January 2014
www.cedmag.com
A Prevailing View
Overall, dealers anticipate moderate growth in 2014. CED’s annual Business Outlook Report explains survey results.
Plus: n Canada’s hot, with or without Ring of Fire n Meet AED’s new president & CEO n Keeping pace with the newest
Since 1920 Official Publication of
machine control technology
www.aednet.org
1_Jan_Cover_KP.indd 1
12/23/13 10:13 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 Please visit us in CONDEX Booth 401 and Suite 6029.
-adtemplate.indd template.indd 11 -ad
11/26/13 9:27AM 10/29/12 1:39 PM 2/1/12 11:00
Mobile Dealership Management Just Got Easier. Introducing ID MobileAccess 2.0 for your IntelliDealer™ Dealer Management System. With new features like customer call scheduling, mapping of customer locations and finance dashboards, the best mobile solution just got better. PFW.com/MobileAccess
Š 2013 PFW Systems Corporation. All rights reserved. The PFW logo is a trademark of PFW Systems Corporation. The ADP logo is a registered trademark of ADP, Inc.
Please visit us in CONDEX Booth 101.
-ad template.indd 1
12/20/13 6:32 PM
Contents
Award Winning
january 2014 Editorial Team Executive Editor and Director of Programs Kim Phelan kphelan@aednet.org
Vol. 80, No. 1
Features
from the cover
Our ongoing work could make this year the best yet.
Contributing Editor Joanne Costin pr@aednet.org
Editor’s Note 7
Opportunity’s knuckles geting busted in Colorado.
Graphic Production eva Belmonte design@aednet.org eva@neggie.net
On the Numbers 63
Proposed tax changes are cash-killers.
Columnists Garry Bartecki AED Vice President of Finance Christian Klein AED Vice President of Government Affairs and Washington Counsel Eli Lustgarten ESL Consultants
Business Outlook 65
Meet Brian McGuire 26 AED’s new president and CEO is an association professional with a track record of igniting positive results and invigorating member participation by delivering tangible benefits.
Ron Slee R.J. Slee & Associates
Advertising Contacts Vice President–Sales/ Publisher David W. Gordon 800-388-0650 ext. 334 dgordon@aednet.org
600 22nd Street, Suite 220 Oak Brook, IL 60523 630-574-0650 fax 630-574-0132 www.aednet.org
3_Jan_TOC_KP(eb).indd 3
World markets stabilize, U.S. construction will grow a little.
A Prevailing View: Make More, Don’t Spend More 34 In CED’s annual Business Outlook Report, most dealers indicate that 2014 will improve moderately and customer optimism has climbed slightly compared to last year.
Aftermarket 67
Four steps to growth in parts and service
Washington Insider 69
Your ability to recover costs is in serious peril.
departments
Inside AED 8 Groundwork 12 Industry Beat 14 Play It Safe 20 Advertisers’ Index 71 Dealer Data 72
Ring of Fire Cools
Advertising Sales Manager Albert J. Ramirez 800-388-0650 ext. 311 aramirez@aednet.org Production Manager martin cabral 800-388-0650 ext. 313 mcabral@aednet.org
Columns
From the Chairman 5
Plus: The Walk That Improves the Work 22 ...But Canadian Prospects Are Generally Hot 46 Named for the Johnny Cash song, the chromite mining and smeltering project in remote Northern Ontario – exciting as it could be – is just one of many reasons for Canadian dealers to be optimistic.
The Dealer’s Changing Role in Machine Control 50 Are you positioned to guide customers to new heights of technology – and efficiency? Dealers that “get it” will have a competitive edge.
Arm Yourself: Know Your Market Potential and Go Get Those Customers 54 Supplier Price Increase Is Your Friend 58 A Closer Look: Tesmec’s GALLMAC! 60
January 2014 | Construction Equipment Distribution | www.cedmag.com | 3
12/23/13 10:14 PM
912HM compact Dump Truck ARTICULATED. HIGHLY MOBILE. LOAD CAPACITY 22.000 LB. LOW GROUND PRESSURE. HIGH QUALITY. Please visit us in CONDEX Booth 621.
Dealer inquiries CALL: 404 614 1747 OR VISIT THE AED SUMMIT
-ad template.indd 1
12/20/13 6:36 PM
From the Chairman President & CEO - Brian McGuire Associated Equipment Distributors Oak Brook, Ill.
The Best Year Ever? The Choice is Ours
Executive Vice President & COO Robert Henderson Associated Equipment Distributors Oak Brook, Ill.
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(eb).indd 5
By Mike Quirk
It’s our values as AED members that make us strong – so let’s keep fighting the good fight to effect necessary policy change.
It is January. For most of us that represents the start of a new year and new opportunities. Our “half full” side allows us to feel that hope springs eternal. It is a time for resolutions and fresh ideas to make 2014 one of the best years ever. Recognizing the business conditions that we can – and should – influence is a great place to start overcoming the uncertainties around us as we focus on what we know versus what we don’t know. This is my final column as your Chairman and I have enjoyed every day in that role. I have always held AED in high regard as the association that supports the needs and protects the rights of the equipment distribution industry and the people who work in it. My respect for AED and our industry has grown steadily over my term and is a big reason for my optimism for the future. In recent years, I have become more than a casual observer of popular culture. This is a blessing and a curse. The more that I am exposed to the changes in our society the more I appreciate the equipment business and AED. It is obvious that in our industry we operate outside the mainstream in many ways. As business owners we still have to be honest. We still have to be profitable. If we don’t take exceptional care of our customers they’ll go somewhere else, and if we don’t treat our employees with respect they’ll leave us. Seems like a pretty simple and straightforward approach. We face things head on. That is especially true of our Canadian members. Up North, their thinking is clear, their answers are short, and political correctness is still considered silly. Someone once said “God bless America, but God help Canada to put up with them!” It’s good to have them on our side. We still value hard work, integrity, and service. Our customers demand it from us and we expect it from our business partners. AED remains an incubator of collaboration where new ideas emerge and flourish in a time-honored environment. It is a major
reason that 2014 will be a great year for us. It may not be as great a year for others who do not share these values. Our members continue to place our Government Affairs program and advocacy efforts at or near the top of the AED value proposition. In our world, we get what we tolerate. I have come to the conclusion that our elected officials either do not fundamentally know right from wrong, or they simply do not respect our values. I doubt very many of them would survive a month in the equipment distribution business. There is a great opportunity for change coming in the November elections and we need to be better informed, more eloquent, and less tolerant of bad policy and miserable execution. Our representatives and our employees need to hear more from us in a pleasant and professional manner exactly how their policies either stimulate or obstruct our growth. I have seen up close the influence and respect that AED members have garnered through hard work and perseverance. We are viewed as a reliable and responsible constituency. We know the difference between good and bad policy. As my term comes to a close, I have received much more than I have given. The strength of our business model and our values will hold true as they have for nearly a century. Our new leadership will focus on increasing value through financial strength, next generation involvement, education, workforce development, and advocacy. It has been my pleasure to be associated with our membership and the great staff at AED. I look forward to continued involvement for a long time to come. I truly believe that our best days are ahead of us and 2014 will bear that out.
