems) will be integrated by subcontractor IDE Americas. Operation and maintenance (O&M) of the plant will also be carried out by IDE Technologies for a period of 30 years. According to Loveland, due to the size and complexity of their projects, Poseidon seeks out construction partners of sufficient size and financial resources. “Only a half a dozen firms meet the requirements in California,” said Loveland. The (continued on next page)
April 2013 | Construction Equipment Distribution | www.cedmag.com | 31
30_Desalination_Feature_KP.indd 31
3/25/13 12:13 PM
Sector Check
(“U.S. Developing Taste for a New Construction Market: Desalination” continued from page 31)
contracts include sophisticated incentives and penalties. “The 35-month schedule is doable, but there is not a lot of time to waste,” said Loveland. The site is co-located with the power plant on a constrained 5.7-acre site. Co-location allows Poseidon to take advantage of existing intakes and outtakes from the sea, which can account for about a third of the cost of a desalination plant. They are currently involved in site preparation that includes demolition of existing facilities and soil remediation. Project Partners East Bay Municipal Utilities District/San Francisco Public Utilities Commission/Contra Costa Water District/Santa Clara Valley Water District/Zone 7 Water Agency California Water Service Company City of Santa Cruz/Soquel Creek Water District The People’s Moss Landing Water Desal Project California American Water Monterey Peninsula Water Management District Seawater Desalination Vessel Arroyo Grande/Grover Beach/ Oceano Community Services District West Basin Municipal Water District Poseidon Resources Municipal Water District of Orange County, Laguna Beach County Water District, Moulton Niguel Water District, City of San Clemente, City of San Juan Capistrano, South Coast Water District City of Oceanside San Diego County Water Authority
“For this initial project we were not experienced at building and operating a desalination plant,” said Yamada. “A risk transfer to the private sector made sense.” Yamada would not rule out that for future projects the model might change. Construction of the pipeline began in March, with the SDCWA actively overseeing this portion of the project. It will also provide design review and construction monitoring to ensure compliance with the Water Purchase Agreement.
desalination project will be significant. A Poseidon report shows the construction project will inject $396 million directly into the state economy, along with $135 million in B2B transactions that would include expenditures for equipment and maintenance services required from area dealers. Finally, there is a $442 million induced effect derived from local spending on goods and services. More than 2,700 construction jobs will be created over the 35-month construction period, including 347 indirect jobs.
Economic Impact The economic impacts of the Carlsbad
Recent Water Woes in Texas Have Sparked Interest in Desalination California isn’t the only state where interest in desalination is growing. In 2011 and 2012 Texas experienced some of the worst droughts in the state’s history. That, combined with population growth, has put a spotlight on diminishing water resources and spurred interest in desalination. The 2012 State Water Plan estimates that the Texas population will rise by 82 percent, to 46.3 million residents by 2060. Even if per-capita water consumption falls from current levels through conservation efforts, in absence of new major water projects the state will be short 8.3 million acrefeet of water. That’s an amount equal to about half of Texas’s water supply today. Desalination has grown from 12 plants producing 22 million gallons per day (MGD) to 44 plants producing 120 MGD in 2010. An additional nine plants have been permitted since 2012, according to a February 2013 report from the Texas Water Development Board. In July 2012, the Texas General Land Office announced it would explore the potential of a desalination project on a 2,000-acre tract of land along Interstate 35, between Austin and San Antonio. Despite proximity to the Gulf of Mexico, Texas does not have a large seawater desalination plant; instead most plants convert brackish water to drinking water. Texas has more than 2.7 billion acre-feet of brackish groundwater present in its aquifers. Seawater is more expensive to desalinate due to its higher salt concentration, and it
Location Pittsburg
Capacity (MGD) 19.2 to 19.8
Not known Santa Cruz
5 2.5, possible expansion to 4.5 10
Moss Landing North Marina Del Monte Beach, Monterey Monterey Bay Oceano
5.4 to 9.0 2
El Segundo
18
10 to 20 2
Huntington Beach 50 Dana Point 15
City of Oceanside Camp Pendleton
NSC Agua Rosarito, Mexico San Diego County Water Authority Rosarito, Mexico Source: Pacific Institute
5 to 10 50, expanding to 150 100 25, possible expansion to 75
32 | www.cedmag.com | Construction Equipment Distribution | April 2013
30_Desalination_Feature_KP.indd 32
3/25/13 12:13 PM
Sector Check
requires more pretreatment to remove suspended solids. In the 2012 State Water Plan, three regional water planning groups recommended seawater desalination as one of the water management strategies that would produce 125,514 acre-feet per year of new water supplies by 2060. The Plan projected that the strategy would represent 1.4 percent of all the new supplies in the state. San Antonio Water System (SAWS) plans to spend $297 million to complete all three phases of a brackish groundwater desalination program in southern Bexar County. SAWS’ future desalination facility will generate about 11 MGD or 12,210 acre-feet per year from the Wilcox Aquifer in Phase I. Phases II and III will be completed in 2021 and 2026 respectively and will deliver a total of more than 27 MGD or 30,525 acre-feet per year. Implications for Dealers Communities burdened by drought conditions know all too well how their economies can be negatively impacted by a shortage of water. The 2011 drought in Texas caused $6.1 billion in agricultural losses. Desalination of both seawater and brackish water stands to be a high-growth market as communities seek to diversify their water portfolios. In the future, dealers are likely to see more desalination projects funded through innovative public-private partnerships that allow government agencies to reduce risk and capital expenditures. Construction contracts are likely to hold stiff penalties and incentives based on deadlines and cost savings. That is likely to put more pressure on contractors and dealers to have zero downtime with their equipment. In fact, according to Jason Williams, general manager at Clairemont Equipment Co., based in the San Diego metro area, that’s exactly what’s occurring with the equipment rented to contractors with incentive-based contracts – it’s got to be up and running, period, and lowhour machinery is in high demand. No one, says Williams, wants to hear from the general contractor about a machine that’s gone down. Even if it’s due to
operator error, it doesn’t matter; it’s still the dealer’s problem. These types of contracts are on the rise, he says, citing another job in which the contractor doubled its crews and brought in workers from Oregon to bring the project in on time. Desalination projects won’t be for the faint of heart; the question is, will dealers be ready to help their customers
catch the potentially sizeable wave of opportunity in a new U.S. sector? n Joanne Costin is a freelance writer and marketing consultant focusing on the construction industry. She can be reached at (847) 358-1413 or jcostin@costincustom.com.
Multi-ply Your Money! Multi-Ripper Bucket with the award winning excavator rock ripping ®
Hi-Cap Multi-Ripper Bucket
Multi-Ripper Bucket
n on nel’s e e s s A an h c y r e Discov1 hit show” # d Rush Maximize force one tooth at a time, “Gol with our patented "Shanks on an Arc" technology.