Mike Quirk (mquirk@wagnerequipment.com) is vice president of Operations at Wagner Equipment Co., Aurora, Colo.
January 2014 | Construction Equipment Distribution | www.cedmag.com | 5
12/23/13 12:44 PM
VISIT US AT BOOTH #302
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. 1-800-447-0633, option 1 • sentry.com 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
12/20/13 6:37 PM
Editor’s Note
Opportunity’s Knocking Hand Gets Fractured By kIM pHELAN
You don’t have to live in Colorado to realize their battle over fracking has potentially disastrous implications for America.
Songwriters and philosophers with BakerHostetler in Denver, who has say that you don’t know a good thing represented oil firms.” till it’s gone. That may soon be true for Fractivists aren’t kidding around. A the state of Colorado. For in the present Forbes OP/ED contributed by Barry era of America’s new energy bonanza, Poulson, professor emeritus, University a battle is raging in the Centennial State of Colorado Boulder and a past comover hydraulic fracturing in the develop- missioner to Colorado Tax Commission, ment of shale energy. And if the state quoted one self-described fractivist: follows in the footsteps of four of its “This is not an anti-fracking fight anycities last fall, a very good thing for Colomore, it’s a civil rights movement.” rado is in danger of being banned. It gets worse. Poulson wrote that, So where opportunity for continued “In the last election, 11 rural Colorado economic prosperity and job growth is counties asked voters if their county knocking, Colorado’s “fractivist” movement commissioners should explore seceshas become the poster child for slamming sion and formation of a 51st state. opportunity’s knuckles in the door. Six of these counties voted to pursue The opposition is as formidable as secession.” the opportunity. And if it can happen Secession? Are you kidding me? in Colorado, it could happen elsewhere, But industry is not taking the bans both in states with known shale forma- lying down. tions and those yet to be discovered. Bloomberg reported that The Colo According to Toby Mack, president rado Oil & Gas Association is suing Fort and CEO of the Energy Equipment Collins and Lafayette, “claiming their and Infrastructure Alliance – who will voter-enacted bans on the extraction moderate a shale oil opportunity panel of oil and natural gas are preempted by for construction dealers on Jan. 17 at state laws regulation those resources,” the AED Summit in Houston – environreporter Andrew Harris wrote on Dec. mentalist groups employ fear monger4. “The bans violate the state’s Oil and ing and purposeful misrepresentation Gas Conservation Act, which requires and/or mischaracterization of the risks uniform regulation, according to the associated with fracking. And on Nov. complaints.” 5, all four of the cities that voted to Harris reported that “the association ban fracking succeeded in suspendseeks court orders permanently blocking or banning the process – Boulder, ing the bans...” Lafayette, Fort Collins and Broomfield, In the Bloomberg story, COGA the latter of which was so close that a President Tisha Schuller said, “With 95 recount had to be taken before a mora- percent of all wells in Colorado hydrautorium on fracking was the conclusive lically fractured, any ban on fracking is election result. a ban on oil and gas development.” According to a Reuters Nov. 6 story Gotcha. It’s not just a war on fracking – by Keith Coffman, the scope of the it’s a war on fossil fuels. battleground was clearly drawn: There It also appears to be war of emotion is “possibility of a statewide ban findversus reason and civil order. Fracking is ing its way onto the 2014 Colorado closely regulated by states, and permits ballot,” said Paul Encokson, a lawyer are issued by voter-approved govern-
ment agencies. And of course energy companies recognize it’s in their best interest to comply fully – any accident would be a death knell to all producers of shale oil and gas. While the verdict of Broomfield’s moratorium was still in question, The Editorial Board of The Denver Post opined that it hoped ban opponents would prevail. “Broomfield has already carefully updated its oil and gas regulations, which now go beyond state and federal law. The city is a textbook example of how to responsibly meet the challenges and concerns of drilling on the Front Range.” The board went on to say that “a de facto ban on drilling at the local level is almost certainly illegal under Colorado court precedents.” Shale energy development offers unbelievable opportunity at myriad levels for construction equipment dealers all over the U.S. But the broader implications for the U.S. economy are even greater – by 2020, Mack estimates, 3.3 million jobs will be added, $125 billion will be added to federal and state tax revenues, $468 billion will be added to the GDP, and $258 billion will be added to the country’s annual industrial output. Shale energy has obvious national security benefits, too. Please come hear more about the threats and opportunities on Jan. 17 and how your company stands to benefit from America’s energy boom. You can’t hear opportunity knocking if you’re not in the house. Thanks for reading. Kim Phelan (kphelan@aednet.org) is the executive editor of Construction Equipment Distribution and director of programs for AED.