6 to 9 times the force of a standard 5 tooth bucket
TM
4 times faster than a hammer
eading dge
Also, try our award winning Multi-Ripper Teeth (Twisted) for maximum penetration
"Leader in Excavator Rock Ripping Attachments" Operators Claim: ttachments, www.digrock.com "the best attachment sales@leattach.com ® Inc. 866-928-5800 or 508-829-4855 I ever bought!" April 2013 | Construction Equipment Distribution | www.cedmag.com | 33
30_Desalination_Feature_KP.indd 33
3/25/13 12:13 PM
Tactical
When Disaster Strikes, Dealers are
Power-ful
Power generation dealers were put to the test during Super Storm Sandy By Joanne Costin
Emergencies don’t happen every day, but when they strike, dealers need to be ready – especially power equipment dealers. In a recent webinar conducted by the Diesel Technology Forum, two power equipment dealers, as well as generator manufacturers and federal emergency agencies shared their experiences from Super Storm Sandy and best practices for emergency power generation. Transforming Peak Power Generators to Emergency Prime Power Iconic images of a roller coaster strewn in the water along the boardwalk in the devastated city of Seaside Heights, N.J., were broadcast around the world after Hurricane Sandy hit last October. Mike Dysart, region general manager for Cummins Power Generation, based in Newark, N.J., recalled the dealership’s connection with the town and how their diesel generators and staff became unlikely heroes of the storm. The summer before Sandy hit Cummins Power Generation had installed three 2000 KW, 12,470 volts generators for the Jersey shore town located on a barrier island. The generators were designed to work in tandem with Jersey Power & Light during peak usage periods when the utility was unable to provide enough power. On hot summer days the utility would power on the Cummins generators as the utility reduced the load available to the community. Installing the generators ensured the local business community there would be no loss of power that might cause an economic hardship to the community during the busy summer months. Then along came Hurricane Sandy to test both the community and the dealer. The site selected for the generators proved to be critical to the role the generators would play in the days after the storm. Floodwaters reached just
inches below the generator units at the peak. “We were very lucky the equipment did not get damaged by floodwaters,” said Dysart. Meanwhile, the entire city was without power. After two days, while the area was still on lockdown, four Cummins Power technicians were asked to respond to help restore emergency power to the community. Using FEMA trailers for food and showers and staying in hotels without heat, the technicians reached the generator and changed the sequence of operations from peak shaving to isolated bus – the unit could now provide emergency power to the community. Each tech worked 24/7 in five-day shifts for 20 days following the storm until power was restored. Cummins Power technicians monitored the situation and fueled the generators with more than 1,000 gallons of diesel fuel daily. At the same time, the Cummins Power Generation dealer was busy handling more than 450 customer calls, and making site visits to 250 locations. It provided 24/7 support at many companies including Morgan Stanley, Bank of America, and other network storage companies. As if that wasn’t enough, the company’s Newark branch itself fell victim to flooding, too. Responding to follow-up questions after the webinar, the expert panel emphasized the importance of site selection when installing temporary power. Dealers not only need to worry about wind damage and flooding of the generator but also the location of the battery backup and access to service and fuel sources. Preparing for Portable Power John Callahan, vice president, Power Systems Group, H.O. Penn, believes that while power needs have become more (continued on page 36)
34 | www.cedmag.com | Construction Equipment Distribution | April 2013
34_Emergency_Feature_KP.indd 34
3/25/13 12:40 PM
Tier 3 Portable Air Compressors In Stock! SAVE BIG $$$ BEFORE TIER 4
Sullivan-Palatek 1201 W US Hwy 20 Michigan City, IN 46360 www.sullivanpalatek.com -Ad_template.indd 2
TIER 3 FLEX MODELS DF750-900PH DF950-1150PVH 350 psig DF1300-1800PH CuMMInS POwER
Call nOw!
PH: 219-874-2497 TF: 800-438-6203 Fax: 219-872-5043 email: info@palatek.com 12/19/2012 1:01:35 PM
Tactical
(“When Disaster Strikes, Dealers are Power-ful” continued from page 34)
visible with our increased reliance on computers, it is still a challenge to get customers to fully anticipate what their power needs will be once the disaster is over. Since 2001, the Caterpillar dealer has supported customers through seven hurricanes, three major power events and the Sept. 11 attacks on the World Trade Center. He also knows all too well that conditions created by disasters can sometimes wreak havoc on generator systems as well as the dealership support teams sent to look after them – dealers and their employees are far from immune to the impact of disasters. As Sandy rolled in, the company’s fleet of 200 generators and 300 associated support devices poured out and was virtually depleted by the Thursday before the storm hit. H.O. Penn lost four service vans due to fast-rising floodwaters and had to set up a temporary command in a hotel conference room when their phone and Internet switching service went out. Safety is the No. 1 concern when sending technicians out to monitor generator systems on customer sites, where they can sometimes remain for days. Management is in constant communication and ensure their techs get adequate relief from their
Considerations
H.O. Penn lost four of its service vehicles due to fast-rising floodwaters during Sandy, a reminder that even as they rush to help others, dealers, too, suffer hardships in times of disaster.
duties when their services are at peak demand. Callahan calls on other company resources to step up and help manage his Group’s workload. “The most important thing for dealers, for anyone, is to have an emergency plan,” said Callahan. This begins with a site audit. Among those aspects to be considered in a site audit are how much power is needed and when; connection points and whether or not the emergency power generation will need to power the entire operation or just critical functions. Other considerations include determining where the generator should be located, accessibility to service and fuel, and the effects of sound and emissions. “Emergency power can sometimes stretch out weeks,” said Callahan. “Over time, the sound and exhaust will affect neighborhoods.” While H.O. Penn is experienced in dealing with disasters, Callahan says “every circumstance is different.” They learn from every experience. After Hurricane Sandy the company is now working on developing a better alternative should the phone and Internet go out again. Why Generators Fail While manufacturers pointed out the reliability of diesel, participants in the webinar wanted to know why generators often fail during emergencies. “At Cummins, the No. 1 reason we see gen-sets fail during an emergency situation is because they have been neglected on maintenance,” said Matt Menzel, application engineering team leader with Cummins U.S. and Canada. “Within that category, the No. 1 cause is battery failure,” he added. Other experts agreed. Battery failure could be alleviated up front with proper maintenance or a properly functioning battery life indicator. Wear and tear from shipping can also cause some problems as the units are often in transit to meet local demand. In other situations, generator failure can sometimes be due to other issues within the electrical system.
Power Outages on the Rise The loss of electrical power due to storms, natural disasters and high power demands are occurring with increasing frequency. The cost estimates for outages in the U.S. amounts to approximately $80 billion to $100 billion annually. Two-thirds of the outages are weather related, ranging from ice storms, hurricanes, lightning strikes and other incidents. Our economy’s growing dependence on technology and interconnected systems that require electricity means increased demand for portable power to ensure reliability in the event of a power outage. Hospitals, data centers, water and sewage facilities, fueling stations, and communication and transportation systems require continuous power to protect public health and safety. Whatever the reason for an increase in weather-related disasters, it represents a tremendous opportunity for dealers with power solutions. With each catastrophic event, emergency responders review problems and look for new best practices. As a result of fuel shortages after Hurricane Sandy, New Jersey is considering a legislative bill that would require generators to be installed at gas stations. In New York, a recently proposed bill would provide financial incentives for stations that voluntarily install generators. For dealers in the power systems business, all of this means one thing – growing demand for equipment and services. n
Portable Power in an Emergency
Important Considerations for Dealers Where will it be located? What is the distance to the connection point? n Is it accessible to service and fuel? n How will the sound and the exhaust affect the surrounding environment? n n
36 | www.cedmag.com | Construction Equipment Distribution | April 2013
34_Emergency_Feature_KP.indd 36
3/25/13 12:40 PM
2.0
F N R
F N R
F N R
F N R F N F R N R
F N R
-Ad_template.indd 2
2/15/2013 9:09:11 AM
Operations
Can Safety Be Bought? Thoughtfully planned safety incentives can work when you understand what behavior you really want to motivate, and – separately – what results you want to achieve long term. By Maria Vomiero
Safety incentive programs may seem simple on the surface, or even necessary, such that no self-respecting safety director would consider a safety program complete without a good incentive program. Yet implementing a safety incentive program that effectively sustains positive cultural change is no small feat and requires a thorough understanding of both the individual organization as well as the science behind incentive programs as a mechanism in behavioral motivation. The Science Behind Behavior Motivation Incentive systems are based on the “pleasure principle.” Behaviors that are rewarding continue; behaviors that are not rewarding cease. Incentive systems are actually part of everyday life and embedded in many familiar activities. As parents, we struggle to get our kids to eat all their vegetables, learn to read, and do their chores. We typically tie these activities to some type of reward program that will be motivating enough in the short term to permanently
change behavior in the long term. Air miles, VISA points and all kinds of frequent-shopper programs are examples of incentive programs aimed at driving certain consumer loyalty behavior in adults. However, organizational incentive systems aimed at driving specific safety performance results can be slightly more complicated. In order to understand incentives and rewards in any setting, we need to first understand where rewards fit in our psychosocial makeup as human beings. Let’s go back to basics: What do people need and want? Ensure Basic Needs Are Met First! Maslow’s Hierarchy of Needs, developed in 1943, breaks down human needs into five basic categories: biological and physiological needs, (air, food, water and shelter), safety needs, (security and protection), love and social needs (affection, family, relationships), esteem needs (reputation, status) and self-actualization (self-fulfillment, and the full utilization of capabilities and talents).
38 | www.cedmag.com | Construction Equipment Distribution | April 2013
38_Safety_Feature_KP.indd 38
3/25/13 12:22 PM
Operations
The principle behind this hierarchy is that lower level needs (also called “deficiency needs”) must be satisfied before higher level needs can be met. Translated into organizational principles, if employees are not being fairly paid so that their basic needs can be met, or if they are in a hostile, unstable work environment, award systems that target higher-level needs for recognition will not be effective. Reward and incentive systems that provide challenges, stimulate creativity and attempt to drive sustainable safety performance results require individuals to feel that they are fairly treated, respected, and working in a positive, socially stimulating environment. Why Incentive Systems Fail Even with the fundamentals in place, however, implementing organizational incentive systems effectively can be problematic and therefore has been the subject of much heated debate. Proponents of using behavioral interventions argue, for example, that financial incentives can be useful in motivating employees to carry out certain behaviors, while opponents maintain that extrinsic incentives may in some way crowd out intrinsic motivations that are important in producing the desired behavior. Further, even if short-term gains or objectives are realized, there is the risk that when the financial incentive is removed that behavior will revert to previous levels, or, in many cases, deteriorate as the intrinsic drive for performance has actually been reduced. Studies in the education system in which incentives were linked to performance actually demonstrated discouraging results. In one example, a reading-based reward program was introduced to children for whom reading was already an activity of choice. While this activity proved very lucrative, because the kids already loved to read, the children’s motivation slowly shifted from reading for pleasure to reading for prizes. In other words, the intrinsic drive was actually diminished by the introduction of an extrinsic motivator. Certainly this might lead one to rethink the concept that an incentive
program may be the key to organizational bliss. This is particularly alarming in an area such as health and safety, where you want individuals to make good choices 100 percent of the time. It is disturbing to think that an incentive structure would drive safe behavior solely contingent upon rewards, or, even worse, that once the incentive is withheld or removed, that unsafe practices will once again prevail. While we all understand that fear and coercion are demotivating, and while the good old “kick in the pants” leadership style may produce “movement but certainly not motivation” (according to Steven Kerr’s “Ultimate Rewards, What Really Motivates People to Achieve”) punishment and rewards are viewed by some as two sides of the same coin. Rewards can also have a punitive effect because they, like outright punishment, are manipulative. According to some behavioral scientists, “Do this and you will get that” is not really much different from “Do this or here’s what will happen to you.” Specifically, an individual who is hoping to receive a specific reward, but for whom that reward is withheld, cannot really distinguish this feeling from that of being punished. So, while you may be making your award-receiving 5 percent safer, more productive and highly motivated, can you really afford to alienate or de-motivate the other 95 percent of your employees? Your organization’s injury rates would be through the roof! Can Incentive Systems Permanently Change Behavior? At this point, you may be wringing your hands or packing up your briefcase; there is no way that incentive programs can prove effective, and in fact, they may actually detract from performance in the long term. Take heart! Despite numerous challenges all is not lost. In fact, a well thoughtout, carefully designed safety incentive program can go a long way to help support key elements in your safety program and play a role in creating a positive safety culture. Don’t Confuse Objectives with Outcomes! One downfall of many current incentive systems is that they incent specific safety results as opposed to the behaviors that aim to drive these results. The most common focus of many organizations today is Lost Time Injuries (LTI), and the often elusive yet much coveted Zero LTI Rate is the target upon which many incentives are based. Nobody would debate the value of achieving zero lost time injuries. However, while we all agree on the merit of this result, is this a goal of your safety program or is it the outcome or byproduct of a having a positive safety culture? I would suggest that achieving zero lost time injuries, or your target recordable rate is the result of achieving a strong safety culture founded on safe practices. Therefore, the key is developing an incentive program that rewards the right behaviors that will help reduce injuries overall. In any (continued on next page)
April 2013 | Construction Equipment Distribution | www.cedmag.com | 39
38_Safety_Feature_KP.indd 39
3/25/13 12:22 PM
Operations
(“Can Safety Be Bought?” continued from page 39)
organization, some of these behaviors include: n Management commitment n An active, engaged safety committee that performs inspections and meets regularly n Proactive hazard and near miss reporting n Comprehensive and closed-loop incident investigation that ends with corrective action By focusing on behaviors as opposed to rewarding specific outcomes your incentive program will have the effect of changing the way people work and approach safety over the longer term. Safe work practices are founded on good habits. By reinforcing safe behaviors, through positive incentive, these behaviors will become good habits. Over time, even if the incentive is altered or removed, the habit will have become hard-wired as part of the individual’s approach to their job. Habit formation theory tells us that even though changing habits may have little value in the short term, they have enormous value in the long term and,
if repeated, over time individuals will see the benefit of this new behavior as contributing to their overall well-being. For example, if a company is rewarded for regular safety committee meetings and completion of monthly workplace inspections, over time, this behavior will reduce hazards, increase employee engagement, and therefore reduce injury rates. Over time, they will come to see the value that this activity produces for the organization and the employees and will be intrinsically motivated to continue. You will have “taught them to fish” and that has long-term value that cannot be taken away. The other flaw with rewarding specific outcomes as opposed to key behaviors is that despite an organization’s best efforts, due diligence and safe work practices, a serious injury may still unfortunately occur. No management system is flawless. Having an incentive system tied strictly to injury rates will leave a safetyconscious organization deflated when one injury in February causes the entire year’s Zero LTI incentive to be thrown out the window. Rewarding behaviors and safe practices allows for the unfortunate, albeit preventable, “blip” in the injury radar while still
The best safety incentive programs encourage a team approach in which employees are looking out for each other.
keeping the troops motivated and focused on all the right things that will continue to drive improved safety performance. Therefore, the first step in any safety incentive program is to identify and reward the right behaviors such that healthy, solid and foundational safe practices are being ingrained in the organization simultaneously. Incentives Should Foster Teamwork! Most of us would agree that in order for an organization to be successful, it takes commitment from everyone! And yet, most incentive programs allow for a “top winner” or involve competitions where if Employee A wins, then Employee B cannot win. In a safe organization, everyone wins, therefore incentives should promote teamwork, collaboration and be based on collective efforts rather than individual achievement. According to motivation expert Steven Kerr, “the surest way to rupture relationships is to force people to compete for rewards or recognition to rank them against one another.” It stands to reason, then, that when collective effort is required for success, team-based awards that reward cooperation work most effectively both in the short term, in terms of focusing a group on a common goal, but also in the long term because they hit the sweet spots of team building, communication and collaboration, which are key skills that need to be learned. In fact, according to an “EHS Today” article by Sandy Smith, incentive programs aimed at individual workers increase performance 27 percent while programs aimed at teams increase performance 45 percent. For example, setting a near-miss reporting target for the branch will drive employees to coach one another on near miss reporting, and encourage more safety conscious employees to point out hazards to less experienced workers in an effort to help achieve their team goal. In this collaborative, supportive environment, everyone benefits.