January 2014 | Construction Equipment Distribution | www.cedmag.com | 7
7_editors note_KP.indd 7
12/23/13 4:31 PM
Inside AED
With Transportation Funding and Tax Reform at Stake, the AED Fly-In is Crucial “State Your Case” in Washington D.C., on April 2-3 Without action by Congress, the Highway Trust is able to increase its impact on legislators. Fund (HTF) – which funds approximately 52 percent of annual state DOT capital outlays for highway, bridge, and Program Prepares Participants to Lobby on the Hill transit construction – will be unable to support any highway On the first day of the two-day program participants are or transit spending in 2015, jeopardizing more than $50 briefed by policy experts, association leaders and senior billion in annual investment. members of Congress on key issues that impact AED dealers. The impact of this very possible In addition to the Highway Trust Fund crisis scenario can’t be overstated – it will and tax reform, energy-related legislation mean the loss of nearly $41 billion in will be on the agenda. By the end of the April 2-3, 2014 • Capitol Hill Club annual highway investment. With each day, attendees will be well educated on dollar in highway spending generating the issues. “We go out of our way to be Cost: $299 to cover daytime meals, 2 receptions and bus transportation sure people are well prepared for Capitol 6.4 cents in equipment market activity (sales, rental, and product support), Hill,” added Klein. AED estimates the HTF “Year Zero” scenario will cost the Day 2 will kick-off with AED PAC’s annual congressional equipment industry $2.5 billion in lost market activity. Four breakfast as a number of lawmakers supportive of AED policy thousand dealership jobs are in jeopardy, not to mention the priorities join dealers around the table. Equipment distributors economic viability of many contractor customers. will then visit Capitol Hill to meet with their representatives AED’s Washington office is working hard on transportaand senators to talk about the industry’s top legislative issues. tion issues. But they can’t do it alone. A full agenda is highlighted by two receptions where dealers “The AED Fly-In puts dealers in front of their legislators can engage with legislators, dealers and manufacturers over where they can offer local perspective on the impact of the issues. Washington policy decisions,” said AED’s Vice President of An example of the effectiveness of AED dealer executives Government Affairs Christian Klein. “The two infrastructure is their explanation to representatives last year regarding issues that will be front and center in 2014 are going to be the accidental effect of the Obamacare 3.8 percent tax on the highway bill and fixing the highway trust,” added Klein. passive income that includes equipment rental income – by Tax reform is yet another reason to attend the Fly-In. The sounding the alarm AED attendees gave a wake-up call to Senate Finance Committee’s sweeping proposal to change many politicians, some of whom are now not only aware capital expenditure and accounting rules pose several but focusing on how to exclude equipment dealers from the threats to construction equipment dealers. Specifically, the unintended consequences of the health care law. plan targets the current tax depreciation system; LIFO, an In addition to receiving firsthand and even breaking news accounting method used by 40 percent of distributors, Like on policy developing in the capital, dealer executives also Kind Exchange (LKE); and more. benefit from quality networking opportunities over meals and evening receptions. Some attendees have found strength in AED and NAEDA Join Forces to Increase Impact on numbers from their own states and come to Fly-In in teams Capitol Hill to meet with lawmakers as a group for additional impact. For the second year in a row, the event is being co-hosted by Mark your calendar for April 2-3 and don’t miss this AED and the North American Equipment Dealers Association opportunity to roll up your sleeves and get involved where (NAEDA), which represents the interests of agricultural dealyour voice can make a difference for your industry. The ers. By joining forces with this like-minded association, AED stakes have never been higher.
AED Fly-In
Proposed New Members Balboa Capital Irvine, Calif.
Woodbridge Equipment Parts Inc. Mississauga, Ont.
Tesmec USA Inc. Wichita, Kan.
Dealer Part Source Inc. Lithonia, Ga.
HWM/RFE Greenfield, Ind.
LoJack Corp. Canton, Mass.
This list is published each month as required by AED bylaws. Comments on the applicants should be directed to AED President and CEO Brian McGuire 800-388-0650, ext. 326. 8 | www.cedmag.com | Construction Equipment Distribution | January 2014
8_inside AED_KP.indd 8
(continued on page 10)
12/23/13 10:17 PM
Inside AED
mark your
calendar
For information on any upcoming AED events, visit www.aednet.org or call 800-388-0650. Jan. 15-17 - 2014 AED Summit & CONDEX Hilton Americas Houston and the George R. Brown Convention Center | Houston, Texas Jan. 20-24 - World of Concrete | Las Vegas, Nev. Feb. 25 - Webinar: How to Work Effectively with Customers, Associates and Employees 10-11:30 a.m. CDT | Presented by Don Buttrey, Sales Professional Training Feb. 26 - Webinar: Industry Financial Updates for CEOs/CFOs 2 p.m. CST | Moderated by Garry Bartecki Feb. 27 - Webinar: The Power of Combining Marketing and Analytics 10-11:00 a.m. CST | Presented by Steve Clegg
March 4-8 - CONEXPO-CON/AGG | Las Vegas, Nev. March 11 - Webinar: Service Management Inspection | 11 a.m.-Noon CDT | Presented by Ron Slee March 11 - Webinar: Service Management – Work Order Processing | 2-3 p.m. CDT | Presented by Ron Slee March 13 - Webinar: Setting Customer Service Standards for Field Service Technicians and Delivery Personnel 10-11 a.m. CDT | Presented by Barry Himmel March 22 - Webinar: Service Management – Labor Rates | 11 a.m.-Noon CDT | Presented by Ron Slee March 22 - Webinar: Service Management – Service Organization | 2-3 p.m. CDT | Presented by Ron Slee
A Winning Combination! 4 Models of Crawler Carrier Also Available with: *Digger Derricks *Bucket Lifts *Cranes *Flat Beds
13 Mini-Excavator Models *Operating Weights 2,000-18,000 lbs *Digging Depths: 5’2” TO 15’1”
800.538.1447 WWW.IHICES.COM
Please visit us in CONDEX Booth 729. 10 | www.cedmag.com | Construction Equipment Distribution | January 2014
8_inside AED_KP.indd 10
12/23/13 10:17 PM
Please visit us in CONDEX Booth 422.
-Ad_template.indd -ad template.indd 21
12/13/2013 2:59:39 PMPM 12/20/13 7:19
Please visit us in CONDEX Booth 430.
-ad template.indd 1
11/26/12 11/26/13 8:57 9:32 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.
You’re Only As Good as Your People – and People Need Continuing Education AED offers opportunities for every department. Ongoing professional education sets your dealer team apart and equips the front line with knowledge and tools to serve your customers – and improve your company’s profitability. For 2014, The AED Foundation is proudly rolling out more than 50 seminars and webinars for AED members. This year’s lineup of programs offers training in customer service, risk management, financial management, operations, parts and service management, sales and marketing, human resources, and leadership. Industry experts Garry Bartecki, Don Buttrey, Christine Corelli, Eli Lustgarten, Barry Himmel, James Waite and Ron Slee will be back to provide industry-specific webinars for AED members. In addition, we have a host of new presenters: New Instructors for 2014 Steve Clegg and Debbie Frakes, will highlight equipment industry marketing techniques and strategic planning. They are the managing directors at Chicagobased Winsby Inc., a business development company that has been helping heavy equipment dealers grow their businesses for more than 10 years. Ryan Condon, the founder and CEO of SatisfYd, will give you the foundational tools to calculate the lifetime value of your customers, benchmark your existing process against equipment industry best-in-class approaches, and communicate the steps to start your organization down the path of meeting your customers’ needs. ADP representatives Ed Becker and Jim Foote will host a discussion with security experts on protecting your dealership’s data.
Sales expert Don Buttrey returns with seminars and webinars for AED members in 2014.
It is essential that you have an updated plan to protect customer data. Traver Technologies Vice President Ryan Morrison will cover the eight most common mistakes leaders make and secrets to help get you to the next level of performance. Understanding and executing any of them will have impact on the business, but embracing all will open doors and pave ways that historically have been impassable for many organizations. Todd Thompson from Sentry Insurance will help you understand what you don’t know about your 401(k) plan. Understanding your responsibilities with respect to the new fee disclosure regulations and what you need to do as a plan sponsor can help prevent costly litigation or a potential breach of fiduciary duty. For additional details and registration, please visit www.aedu.org. Call or e-mail Pat Novak: 630-468-5135, pnovak@aednet.org with any questions.
In Memory of Bob Mullins AED Past President Robert O. Mullins, who passed away on Dec. 16, served on The AED Foundation Board from 2003 to 2005. If you would like to make a donation to The Foundation in his memory, which will be listed in the AED Membership Directory, please call or e-mail Rebecca Rakers at 630-468-5113, rrakers@aednet.org.
12 | www.cedmag.com | Construction Equipment Distribution | January 2014
12_groundwork_KP.indd 12
12/23/13 12:55 PM
HOP
THE S O T T N E M EQUIP
P O H S R U O Y TAKE QUIPMENT E E S H K C T U R T O S C I TKNAPHEIDE MECHAN OUR
EY DON'T TAK
Please visit us in CONDEX Booth 307.
-Ad_template.indd 2 -ad template.indd 1
12/18/2013 1:25:12 PM 12/20/13 6:40 PM
Industry Beat
Senate Tax Reform Plan Puts Cost Recovery for Dealers and Customers at Risk
Draft legislation targets MACRS, LIFO, LKE and more.
The Senate Finance Committee’s sweeping proposal to change capital expenditure and accounting rules in an effort to both simplify the tax code and pick up revenue to finance a corporate tax rate cut has a lot for dealers to worry about. Among other things, the committee is proposing to: n Increase Sec. 179 expensing and phase-out levels to $1 million and $2 million, respectively, and index those amounts for inflation. This may be the only bright spot in the committee’s proposal. Increasing and stabilizing Sec. 179, which helps smaller companies buy equipment, is a top AED tax reform priority. n Replace current cost recovery rules with a new depreciation system for tangible personal property comprised of four pools, with three designated for short to mid-term property, and one designated for mixed-use structures and other longer-term personal property. Pooled assets would be depreciated at rates of 38, 18, 12 or 5 percent using a 100 percent declining balance method, meaning that each year a business could deduct an amount equal to the pool balance multiplied by the depreciable percentage for that pool. Construction and agricultural equipment would be included in Pool 2 and depreciated at the 18 percent rate. (also see “Washington Insider” on page 69) n Require real property to be depreciated on a straight-line basis over 43 years. n Eliminate expensing for intangible drilling costs (equipment rental and other costs associated with oil and natural gas drill site preparation) and require that these costs be amortized over five years. n Eliminate percentage depletion, a form of capital cost recovery used by energy, aggregates, and mineral producers. n Require research and development costs to be amortized over five years. n Change tax treatment of advertising costs, which are currently eligible for expensing in the year in which they are incurred. Henceforth, 50 percent of advertising costs could be expensed in the first year, with the remaining 50 percent depreciated over five years. n Require accrual accounting for all businesses with average annual gross receipts over $10 million (businesses below that threshold could elect cash or accrual). n Repeal LIFO and require payment of taxes on LIFO reserves over an eight-year period.
n Repeal like-kind exchange for exchanges taking place after 2014.
AED’s View The Chairman’s staff of the Democratic-led Finance Committee believes that the revenue raised in the long term from corporations by the proposals in this draft could finance a significant cut to the corporate tax rate. However, a corporate rate reduction would not benefit the two-thirds of AED members that are pass-through entities. AED has long maintained that tax reform – simplification and rate reduction – should benefit all companies, regardless of how they are structured. AED objects to repealing LIFO, which is used by approximately 40 percent of equipment distributors. AED members have combined LIFO reserves of close to $600 million, meaning that repeal would cost equipment distributors more than $200 million in retroactive tax liability. AED has similar concerns about repealing LKE. Approximately one-fifth of AED members use LKE for their rental fleets and AED members collectively have more than $720 million in combined LKE deferrals. AED questions repealing a part of the tax code that has demonstrated itself to be an effective incentive for capital investment. Proposed changes to tax rules that eliminate expensing for intangible drilling costs and percentage depletion threaten to undermine economic activity and discourage investment and risk taking. Finally, instead of construction equipment being depreciable over five years, equipment owners would deduct just 18 percent of the tax value of the equipment in the asset pool annually, effectively extending cost-recovery periods and dramatically reducing the amount available each year for depreciation. In response to the Finance Committee draft, AED will prepare comments (due Jan. 17); hold a meeting of its informal AED tax reform advisory committee during the AED Summit, and include tax reform on the agenda at the AED Washington Fly-In on April 2-3. In addition, plan to attend an information session at the CONDEX Centerstage in Houston on Friday, Jan. 17. Contact aeddc@aednet.org for more information and to share your concerns. (continued on page 16)
14 | www.cedmag.com | Construction Equipment Distribution | January 2014
14_industry beat_KP.indd 14
12/23/13 2:06 PM
Industry Beat
In the News Ritchie Bros. Auctioneers recently announced that Chief Executive Officer Peter Blake will step down in May 2014. During the interim period, Blake will remain in his position, and the Board will initiate a search for Peter Blake his replacement. Blake joined Ritchie Bros. in 1991 and has served as CEO of Ritchie Bros. since 2004. Finning International has named Juan Carlos Villegas president of Finning Canada, in addition to his position as chief operating officer of
Juan Carlos Villegas
the company. Andy Fraser, currently president of Finning Canada, becomes executive vice president of customer and external relations for Finning International.
to their newly constructed facility in nearby Post Falls, Idaho, providing full-service coverage throughout northern Idaho, eastern Washington and western Montana.
Martin Weissburg, 51, has been appointed new president of Volvo Construction Equipment. Weissburg is currently president of the Volvo Group’s customer finance company, Volvo Financial Services, and a member of the Group Executive Team. He Martin Weissburg replaces Pat Olney.