40 | www.cedmag.com | Construction Equipment Distribution | April 2013
38_Safety_Feature_KP.indd 40
3/25/13 12:22 PM
Operations
What Types of Motivators are Meaningful? Once you have identified the behaviors (not outcomes!) that you want to reward, it is equally important to ensure you have the right motivators in place. Cash or gifts? How much? How frequently? These are all key questions that can make or break your incentive program. As a starter, employees, if asked, will always say they prefer cash. After all, cash is universal and flexible; i.e., “I can get whatever I want.” However, an extensive research study with more than 8 million employees in 1,600 organizations showed that $3 in cash was required to affect the same result as $1 in noncash awards. So, if you are going to use cash as an incentive, ensure you’re dangling enough at the end of the carrot. Further, cash awards tend to have lasting impact of about two weeks in duration; and they are most often used to pay bills, as opposed to purchasing something special that is in some way linked to the achievement. And when noncash awards are being offered, a broader choice of awards (within a predefined value range) is always much more effective than a single predefined noncash award which has the possibility, despite great intentions, of missing the mark. Is it possible for the award to be too large? On the surface, you might think that’s impossible – more is better, right? While increasing the level of reward, cash or otherwise, does typically increase effort and output in most cases, an interesting study demonstrated that once the awards got too rich, the “choking” factor came into play. The scientists offered financial rewards based on performance, anywhere from zero to $100. Would the cash help? At first, the scientists found that the participants improved as the incentives rose. However, after a certain point the participants gave in to the pressure and choked. By studying brain activity, they determined that when incentives rose, their aversion
to loss kicked in, and participants started thinking more about losing than winning, thus derailing their performance. In terms of designing incentive programs, creating incentives that are too rich, particularly when the participants are not in complete control of achieving the goals, can be very discouraging and counterproductive. Who Designs the Program? This seems like a simple question with an obvious answer. The safety incentive program should be designed by the health and safety director or possibly the senior management team. After all, these individuals know exactly what needs to be accomplished and how. While I would give the leaders some credit for knowing what behaviors need to be driven, I would hesitate to give them full marks on how this needs to be accomplished. Incentive programs structured with employee input work better, and incentive programs that are less prescriptive and allow for more creativity in terms of how specific objectives are to be met are found to be most successful. A final and critical element within any incentive program is timeliness. In general, the closer the incentive is in time to the desired occurring behavior, the stronger the association will be between the incentive and the behavior. Consequently, incentives that are given days, weeks, or worse yet, months after the behavior has occurred are not likely to be very effective. In fact, smaller, more frequent incentives are more effective at driving a change in behavior than larger rewards that take substantially more effort to earn. Summary: Keys to Success Incentive programs can be one useful tool in helping to drive a positive safety culture if thoughtful consideration is given to the following: n Incentive programs can only be successful if the organization already has a fair compensation program in
place and the work environment is supportive and respectful. n Safety incentive programs should seek to identify and emphasize those critical behaviors that will, if ingrained over time, create a safety culture that is self-sustaining and intrinsically motivating. n Team-based awards that foster collaboration produce better longterm results. n Employee involvement in structuring incentive programs will increase engagement, buy-in and effectiveness. n Cash awards are more easily diluted and less valued over time, yet, when noncash awards are offered, choice is important. n Smaller, more frequent rewards linked directly to specific behaviors and achievements are more effective at driving permanent change than the big reward tied to the “big win.” However, the incentives must be given on a timely basis in order to be effective. n Measure the results, and if you are not achieving the desired outcomes, then take a pulse check to ensure you’ve structured incentives around the right elements. A closing point is that Rome wasn’t built in a day. However, during construction, the team learned many useful skills and strategies, and refined their process so that the next city they built went much more smoothly. Re-evaluate your program regularly, make changes to keep it fresh and exciting, and be prepared to toss out what’s not working and embrace new strategies. When the above strategies are thoughtfully executed, your safety incentive program will be one effective component of your overall safety culture. n Maria Vomiero is is the Health and Safety supervisor at Toromont CAT, in Ontario, Canada. She can be reached at mvomiero@toromont.com.
April 2013 | Construction Equipment Distribution | www.cedmag.com | 41
38_Safety_Feature_KP.indd 41
3/25/13 12:22 PM
Best Practices
The Mechanic Who Cheated Death
The true story of how a safety trainer’s persistence paid off. By Kent Vander Griend
Years ago, I worked as a mine trainer in an open pit mine. I took my job pretty seriously, because I had previously worked as an equipment operator and a blasting team leader, and I know what one moment’s lapse of precaution can do in this unforgiving climate. I’ve seen the aftermaths of accidents on several mine sites in my career. It’s haunting to see what heavy machinery can do to the human body. That’s why it bothers me so much when people don’t follow safety procedures or use their personal protective equipment properly. Life is so fragile. But people tend to get complacent, especially when they’re doing the same job, day after day, during long 12-hour shifts. Some workers think, “Nothing has happened to me yet, so I must be safe. Nothing will ever happen to me.” I have heard many times in my experience as a trainer: “I have done this a thousand times this way and it works for me!” But they’re wrong. Dead wrong. Bob’s Bad Safety Attitude During my tenure as mine trainer, I worked with a heavy-duty mechanic – we’ll call him Bob (to protect his identity). He was a really big guy - tall, large proportioned, massive hands – he was just a big boy! From time to time, Bob and I would cross paths on the shop floor, where he had this habit of wearing his safety harness leg straps dangling loosely around his knees. That bothered me, because I believed it sent the wrong message to his fellow workers – that not wearing your personal protective equipment properly was somehow
acceptable. Only it wasn’t! We’re all responsible for each other on and off the mine site. In his own little way, I believed Bob subtly undermined the safety attitudes of his peers through his behavior. I had trained Bob on the proper use of the safety harness before I trained him on the aerial work platform he utilized frequently. So, I warned Bob several times over a period of weeks that he needed to hitch up his safety harness properly. He would swear at me, give me some limp excuse and tighten them up. The next time I saw him it was the same thing. It was very clear that he wasn’t taking my warnings seriously. The third time I saw him walking around like that, I decided that I’d had enough. It was time to make a statement. So I walked up behind him and pretended to pull his safety harness sharply upward into his crotch. That got his attention, and I again reminded him of what would happen if he fell in a harness he was wearing that way. I wasn’t about to let him get the best of me. I refused to back down. I really pissed him off that day! But I made my point in a memorable way. Not only did he and his gonads get that message very clearly, but so did the other people within earshot of us in the shop that day. I didn’t see Bob again for about a month. The next time we encountered each other, he came right up to me and admitted that my safety harness “wedgie” saved his life just a few days earlier. As tears welled up in his eyes, this giant bear of a miner told me about a traumatic incident that nearly cost him his life.
A Brush With Death Bob had been working in the basket of an aerial work platform, changing out the huge hydraulic cylinders of a hydraulic shovel. Without warning, a chain broke on a come-along, the cylinder fell and hit the lift arm of the platform, catapulting him out of it. Fortunately, because he was properly wearing his safety harness and was tethered to the basket, it broke his fall and prevented him from plunging to his death. He walked away from this near-death experience with only bumps and bruises, plus a severely shaken ego. He was a changed man. He knew that he had cheated death. “You saved my life,” he sobbed. “Thank you for being so persistent about getting me to wear my safety equipment. I owe you - big time!” he added. That was the point in my career when I knew I could make a difference. The Lesson The lesson of this true story is quite simple: Never become complacent. Just because something hasn’t happened to you yet doesn’t mean you’re “safe.” An accident can happen anytime, anywhere. Follow the proper safety procedures for each part of your job. Use the provided personal protective equipment properly. Or it could cost you your life! n Kent Vander Griend is an account manager at VISTA Training Inc., a developer and supplier of safety training products and services to the mining, construction and related industries. He can be reached at kvandergriend@vista-training.com.
42 | www.cedmag.com | Construction Equipment Distribution | April 2013
42_Best_Practices_Feature_KP.indd 42
3/25/13 12:23 PM
Equipment_Watch_March.indd 44
5/7/2010 7:01:01 PM
Profit Improvement Report
Bending the Payroll Cost Curve Growing payroll expenses at a rate equal to that of sales growth is one of the prime barriers to distributor profitability. By Dr. Albert D. Bates
The phrase “bending the cost curve” is widely used today, largely with regard to health care. That is, as a society there is a need to slow the growth of the cost of providing health care services. Bending the cost curve is also a useful concept for distributors, but it needs to be expanded. Distributors, such as AED members, need to think in terms of bending the entire payroll cost curve, not just the health care component. Simply put, the poor management of payroll costs is second only to inadequate gross margin as a barrier to achieving desired levels of profitability. At the same time, payroll is not just an expense item like, say, utilities. Payroll costs represent the employees who provide the services that allow the firm to generate adequate sales. Slashing and burning with regard to payroll is, at best, a counterproductive activity. The real task is to lower payroll costs relative to sales without diminishing any aspect of customer service. This report examines the nature of the payroll challenge. It will do so from two important perspectives: n The Long-Term Payroll Challenge – A discussion of the experience of distributors, including AED members, in controlling payroll over time. n Actually Bending the Curve – Some specific suggestions for improving payroll performance while maintaining employee esprit de corps. The Long-Term Payroll Challenge The central reality in distribution is that over time, payroll has remained an almost constant percent of sales. The
Profit Planning Group has a financial database of more than 50 lines of trade in distribution. For many of those associations, information goes back 20-30 years. Adjusting for economic conditions, payroll costs are virtually unchanged from 20 years ago. That is, in a moderate-growth period 20 years ago, payroll was about the same percent of revenue as it is in a moderategrowth period today. AED members are not exempt from this reality. There are three factors at work to undermine the inability of firms to lower payroll as a percent of sales: Workload Growth, Productivity Reliance, and Sales-Based Planning. Each of these has its own implications. Workload Growth. As firms continually increase their sales, there is a need for more warehouse employees, more drivers, more credit analysts and the like. This is a benign inevitability that offers little potential for meaningful cost control. Productivity Reliance. Distributors have steadily increased productivity, especially on the operations side of their businesses. Indeed, key productivity measures, such as sales per employee, have experienced impressive growth. The reality is that productivity improvements are a necessary but not totally sufficient means of controlling payroll costs. If investments in technology are not made, payroll costs will probably rise as a percent of sales. At the same time, improved productivity does not translate into lower payroll costs relative to sales. Expansions of the services provided seem to offset productivity gains. Sales-Based Planning. The real culprit is the planning
44 | www.cedmag.com | Construction Equipment Distribution | April 2013
44_Bates_Profit_Feature_KP.indd 44
3/25/13 12:25 PM
Profit Improvement Report
dynamic pervasive throughout the economy that tends to relate sales growth and payroll growth. Part of this is a tendency to pay employees for breathing. As long as employees continue to breathe each year, they continue to receive pay increases. The most serious aspect of the philosophy of sales-based planning is that management does not have realistic parameters for actually improving payroll performance. Without them, it seems inevitable that the no-improvement trend of the past will continue in perpetuity. A new planning perspective is essential.