HOLT CAT, based in San Antonio, Texas, acquired the expanded Cat mining equipment distribution and support business for its respective territory. As a result of the acquisition, HOLT CAT has created a new Mining Solutions Division – HOLT CAT’s Mining Solutions Group – led by General Manager Scott Perlet. Forty-seven Caterpillar employees will join HOLT’s 2,000-plus workforce.
H&E Equipment Services, Inc. (H&E) announced the relocation of its Coeur d’Alene, Idaho, operation
STRIKER HYDRAULIC BREAKERS America, INC 3900 Ben Hur Ave # 3 Willoughby, Ohio 44094 Office: 440-954-9923 Fax: 440-954-9929 Toll Free: 1-877-954-9923
For more information: WWW.toku.america.com
Presents their new TNB series hydraulic breakers; Striker Hydraulic Breakers has a complete product offering of 17 breakers ranging from 100 Ft./lb. class breaker to a 12,000 Ft./lb. class breaker. The TNB Series breakers are ideally suited for applications from primary/ secondary breaker, road and bridge construction, airport construction, demolition, mining, quarry, rental, landscaping and recycling.
Wacker Neuson will host the sixth annual Trowel Challenge competition at its booth during World of Concrete, Jan. 21-24 in Las Vegas, Nev.
Stop By CEG’s Booth 422 at CONDEX Construction Equipment Guide (CEG) is a national publication and website that provides industry news; articles on construction equipment, projects and legislation; auction coverage; business profiles and events and more. CEG’s biweekly newspapers consist of four regional editions – Northeast, Southeast, Midwest and Western. CEG’s wesite, www.constructionequipmentguide.com, is a one-stop source for news, used equipment searches, equipment dealer locators, upcoming auctions, construction videos, online editions of its print editions and more. Founded in 1957, CEG is based in Fort Washington, Pa., and is a proud member of the Associated Press. Stop by and visit with the CEG team at CONDEX Jan. 16-17 in Houston, and see how they can help you market your dealership more effectively this year.
Striker Hydraulic breakers (1) or (3)year warranty allows you, the customer more “up-time” and controls your cost of operation while maintaining maximum performance.
Please visit us in CONDEX Booth 711. 16 | www.cedmag.com | Construction Equipment Distribution | January 2014 Untitled-1 1 12/19/2012 9:58:23 AM
14_industry beat_KP.indd 16
12/23/13 2:06 PM
Industry Beat
Ring Power Corporation’s Power Systems division has formed a Gas Energy Business unit to market the Cat-branded line of gas engine generators and full service solutions for gas-to-energy power projects. Jake Jacobsen, a degreed electrical engineer, has assumed the role of Gas Energy Account Manager to lead this enterprise. Gas Energy Sales Engineer Nick Chiarugi will report to Jacobsen at Ring Power’s headquarters in St. Augustine, Fla. Franklin Equipment announced the opening of a new location in Newcomerstown, Ohio. The new branch is the company’s fourth location in Ohio. It will offer equipment rentals for construction and landscaping businesses and for the oil and gas industry. Essex Rental Corp. announced that President and Chief Executive Officer Ronald Schad has elected to resign. Schad will remain as CEO until a replacement is appointed. XAPT Corporation announced the successful “Go Live” of their Microsoft ERP-based dealer management solution (Microsoft Dynamics AX for Equipment Dealers) at Atlantic & Southern Equipment, LLC., headquartered in Atlanta, Ga.
LBX Company announced its new senior management team. Joe O’Nan has been promoted to vice president and chief financial officer. Don Harvell has been promoted to vice president Sales North America. Harvell is responsible for all sales and dealer development operations and profitability in North America. Mike Davis has been named vice president Marketing and Communication. Ed Gerber has been promoted to director of International Business. Rod Boyer continues as vice president of Customer Support. Brad Selack is named director of Engineering and Product Development. Yoshio Uno continues as director of Corporate Audit. In other news, LBX Company received the 2013 Martha Layne Collins Award for International Trade Excellence at the Kentucky World Trade Day annual awards luncheon, which featured more than 400 representatives from business, industry and government sectors. LiuGong Poland Machinery Co., Ltd. announced it will acquire the ZZN Transmission Plant in Stalowa Wola, Poland. The event marks another solid step for LiuGong Poland in the direction of developing core parts on its own.
Komatsu America Corp. and its distributor Power Motive Corporation (PMC) celebrated the completion of Komatsu CARE’s 10,000th service interval. Komatsu America launched the complimentary maintenance program for its Tier-4 machines in 2011. PMC is the Komatsu dealer in Colorado and Wyoming. Sullivan-Palatek, Inc., a manufacturer of air compressors, has partnered with TigerTracks, a cloud-based network that helps dealers to manage and share service and maintenance records with equipment owners. KOBELCO Construction Machinery’s fast-paced growth has resulted in expedited plans to build a permanent U.S.-based headquarters in Katy, Texas. The company signed a nine-year lease agreement with plans to occupy the building by September 2014. This new, expansive 101,300-square-foot facility will serve as KOBELCO’s North American headquarters, as well as the company’s training center and parts distribution location for all of the United States, Canada and Latin America.