Exhibit 1 The Impact of Various Sales and Payroll Growth Scenarios For the Typical AED Member
Income Statement--$ Net Sales Cost of Goods Sold Gross Margin Payroll and Fringe Benefits All Other Expenses Total Expenses Profit Before Taxes
Current Results $35,000,000 27,475,000 7,525,000 4,025,000 2,870,000 6,895,000 $630,000
5% Payroll Growth 36,750,000 28,848,750 7,901,250 4,226,250 3,013,500 7,239,750 $661,500
Income Statement--% Net Sales Cost of Goods Sold Gross Margin Payroll and Fringe Benefits All Other Expenses Total Expenses Profit Before Taxes
100.0 78.5 21.5 11.5 8.2 19.7 1.8
100.0 78.5 21.5 11.5 8.2 19.7 1.8
---5% Sales Growth--3% Payroll Growth $36,750,000 28,848,750 7,901,250 4,145,750 3,013,500 7,159,250 $742,000
100.0 78.5 21.5 11.3 8.2 19.5 2.0
7% Payroll Growth 36,750,000 28,848,750 7,901,250 4,306,750 3,013,500 7,320,250 581,000
100.0 78.5 21.5 11.7 8.2 19.9 1.6
Actually Bending the Curve The fundamental necessity in bending the Change in Profit--% 5.0 17.8 -7.8 curve is that sales must grow faster than the payroll expenses required to generate those sales. Payroll does not just include wages alone; sales must a result, profit actually fell by 7.8 percent. In short, even increase faster than fully loaded payroll expenses – includmodest changes in the size of the sales-to-payroll wedge ing all salaries, commissions, bonuses, social costs (Mediproduce large changes in profit levels. care and FICA) as well as health insurance and retirement, The entire discussion has focused on planning for a usually a 401(k) program. positive sales-to-payroll wedge. It employed a 2 percent The concept of increasing sales faster than payroll is delta, which is a realistic planning goal. However, planwhat is commonly called a sales-to-payroll wedge. Astute ning for improved results and generating them are two readers will remember that the author has hounded them different things. on this concept before. Since payroll costs continue to rise The key in actually producing a positive sales-to-payroll in tandem with sales, the author is dedicated to hounding wedge continues to be a careful analysis of transaction once again. economics. That is, the same level of sales volume can Exhibit 1 demonstrates the impact of the sales-to-payroll produce very different profit levels, depending upon the wedge on the typical AED member based upon the latest amount of work required in each transaction. CODB Report. As can be seen, the firm generates $35 Two key factors have always been important in transacmillion in sales, operates on a gross margin of 21.5 percent tion analysis. The first is the number of line items sold of sales and produces a bottom-line profit of 1.8 percent per transaction. The second is the average line value. A of sales, or $630,000. system that measures these factors and then uses them in Three different scenarios are presented in the table. They planning can go a long way toward actually producing a all involve sales growth of 5 percent. This modest growth positive sales-to-payroll wedge. rate was chosen specifically to demonstrate that rapid growth is not needed to drive higher profit. What is essenMoving Forward tial is payroll control in relationship to that sales growth. Sales growth must be maintained at a level that allows The first scenario has payroll increasing at the same 5 the firm to produce a sales-to-payroll wedge of something percent level as sales growth. In essence, this is a microin the 2 percent range. With such a delta, the long-term cosm of what has happened among AED members over challenge with payroll control can finally be overcome. time. Some years, payroll grows faster than sales, other With even modest sales growth, higher profits will become years the situation is reversed. Over time the two factors a reality. n move forward together. Profit is up 5 percent. Dr. Albert D. Bates is founder and president The second scenario examines the impact of achieving of Profit Planning Group. His latest book, Triple a 2 percent sales-to-payroll wedge. Specifically, payroll Your Profit!, is available at: www.tripleyourprofitincreased by 3 percent while sales grew by 5 percent. book.com, as well as Amazon and Barnes & Noble. The impact of a small one-year delta is dramatic. Profit is It includes Excel templates for understanding and increased by 17.8 percent. Further, profit is now 2 percent building the sales-to-payroll wedge discussed here. of sales. Š2012 Profit Planning Group. AED has unlimited duplication rights for this manu The last scenario presents the impact of a negative script. Further, members may duplicate this report for their internal use in any way sales-to-payroll wedge. In this instance, payroll grew by desired. Duplication by any other organization in any manner is strictly prohibited. 7 percent in conjunction with 5 percent sales growth. As April 2013 | Construction Equipment Distribution | www.cedmag.com | 45
44_Bates_Profit_Feature_KP.indd 45
3/25/13 12:25 PM
Join other AED members and Keep More Money. AED and Veritas partner to deliver health insurance that helps control costs. Rising healthcare costs are not news. But a new health insurance program available exclusively to AED members is big news. The AED group medical captive program can deliver real savings to employer bottom lines. How do employers save? • Premium credits in good-performing years • National network of providers • Better decisions through access to medical claims information • Low administrative expense and complete transparency • Employee wellness program
Get more information about the AED health insurance solution and request a quote today. Call Doug Truax at 630.601.1502 or email doug_truax@veritasrs.com. Take control of your company’s health insurance costs starting now – and keep more money.
© 2012 Veritas Risk Services, LLC. All rights reserved.
-ad template.indd 1
Knowledge. Delivery. Truth.
6/15/12 1:05 PM
On the Numbers
Get Control of 2013 Strategies to help you create more financial and overall business direction for your dealership.
By Garry bartecki
Over the years, I have made a habit of getting together at least annually with the dealers I’ve worked with to hold an annual shareholder meeting in order to: n Review the trailing 12 months operating results n Note issues that kept us from reaching our goals n Discuss the game plan and cash requirements for the next 12 months n Determine how the tax minimization program is working n Get input how other risk factors affect the business It’s always been time well spent, giving us a follow-up list included in the meeting minutes to ensure the items listed were completed in a timely fashion. Many times, if there were important transactions to complete, we would reconvene in early July to update and adjust the program as required. The annual meeting was always attended by me, the company attorney, the tax partner working on our account, the CEO, COO and CFO, the sales manager and other professionals as required. Each of us would submit agenda items at least 30 days before the meeting and the CEO and I would finalize the agenda in time for all participants to prepare as necessary. From the financial side we reviewed at least a draft of the year-end audit report, paying close attention to the Statement of Cash Flows (the only statement that matters), the footnotes and any proposed journal entries, whether they were posted or not. This process alone provides a pretty good idea where we need to tighten up financial controls, especially if the year-end adjustments are too large to go unaddressed. We also passed out copies of the
latest Cost of Doing Business Report (at the July meeting) and asked for any benchmarking data provided by the OEM or any 20 Group the dealer belongs to. These meetings last five to seven hours without considering prep time. The July meeting takes maybe half a day. You can add another day (at least) to compile the minutes, supporting documents and follow up schedules. We cover the obvious financial and tax review, but also the state of the market in terms of our territory, OEM issues, competitor issues, HR programs, manager performance and bonuses, banking relationships, terms and loan covenants, sales compensation, employee benefit plan contributions, fiduciary compliance issues, executive comp programs and payments, outstanding lawsuits, current dealership value and other risks directly related to the business. These meetings accomplish these vital functions: (1.) Getting the management team on the same page going forward (2.) Putting the shareholders in legal and fiduciary compliance (3.) Generating a list of solutions to improve operating results and cash flow One thing is for sure: Once you start having these meetings they will become a regular part of your management program. I believe gathering a group such as this provides benefits to the management team because discussion can be initiated by any member of the group, whereas they may be reluctant to do so as part of day-to-day operations. As you can tell, these types of annual meetings add a professional quality to your company and professionalism
to C-level personnel. Other employees, knowing that these meetings take place, also have a level of comfort that any issues affecting personnel or the company were discussed at a formal meeting comprised of outside “board” members and advisors. You may want to give this process a try if you believe your company needs more direction and focus regarding financial and general business matters. Staying on Top of Your Rental Game In February, we held a financial webinar for AED dealers, and spent most of our 90 minutes discussing the new 3.8 percent tax on net investment income and the IRS request for comments on dual-use property. Next month at the semi-annual CFO/Rental conference, May 2-3, we plan to get into the details of these new tax laws using examples of how they work and how to mitigate the tax impact. There is a lot of material to cover and I encourage you to attend the conference if you need to understand how these new rules work. I believe dealers in the rental business especially need to understand these new rules if they are making decisions about the rental department and do not wish to deplete their cash position because they paid taxes they didn’t need to pay. The new tax issues are complex with the potential to add large amounts to taxable income. On the other hand, there are ways to control the tax burden if you know what you are doing. We can help with that. See our CFO Conference program line-up and sign up at aedu.org/714. Garry bartecki (gbartecki@ aednet.org) is AED’s vice president of Finance.
April 2013 | Construction Equipment Distribution | www.cedmag.com | 47
47_On_the_Numbers_KP.indd 47
3/25/13 2:17 PM
-Ad_template.indd 2
3/20/2013 8:37:11 AM
Recruitment & Retention
Personality Testing – Should I, or Shouldn’t I? When it comes to standardized pre-hire tests, there’s no such thing as one size fits all. By Jerry Randecker & Chris Sitter
Prospective clients often ask if our firm includes a formal personality assessment as part of our evaluation process. The answer is no; however, we recently decided to re-assess the pros and cons of this evaluation tool. We weren’t surprised to learn that the use of personality tests in the hiring process has been on the rise for the past 10 years. A recent survey by The Aberdeen Group indicates 56 percent of the companies surveyed are using a pre-hire assessment that can check personality, cognitive ability, and/or competency among other areas. The most frequently given reason for adding testing is to help withstand legal challenges. Another factor is the ease of completing and administering the tests online, which is a huge advantage over the traditional pencil and paper process. What was surprising is that there are more than 2,500 different personality questionnaires offered in the marketplace. We did not attempt to evaluate all of them, but it is likely that each offers a unique method or process to assess potential candidates. It logically follows that each test also has the potential of reaching a slightly different conclusion about the personality components on which they are focused. It is critical to understand that assessments often focus on specific character traits. For example, the test used to evaluate the technical capabilities of an engineer is not the same one that should be used to evaluate the gregarious nature of a salesman. This obvious example is only mentioned to highlight the fact that “one size does not fit all.” JSA has numerous clients who utilize personality assessments in their
internal process. Their use ranges from having the candidate complete a simple form (DISC, Briggs-Meyers, Caliper, or the Cleaver Profile) to having the candidate meet face-toface with an assessment and development professional. The latter method can be expensive and is primarily used for senior level executive placements. If you are considering adding this tool to your evaluation process, or if you are evaluating your current testing methods and looking for alternatives, here are some things to keep in mind: n Make sure they’re legal. The EEOC does not automatically accept the results from all standardized tests as nondiscriminatory. Hiring a professional firm will mitigate this risk but, as noted earlier, can be very expensive. How the test is created, its intended purpose and how you administer the results are all areas that may be challenged if the test is used as a reason for hiring or not hiring the candidate. n Choose the test that measures what you need. Some companies ask every prospective candidate to complete the exact same assessment questionnaire. Our observation is that the company then either does not fully utilize the test results or they use the results to help predict if there is a good personality fit with the rest of the team. JSA has seen this used very effectively early in the evaluation process by a small firm (less than 100 employees) to quickly eliminate candidates who would not be a good “fit.” However, in doing so, it also could eliminate some well-qualified candidates just because of the way they elected to answer a series of questions. This leads us to our third point. n Be aware of the limits of the
test you are using. Reputable tests can identify personality traits, however none can actually predict whether a person will succeed in a job. Management style (theirs and yours), corporate culture, previous experience and training all have a huge impact on the future success of a candidate. Since our firm fills various senior level positions for a wide variety of clients in the heavy equipment industry, we continue to believe that using one standardized test to assess candidate potential and organizational “fit” is not a good tool for us. As we have highlighted in past articles for this magazine, the most important foundation for hiring the right candidate starts with development of an accurate and comprehensive job description. The position spec identifies company values and character traits that are required for each specific role. Interview questions and reference questions can then be honed to evaluate how a candidate will “fit” and how his or her experience will contribute in this new role. We have no doubt that a standardized testing process, which is properly understood and accurately administered, is a valuable tool that should be considered. However, it should be only one of many tools in your process and should not displace the face-to-face interview complete with questions designed to validate your initial “gut feel” about each finalist candidate you meet. Jordan-Sitter Associates is an executive search firm focused primarily on the heavy equipment industry. Jerry Randecker and Chris Sitter can be reached at jerry@jordansitter.com, chris@jordansitter.com, or 210-651-5561.
April 2013 | Construction Equipment Distribution | www.cedmag.com | 49
49_recruit & retain_KP.indd 49
3/25/13 12:27 PM
When you can do that it’s smooth sailing. And Wacker Neuson got it done with a Vanguard™ on board. They’re not alone. Every day more leading construction equipment manufacturers are looking to kick it up a notch, too. That’s why they’re putting Vanguard commercial-duty engines to work on the most demanding job sites. Now it’s your turn.
See how Vanguard-powered equipment will work even harder for your dealership. Visit vanguardengines.com/construction.
POWERED BY
-ad template.indd 1
3/24/13 12:50 PM
Aftermarket
Get a Handle on the True Parts and Service Volume in Your Territory If you can calculate the potential, the rest is easy. By Ron Slee
The past couple of months we have talked about product support selling. I am calling this “The New Frontier” as a result of my conclusion that we really have not started to sell parts and service. Oh, I know you have people in the field; you have assigned them specific territories; you have compensation programs in place; you pay commissions based on sales; and that does the job. I don’t think that is correct. You have to know how your sales team is performing against some type of target. To that end we need to set objectives for each customer. And in more specific terms, we need goals and objectives for each parts commodity and every service program and labor type. Now that is a job worth pursuing, don’t you think? I suspect that many of you believe that I am dreaming. You can’t develop a potential parts and service volume for each customer. I beg to differ. You see it is all about machine population. And that is where this approach typically goes off the rails. I believe that if you don’t know your machine population you don’t know your business. It is as simple as that. Machine Population The key to the potential business available to you is the number of hours worked by a machine and the application within which it works. It is really quite simple. Is it 100 percent correct? No, but it is better than nothing and it is pretty darned close. Over the years, there have been many attempts made to have a definitive market opportunity model created – in fact, decades ago, the Swedish Caterpillar dealer and I worked on one. Many OEMs
have created models to work with at the dealer level. But nothing has really taken hold of the market that is viewed as the definitive model to use. I suggest that the AED mode, which will be revisited in the Opportunities Handbook, should be such a model. It starts with the hours and the application of work for each machine of all brands in your area of responsibility – your sales territory. Do you have an accurate machine ownership list? Does it contain all brands? Is it current and accurate? And this is where things come to a grinding halt. You see, it appears as if it will be a bone-crushing job to obtain this information. Well, it will never get done if you don’t start. You have assigned customers to salesmen. Get an accurate machine ownership from them for their customers. Then the remainder of the customers will have to be assigned. We talked about this in market coverage a couple of months ago. The customers that you have to assign now are all the customers in your territory who are not being contacted by anyone from your company. This delinquency on our part causes defections, and lies at the root of the dilemma in which 95 percent of the business is coming from 5 percent of the customers. Start now and at some point in the future you will have an accurate machine population. What is the next step? You have the hours of work. You have the machine population. Now you can calculate the maintenance hours that will be applied. Go to the Operator’s Manual provided from your OEM. It will list off all of the steps to take during a maintenance interval. Then go to the Standard Time Guide provided by your OEM and obtain the standard times for each of
these intervals for each of the machine families. All that’s left is to do the math. For each customer and the machines they own and the hours they work you will be able to determine maintenance hours of labor if they follow the prescribed maintenance functions from their Operator’s Manuals. Simple, right? Did you know that the hours of repairs are approximately equal to the hours of maintenance over the lifetime of a machine? OK, so you have the machine population, and you will have the year-built on the ownership list. What is the oldest age for each machine category in your territory? That should give you the expected life. Then do the calculation of the maintenance hours for the life and double it. This will be the total number of hours of repairs and maintenance over the lifetime of the machines in your territory. Divide that by the number of years for each model family in your territory and then you can calculate the annual potential of labor hours. Now it is your turn. Assign the customers. Start the phone calls and the visits. Start updating the files. I will go further with the process next month. The time is now. Ron Slee (ron@rjslee.com) is the founder of R.J. Slee & Associates, Rancho Mirage, Calif., celebrating more than 30 years in business in the United States, a consulting firm that specializes in dealership operations. Ron also operates Quest Learning Centers, a company that provides training services specializing in product support, and Insight (M&R) Institute, a company that operates and facilitates “Dealer Twenty” Groups. Follow Ron on Twitter: @RonSlee; and read his blog at learningwithoutscars.com.