Please visit us in CONDEX Booth 600. January 2014 | Construction Equipment Distribution | www.cedmag.com | 17
14_industry beat_KP.indd 17
12/23/13 2:06 PM
Industry Beat
Industry Mourns Two AED Past Presidents Robert O. Mullins died Monday, Dec. 16 in Dallas, Texas. Known to his family and throughout the industry as “Bob,” he founded ROMCO Equipment Co. in 1961. Looking back on ROMCO’s recent 50th Anniversary, Bob talked about his pride in the company’s people and in the relationships that had been forged over time with key suppliers and customers. Under Mullins’ leadership, ROMCO grew from a one-man, one-location startup to a 10-branch dealership serving a territory that includes three of the U.S.’ Top-10 cities by population. As a member of AED since 1970, Bob was a long-time, dedicated supporter of the association and the equipment industry. He served as an AED director in the early 1990s and became AED President (now called Chairman) in 1996. Bob served on the board of The AED Foundation from 2003 through 2005. He was a long-standing supporter of AED’s Political Action Committee and a member of the AED PAC Capitol Club. In 2000 he received the AED Democracy Award for his work building the association’s Government Affairs program and encouraging equipment industry participation in the political process. Mullins was recognized at the 2008 AED Summit with the association’s highest honor: The AED Distinguished Industry/Association Service Award. Bob also distinguished himself through service to his community. His favorite organization, the Salesmanship Club of Dallas, is an almost 100-year old group of business professionals dedicated to making a difference in the lives of at-risk kids and their families. Over the last 43 years, he served in various fund-raising and organizing capacities, culminating with a term as president of the organization in 1986. M. David Giardino, 81, died Wednesday, Nov. 27 in Naples Fla. His wife and daughter were by his side. Following graduation from Princeton University in 1953, he reported for training at the U.S. Naval Base in Newport, R.I., where he received a commission as Ensign in the Civil Engineer Corps of the U.S. Navy. He served five years active duty in Brooklyn, N.Y., and Stockton, Calif, during the Korean War and held one of the highest security clearances given during that time. Upon his return to the East Coast in 1958, Giardino began a varied career as a business entrepreneur. He joined HJ Zoubek Company, which he eventually purchased in 1962 and renamed Equipco Sales and Rental Corp. The firm grew from a light equipment distributor to become one of the most significant heavy equipment/crane distributors in the New Jersey/New York metro market. His future son-in-law James Mackinson joined Equipco in 1981 followed by his daughter soon thereafter. Giardino became chairman in the late 1980s. In the late 1960s he also started and eventually sold a company that manufactured concrete pumping equipment. He shared several patents for equipment used to pump concrete and grout. During the early 1970s, Dave entered into the machinery export business with dealings in England, Belgium, South America, the Mid-East and Africa as well as the Pacific Rim. Giardino served his industry in numerous capacities including as president of the New Jersey Equipment Distributors Association, as well as an AED board member and, in 1988, as AED President. He also chaired the New Jersey Product Liability Task Force.
18 | www.cedmag.com | Construction Equipment Distribution | January 2014
14_industry beat_KP.indd 18
12/23/13 2:06 PM
GLAMOROUS?
Visit Us at Booth 601
not so much
COOL FACTOR?
off the char ts
Working with excavators isn’t all that glamorous, but attach an HKX hydraulic kit to one and the coolness factor goes off the charts! Standard kits for a wide variety of attachments Latest in attachment control technology Kits ship within 1 - 5 days— ground or air
call +1 800.493.5487 | www.HKX.com/CED
-Ad_template.indd 2
12/17/2013 2:25:38 PM
Booth 325
Booth
Booth 325
-Ad_template.indd 2
Booth C5873
1211
Booth
GL 1547
12/17/2013 2:15:12 PM
Eliminate Hazards By Improving Your Inspection Process Find problem areas before they come and find you; then be prepared to correct them. By Eric Stiles
The service department has recently been overwhelmed with customer repairs and equipment set-up jobs. Although the manager and his crew usually do their best to make housekeeping a priority, the work backlog has impacted their daily cleanup routine, and tools and debris are left out. An employee turning into a service bay fails to see the air hose lying across the floor and gets his foot caught, causing him to fall forward into a workbench. The employee tries to break the fall but the force is significant. He suffers facial and shoulder injuries along with a broken wrist. After multiple surgeries, the employee returns to work six months later, but at a limited capacity. Total expenses for the accident exceed $325,000. Some believe that accidents just happen, but I don’t agree. It’s true that accidents are unexpected, but they are often preventable. They usually occur when we feel rushed or have been taken out of our routine. A great way we can reduce these accidents is by eliminating physical hazards through organized facility self-inspections. Documented, regular inspections can reveal unsafe conditions before they lead to an injury or accident. Let’s look at some ways to improve the inspection process. Planning Your Inspection Before the inspection, there are a number of items you’ll need to prepare to meet your goals: n Analyze your accident history to emphasize those conditions or operations known to be a problem area. n Consider using a checklist as a guide for each department or operation dealing with conditions or practices likely to be encountered. The person making the inspection should be trained on what to recognize and how to use this checklist more effectively. n Prioritize your findings based on level of urgency and the
hazards posed to employee safety or property. Of primary importance is the need to establish a corrective action plan and a deadline to see that things are taken care of in a timely manner. n Prepare a clear and concise report as a result of your tour and provide a summary of explanations for corrective action. n Send reports directly to those responsible for safety and health coordination to determine who is responsible for corrective action. This will also assure that the most urgent situations are given priority. n Be prepared to address various regulatory safety and health standards that may have a bearing on your findings. For example, general safety and health standards are subject to OSHA (federal or state) enforcement. Fire safety issues are a concern with local fire officials. Conducting the Inspection When preparing for an inspection, conducting the tour, or completing follow-up reports, keep these points in mind: n Always be sure to wear appropriate personal protection as required in the area you are reviewing. n Avoid faultfinding. Emphasize fact-finding. Correct conditions through the appropriate department head or supervisory channel. n Make brief, accurate notes as you methodically tour an area. Locate and list each problem and try to determine the root cause(s). You may need to seek technical advice if you are not sure about something. Suggest alternative solutions. n Keep accurate records and follow up on a regularly scheduled basis. Be sure that those things that pose imminent danger are taken care of properly. Direct your attention to some of these more common workplace issues: n Employee safety and health – Lockout/tagout provisions, electrical safety practices, slip and fall hazards, lower back
20 | www.cedmag.com | Construction Equipment Distribution | January 2014
20_Play_it_Safe_KP.indd 20
12/23/13 1:38 PM
Play It Safe
™
An American Manufacturer of Portable Crushing & Screening Plants, Trommels and Stacking Conveyors
and repetitive motion injuries, equipment guarding, material handling (hoists, forklifts, conveyors), welding/ grinding, personal protective equipment use, first aid and emergency response, and exhaust ventilation. n Fire safety – disaster preparedness and evacuation planning, fire fighting capabilities, smoking/ignition source control, flammable liquid storage and use, paint booth maintenance, and spill containment. Well-designed and executed selfinspections are a key method for revealing problems needing correction within your operations. Recurring patterns that continue to need attention from one inspection to another may indicate a need to improve your safety program direction or re-evaluate your current work procedures. A self-inspection is also a good opportunity for you to demonstrate leadership through your ongoing commitment, which will help sell the concept of safety to your employees. Each time an inspection of a particular work area is made, your commitment is visibly re-emphasized – and the message reinforced. They can also encourage individual employees to inspect their own work areas and take ownership of the safety process. 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.
Eric Stiles is Sentry’s lead Account Executive responsible for maintaining the AED/Sentry relationship. He can be reached at eric.stiles@ sentry.com. As the endorsed P&C carrier for AED, Sentry Insurance offers superior coverage options and services to meet your dealership needs.
Distributorship Opportunities Available 6036T Track Conveyor Spyder 516T Screen
4043T Impact Crusher
JXT Jaw Crusher CST Cone Crusher Spyder 516T Screen
5256T Impact Crusher
Spyder 516T Screen
Scalper 107T Screen
Scalper 107D Screen
Trommel 612T
Trommel 612W
Our award-winning product offerings are the contractor's choice for reliability and productivity. Screen Machine Industries manufactures only heavy-duty, portable impact, jaw & cone crushing plants, screens, trommels and conveyors that are capable of handling your toughest jobs.
1-800-837-3344 1-740-927-3464 www.screenmachine.com
Please visit us in CONDEX Booth 403. January 2014 | Construction Equipment Distribution | www.cedmag.com | 21
20_Play_it_Safe_KP.indd 21
12/23/13 1:39 PM
The Walk That Improves the Work
A Closer Look
Two service strategies, including the Walk Around concept, can optimize service department performance and help increase profit By Ross Atkinson
Life in the service department is full of unknowns. A customer’s equipment problem may start out as a simple belt replacement, but can quickly turn into a complete transmission rebuild. Once the issue is diagnosed, other challenges may arise. Do you have the right parts? Is an experienced technician available to make the repairs in a timely manner? What began as a one-day job could last weeks, ultimately affecting your entire service department.
While there is no crystal ball to predict what a service department’s future holds, there are tools to help dealerships make better-informed decisions, which can give them more control over their day-to-day activities. The Walk Around Process Some construction equipment and farm equipment dealers are now using a Walk Around Process to help improve service operations. It builds on the concept of “Management By
Walking Around” (MBWA), which was introduced by electronics giant Hewlett Packard. The MBWA strategy encourages managers to set aside time to walk through their departments on a consistent basis and be available for impromptu discussions. One of the main benefits of MBWA was recognized by quality improvement guru W. Edwards Deming, who said, “If you wait for people to come to you, you’ll only get small problems. You must go
22 | www.cedmag.com | Construction Equipment Distribution | January 2014
22_ADP_feature_KP.indd 22
12/23/13 1:44 PM
Service
and find them. The big problems are where people don’t realize they have one in the first place.” The first step in solving most problems, big or small, is communicating them to the appropriate person. Improving communication between everyone involved in the service process – the service manager, technicians and customers – is a goal that every dealership should strive to achieve. The Walk Around Process, as well as the MBWA strategy, puts the onus on the service manager, who needs to be kept “in the know,” so he can deal with any potential issues as soon as possible. Proactively seeking out and addressing problems can help eliminate delays in closing out work orders and ensure you are delivering the level of service your customers expect. Fully Utilizing the Walk Around Process The Walk Around Process helps service managers have knowledgeable conversations about each job their technicians are assigned to do. The process involves reviewing key pieces of information, sorted in priority sequence such as work order number, model number, customer name, priority, downtime delay codes (DDC), start date, estimated completion date, hours worked, hours charged and a brief description of the job. When using a worksheet or electronic form for the process, additional room below each job listing can be made available for the supervisor to make handwritten notes and adjustments. With a Walk Around Process, service managers can meet with technicians daily to discuss any delays or issues that may affect their customers as well as have new jobs assigned to them, as needed. Determining whether or not each job can be completed on time and within the budgeted hours should be the primary concern. If the job is delayed – due to a backordered part, for
instance – and a judgment is made that the technician cannot complete the work order on time, action can be quickly taken to deal with the situation. For example, extending the estimated completion date (and notifying the customer accordingly) or adjusting the number of technicians (or amount of overtime) can ensure that the job is completed by the date promised. Once the service manager is finished discussing and taking notes on individual jobs, (s)he can enter any work order adjustments or updates into the system for next time. At this point, decisions can be made in regard to contacting the customer and/or assigning additional technicians as necessary. The Walk Around Process helps everyone involved in the service department. It gives technicians a clearer understanding of what they need to do, it helps customers avoid last-minute surprises, and it gives service managers a better understanding of everything that is going on in their department. Everyone is kept in the loop. By communicating with technicians, and by monitoring the status of open work orders, the service manager can easily catch issues that may delay job completion and address them before they impact customer satisfaction. The Walk Around Process is an essential service tool that can help increase customer retention as well as boost profits. How It Works at RDO Equipment Co. RDO Equipment Co. has implemented the Walk Around Process and has customized it to serve their needs. The company – which owns and operates more than 60 dealerships in nine states representing John Deere, Vermeer and Topcon – has assigned its service advisors to manage the process. In RDO Equipment Co.’s system, the service advisor assigned to the location
will work with service technicians to conduct the twice-daily walk-around to review the technician’s work. From the IntelliDealer™ dealer management system (DMS), they will review available information, such as hours on the job and progress against standard job code times for John Deere and Vermeer. With this approach, service advisors can relay job status information to customers in a more timely manner. According to RDO Equipment Co. Aftermarket Systems Manager Wayne Danielson, the company has realized multiple benefits from the Walk Around Process. For example, with better communication between the service advisor and technicians, the service advisor can ensure the customer is kept in the loop on extra work that may be required. This has helped reduce instances of write-offs that occur when extra work is done without customer approval. The process also helps technicians avoid leaving their station for parts. The service advisor, with knowledge of the job at hand, facilitates communication with the parts department and helps track down critical information, such as whether a part has
Better internal communication and pro-cesses improve customer service by keeping the contractor in the loop and getting his machine back to him faster. (continued on next page)
January 2014 | Construction Equipment Distribution | www.cedmag.com | 23
22_ADP_feature_KP.indd 23
12/23/13 1:44 PM
Service
(“The Walk That Improves the Work” continued from page 23)
been ordered, the status of a part, or its location. A third benefit, said Danielson, is work order closing efficiency. “There’s a benefit to having the advisor in the know on repairs,” he said. “When the time comes to close the order, it’s a lot easier. Everything was talked about during the course of the repair and not just at the end.” The Service Agreement Strategy For years, dealerships offered service agreements as an add-on during the use phase of the product – since it was not considered to be an important revenue generator. In many of these cases, service offerings were not managed as closely as product development, and decisions (such
as service cost and service level) were made unscientifically. Times have changed. More dealerships are implementing service agreements to provide more value to customers and increase profits. Quoting service agreements effectively starts with learning a customer’s expectations. This includes determining their preferred service schedule as well as surveying their fleet to determine the makes, models, machine serial numbers, and engine serial numbers. In some cases, the preset standard parts may not cover the engine model and serial number if the unit has been repowered. That’s why it’s important to obtain a parts book and operator manual for the machine prior to developing a standard parts list. Once a dealership decides on the types of service agreements it
wants to offer, its DMS will need to be updated. This service agreement list can be altered once the dealer begins to realize different needs within their customer base. Most planned maintenance programs will require a set of disciplines that differ from normal service department operations. Many will involve more record-keeping tasks and require service management to be proactive versus reactive. That being said, having the right tools in the hands of the right people can help track the entire process from start to finish. Optimizing Service Agreements Service agreement programs are successful when the department accurately tracks machine hours and notifies customers when their equipment is due for maintenance
Whether your drilling in quarries, breaking rock on the jobsite or backfilling deep lifts, Furukawa Rock Drill USA (formerly Kent Demolition Tools and Furukawa Rock Drill) provides a reliable, cost-effective equipment solution. To learn more, visit us online at www.FRDUSA.com or call 800.527.2282.