April 2013 | Construction Equipment Distribution | www.cedmag.com | 51
51_aftermarket_KP.indd 51
3/25/13 12:30 PM
If government makes your head pound, Don’t get mad –
get active. AED Fly-In May 22-23 Washington, D.C.
Discuss issues impacting your dealership
Gain political insider perspectives
Join AED on the front line of advocacy by attending the two-day AED Fly-In in Washington, D.C. Day 1 Learn what’s going on Day 2 Meet with your members of Congress one on one
Develop your own advocacy skills
Network with dealers and members of Congress
www.aednet.org/fly-in AED Fly In ad.indd 1
2/25/13 10:18 AM
View from the Hill
Transportation: Lifeblood of the U.S. Economy Ensuring the smooth movement of people and products is a collaborative necessity between local, federal governments. By Congressman Bill Shuster (R-Pa.)
Transportation is the lifeblood of the American economy and our way of life. It is about how we get to work, take our children to school, visit with our family and friends, and get to the store to buy food, clothing and other necessities. Transportation is also about business. It is a critical part of how the supply chain functions, how raw materials get to factories, how finished products get to markets, how food gets from farms to our kitchens, and how energy products move from production areas to consuming areas. An efficient national transportation network allows businesses to lower transportation costs, which in turn lowers production costs and costs to consumers. It allows American businesses to be competitive in the global marketplace and for our economy to prosper and grow. Our national transportation system also binds us together. As President Dwight D. Eisenhower observed, without the unifying force of transportation, “we would be a mere alliance of many separate parts.” Early in our nation’s history, the Articles of Confederation failed because they provided no means for Congress to regulate commerce between the states. This weakness was underscored by a dispute between Maryland and Virginia regarding navigation rights on the Potomac River, which prohibited the nation from ensuring a coordinated system of canals and portage roads across the Allegheny Mountains.
Adam Smith, the father of modern economics and author of the “Wealth of Nations,” argued the three essential duties of government are to provide security, preserve justice, and erect and maintain public works to facilitate commerce. Our founding fathers also understood the important role of the national government in carrying out these responsibilities. They wisely remedied the weaknesses of the Articles of Confederation in Article 1, Section 8 of the Constitution, which directs Congress to establish post roads and to regulate interstate commerce. In doing so they laid the groundwork for connecting the country through trade and travel and recognized the critical role of a robust infrastructure network. Throughout our history, from the Transcontinental Railroad to the Panama Canal to the Interstate Highway System, Congress has continued to invest in infrastructure to ensure the connectivity of the nation and to support the needs of the American economy and the American people. We are continuing that work in the 113th Congress. The House Committee on Transportation and Infrastructure is taking the lead in promoting legislation to address our nation’s port and waterways infrastructure needs through a Water Resources Development Act. Inland waterways and seaports link our nation directly to the global economy and our country’s export potential directly depends on the ability to get goods to market.
Additional Committee priorities include finding more cost-effective and innovative approaches to delivering modern and efficient passenger rail service, as well as ensuring we move forward with important aviation modernization reforms to reduce air traffic delays, cut down on emission and pollution, and lower costs for consumers. We must also prepare for the next long-term surface transportation bill. Our national surface transportation network is the foundation on which our economy and our way of life are built. Without significant improvements to this network, and additional reforms to federal programs, transportation will become increasingly inefficient and unreliable, will be a drag on our economy, and will hurt the ability of our businesses to remain competitive in the global economy. We cannot let this happen and we must modernize our national transportation systems. Strengthening our transportation infrastructure is a shared responsibility, from the local level to the federal government. By working together and building consensus on what is best for the future of our nation, we can promote competitiveness, prosperity and economic growth. Congressman Shuster is in his seventh term representing Pennsylvania’s 9th congressional district. He serves as chairman of the House Transportation & Infrastructure Committee.
April 2013 | Construction Equipment Distribution | www.cedmag.com | 53
53_view from the hill_KP.indd 53
3/25/13 2:18 PM
New & Improved
Efficient Compaction Key to BOMAG’s New BW211-50 Single-Drum Rollers Fuel-saving ECOMODE gives operators a nice option. BOMAG introduced its new BW211-50 Series single-drum vibratory rollers designed for efficient compaction of granular and cohesive soils. Meeting Tier-4 regulations, the BW211-50 Series consists of the BW211D-50 smooth drum roller and the BW211PD-50 padfoot roller. The machines offer enhanced fuel economy through a 120- horsepower Deutz diesel engine that features ECOMODE, a system that aids the operator in conserving fuel. To ensure that compaction performance is maximized on a variety of soil surfaces dual vibration frequencies and amplitudes are featured with both rollers delivering frequencies of 1,800 and 1,980 vibrations per minute (vpm) across an 84-inch operating width. In addition, the
New Double-Edged Samurai Knife Mulching Tool from Fecon A reversible double-edged tool with an innovative shape, Fecon, Inc. introduced the Samurai Knife mulching tool. Designed for faster and smoother cutting and for finer chip size, the new tool, Fecon says, is unlike many planer-type tools that simply chip with a straight edge. The Samurai has a tapered edge that slices as it chips and features a unique splitting element on the body that helps material flow past as it is cut. Together with other geometric advantages, the Samurai delivers as much as 50 percent faster production compared to carbide tools. According to the company, it offers approximately 80-100 hours life per edge with actual results varying based on specific operating conditions. For more information visit www.fecon.com
BW211D-50 generates 53,100 pounds of centrifugal force in high amplitude and 32,141 pounds in low amplitude, while the BW211PD-50 provides respective centrifugal forces of 61,825 pounds and 37,434 pounds. Maintenance on the BW211-50 Series is simplified by a polymer hood that opens vertically for quick access to the engine, hydraulics and all service points. Steering cylinder pins, travel bearings and a maintenance-free, bolt-on articulation joint eliminate daily grease requirements, while the engine air intake is positioned high on the roller to increase filter life and reduce overall noise levels. For more information visit www.bomag.com/us
Dynapac Launches New Interim Tier-4 Paver Series
Dynapac has launched the next generation series of F1000 pavers to the North American market designed to meet Interim Tier-4 emission regulations. The F1000 pavers are available in both track and wheeled options to appeal to owners, operators and service crews. Machines are equipped with a Cummins QSB 6.7 liter interim Tier-4 engine, providing a direct-flow air cleaner and new technology in the form of Exhaust Gas Recirculation, Diesel Oxidation Catalyst, and Diesel Particulate Filter systems. A high pressure fuel injection system reduces fuel consumption up to 5 percent over earlier engines. Exhaust emissions of particulate matter are reduced by 90 percent, NOx by 45 percent. For more information visit www.dynapac.com
54 | www.cedmag.com | Construction Equipment Distribution | April 2013
54_N&I_index_KP.indd 54
3/25/13 12:32 PM
New & Improved
Kubota Introduces BX70 Series Sub-Compact Tractors With four tractors included in the series, Kubota Tractor Corporation introduced its new BX70 Series subcompact tractors, the BX1870, BX2370, BX2670 and the BX25D. The series features improved comfort and convenience to enhance operator experience. With an array of ergonomic enhancements and convenience adjustments, such as cruise control and a new deluxe, high-back reclining seat with armrests as standard on all models except the BX1870 (optional enhancement), the units include a new steering wheel that incorporates a smaller hub and greater operator access. All front loaders for the new BX70-Series tractors have been upgraded to accept an optional “Quick Attach” system
utilizing a two-pin system. This allows quick and easy switching from the standard bucket to two new front attachments. The BX-Series tractors are all powered by three-cylinder Kubota diesel engines engineered to work with Kubotadesigned hydrostatic (HST) transmissions. For more information visit www.kubota.com
Mobile Application From PFW Helps Dealers to Better Access Information PFW Systems Corporation, a provider of Dealership Management Systems for equipment distribution dealers throughout North America, announced development of ID MobileAccess 1.0., a new mobile application. The application allows dealers using the PFW IntelliDealer Dealer Management System (DMS) to view information in their system on smartphones and tablet devices. The company designed the product so that dealer personnel can access information stored in the DMS while at a customer location or during a remote service repair. Through the ID MobileAccess dealership personnel can access information wherever they are via Web-enabled mobile devices with the application. Users can search for parts and equipment information including information such as availability by location, price and descriptions. For more information visit www.pfw.com
Advertisers’ Index ARGO - Extreme Terrain Vehicles. . . . . . . . . . . . . . . . . . . . . IFC
Sentry Insurance Company. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Bell Trucks of America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Solesbee’s Equip. & Attachments Inc.. . . . . . . . . . . . . . . . . . 43
Briggs & Stratton Corporation. . . . . . . . . . . . . . . . . . . . . . . . 50
Sullivan-Palatek. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
e-Emphasys Technologies, Inc.. . . . . . . . . . . . . . . . . . . . 22-23 EPG Insurance, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 HKX, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Infor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Leading Edge Attachments. . . . . . . . . . . . . . . . . . . . . . . . . . 33
Vacuworx International. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Veritas Risk Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Wacker Neuson Corporation. . . . . . . . . . . . . . . . . . . . . . . . . 11 Wedgelock North America. . . . . . . . . . . . . . . . . . . . . . . . OBC
PFW Systems Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Wells Fargo Equipment Finance. . . . . . . . . . . . . . . . . . . . . . . 21
Ritchie Bros. Auctioneers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Werk-Brau Company, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . IBC
SANY Heavy Industry Co., LTD . . . . . . . . . . . . . . . . . . . . . . . . 9
XAPT Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
As the official magazine of Associated Equipment Distributors, this publication carries authoritative notices and articles in regard to the activities of the association. In all other respects, the association cannot be responsible for the contents thereof or the opinions of contributors. Copyright © 2013 by Associated Equipment Distributors. Construction Equipment Distribution (ISSN0010-6755) is published monthly as the official journal of Associated Equipment Distributors. Subscription rate — $39 per year for members; $79 per year for non-members. Office of publication: 600 W. 22nd St., 220, Oak Brook, Ill. Phone: 630-574-0650. Periodicals postage at Hinsdale, Ill. 60521 and other post offices. Additional entry, Pontiac, Ill. POSTMASTER: send address changes to Construction Equipment Distribution, 600 W. 22nd St., Suite 220, Oak Brook, Ill. 60523
April 2013 | Construction Equipment Distribution | www.cedmag.com | 55
54_N&I_index_KP.indd 55
3/25/13 12:32 PM
Dealer Data
January Construction Retreats 12 Percent Decline followed sharp 23 percent increase for total construction in December, returning level of contracting to average 2012 reported pace. Year-To-Date Construction Starts Unadjusted Totals, In Millions $
Monthly Construction Starts Seasonally Adjusted Annual Rates, In Millions $ Nonresidential Building Residential Building Nonbuilding Construction TOTAL Construction
January 2013
December 2012
% Change
$150,599
$187,669
-20
172,695
195,013
-11
145,802
147,792
-1
$469,096
$530,474
-12
Source: McGraw-Hill Construction, www.construction.com
Nonresidential Building Residential Building Nonbuilding Construction TOTAL Construction
1 Mo. 2013
1 Mo. 2012
% Change
$10,655
$10,771
-1
11,722
9,243
+27
10,681
9,914
+8
$33,108
$29,928
+11
Source: McGraw-Hill Construction, www.construction.com
Monthly Sales Volume by Original Equipment Cost with Recovery %
Source: Rouse Asset Services. Contact Gary McArdle at gmcardle@rouseservices.com, (310) 363-7520
The graph to the left illustrates sales of used rental fleet by the major North American rental equipment companies for the last 24 months. Each month’s equipment sale volumes are expressed as a percentage of the total original equipment cost (“OEC”) sold in the highest volume month, with December ’11 representing 100%, (e.g. total OEC sold in March ’11 was approximately 80% of total OEC sold in December ’11). Actual sale $ volume is illustrated as the blue component of each bar in the graph. The recovery (i.e. sales $ as a percentage of OEC sold) is indicated within the bar for each month (e.g. March ’11 sales $ recovery was 44.0% of total OEC sold). *Measured by OEC $
The Dirty Dozen - UCC filings on 12 earthmoving units. Equipment Description Articulated Dump Trucks Crawler Dozers Crawler Loaders Excavators - Crawler, Hydraulic
JAN 12
FEB 12
MAR 12
APR 12
MAY 12
JUN 12
JUL 12
AUG 12
SEP 12
OCT 12
NOV 12
DEC 12
Grand Total
50
35
44
63
86
58
48
108
50
57
69
86
754
279
159
213
278
247
269
240
255
246
367
306
362
3,221
6
5
4
12
4
1
4
3
2
1
6
10
58
564
286
418
494
563
568
471
556
476
691
550
720
6,357
35
14
21
21
17
31
19
35
23
22
31
46
315
Mini Excavators
647
386
458
662
714
635
554
621
555
681
610
691
7,214
Motor Graders
102
79
88
85
105
108
95
78
59
99
115
133
1,146
5
3
10
3
13
4
8
3
7
4
7
67
1,199
729
808
867
976
868
826
811
833
1,121
1,477
387
222
282
294
300
326
295
351
351
423
365
Excavators - Wheeled, Hydraulic
Scrapers - Conventional Skid-Steer Loaders Tractor Loader Backhoes
1,651 12,166 378
3,974
Wheel Loaders < 80 HP
55
43
33
36
56
43
38
38
48
69
71
89
619
Wheel Loaders > 80 HP
542
292
345
393
447
348
362
435
366
536
625
609
5,300
3,871 2,253
2,714
3,215
2,956 3,299
3,012
4,074
4,229 4,782
41,191
Grand Total
3,518 3,268
Supplied by Equipment Data Associates, Charlotte, N.C.
56 | www.cedmag.com | Construction Equipment Distribution | April 2013
56_dealer data_KP.indd 56
3/25/13 12:33 PM
-ad -ad template.indd Fulltemplate.indd Page Ad.indd 111
11/26/121:29:39 9:32 PM 12/20/10 11:24 PM 5/23/2008 PM
WEDGELOCK NORTH AMERICA I-LockTM Couplers are available in manual or hydraulic from 2T to 120T capacity. I-LockTM Couplers are now backed by Cascade Corporationâ&#x20AC;&#x2122;s global support system. Designed for maximum safety, the I-LockTM Coupler delivers a patented Auto-Locking Safety System, with independent release of front and rear pins.
I-LOCKTM COUPLERS
By Wedgelock
INSTANT - auto-locking front jaw INDEPENDENT - hydraulic control, front & rear jaws INNOVATIVE - auto time-out and re-lock, front jaw
Call us at 800 WEDGELK (933.4355) to order your I-LockTM Couplers www.wedgelockusa.com -ad template.indd 1
5/23/12 1:23 PM