29471_FRD_HalfPgAd_CED.indd 1
Please visit us in CONDEX Booth 527.
Scan this code for more information on FRD USA.
4/24/13 4:54 PM
24 | www.cedmag.com | Construction Equipment Distribution | January 2014
22_ADP_feature_KP.indd 24
12/23/13 1:44 PM
Service
in a timely manner. Many newer machines even have a GPS built into them, which can automatically update a dealership’s system and help keep records organized. Once the system is up to date, some DMS products have applications that can be set up to automatically contact the customer at least a week in advance, providing them with sufficient time to schedule their next service appointment. Having a system designed to help organize each machine’s service information is very helpful. Successfully implementing service agreements relies on being able to link multiple work orders to the same machine, as well as having the ability to view historical records. If a customer declines any work on a machine, it is important that this information is tracked for
future reference. Over time, dealerships can find out what is working and what needs to be changed through analytical reports. If the need arises, adding new makes and models or offering various levels of service – such as bronze, silver, gold and platinum – can be easily accomplished. Dealers that want to raise their service agreement offerings up a notch can customize them based on what their customers need as well as what will drive the most profit to their dealership. Worth the Investment The simple truth is that even though offering service agreements could cost a little more upfront, they can end up saving you money – as well as making you money – in the end. And best of all, service agreements are beneficial to everyone involved. They
help you and your customers plan for the future, they eliminate unnecessary delays in your employees’ productivity, and they ensure that customers do not have to spend extra money when servicing their equipment. After a successful implementation of service agreements, your customers will not have to fear the unknown when their equipment breaks and your dealership will be on its way increasing profit, CSI and efficiency. n Ross Atkinson sits on PFW’s Product Management Team as Director, System Architecture. With over 27 years of experience with PFW, Ross’ focus is on the strategic development of the IntelliDealer DMS. Helping clients use the many “hidden gems” that the system offers is his passion.
Lowe Manufacturing coMpany, inc.
18903 High point road Viola, wi 54664 pH: (888) Dig-Lowe (344-5693) fX: (608) 538-3995 www.LoweMan.com Lowe@LoweMan.com
PRODUCTIVE, DURABLE, VALUE. ® AUGERS TRENCHERS
GRAPPLES
Please visit us in CONDEX Booth 407.
January 2014 | Construction Equipment Distribution | www.cedmag.com | 25
22_ADP_feature_KP.indd 25
12/23/13 1:44 PM
A Closer Look
Meet Brian McGuire
Brian McGuire, president and CEO of Associated Equipment Distributors as of Jan. 6, can be reached at bmcguire@aednet.org, 630-574-0650, ext. 326.
AED’s new president and CEO is an active listener who also likes action, and he’s ready to help AED member companies grow stronger through participation in their association. By Kim Phelan
Brian McGuire may not have any “Backdraft” movie-type tales to tell from his days as a volunteer firefighter and captain of a Chicago-area crew of 12, but those 20 years of his life certainly played a role in building the kind of leader he is today. A man of action who is both service-minded and team-oriented, Brian is AED’s new president and CEO as of Jan. 6, and he’s ready to bring an arsenal of association management know-how to the job, and a whole lot more. “When you’re a volunteer [firefighter], you certainly learn to identify what needs to be done quickly and get it done,” Brian said. “And it really does teach you to work with a diverse group of people, and it allows you to learn how to make decisions quickly – and when you make those decisions it’s not easy to run away from them, because they generally have a very public outcome.”
He doesn’t deny the adrenaline rush that came with that work, but he hung up the helmet in 2008 when his career took a new and more demanding turn as executive vice president and then president of the Tooling and Manufacturing Association, which recently changed its name to the Technology and Manufacturing Association. At the TMA, he proved himself to be a problem-solver and dove in to effect major positive changes in what was, at the time, a struggling organization. “Membership was declining,” he said. “The revenues were falling and participation in the association was lagging, to say the least; and there was real concern about how they were going to reach the next generation of members. Their training programs had seen a sharp decline, driven by both the economic recession as well as (continued on page 28)
26 | www.cedmag.com | Construction Equipment Distribution | January 2014
26_McGuire_feature_KP.indd 26
12/23/13 10:21 PM
AED Leader
(“Meet Brian McGuire” continued from page 26)
a lack of appreciation for the manufacturing field. “So the cliff notes version of the story is, six years later, for the last two years we’ve had a positive membership growth for the first time in 20 years.” Participation increased – and they measured it. Brian helped re-energize the Young Leaders Groups and led a resurgence in the TMA’s training program. Under his stewardship, the association recovered financially and paid back reserves that were tapped during the recession. Best of all, “people say there’s an overall feeling throughout the association of excitement and optimism,” Brian said, “and people like to be involved with the association.” And now it’s AED’s turn to receive this achiever’s expert attention. Priority No. 1: getting out and meeting as many of the AED members as he can – and listening. “We need to take a hard look and evaluation, and see what needs to be done,” he said, but added, “When you come into a job like this you want to be respectful of the past; there’s some big shoes to fill here and we want to be respectful of that.”
New From...
Brian and Heidi McGuire have been married for 17 years and have three school-age children.
Listening – important in any job – was a critical skill during Brian’s eight-plus years as senior regional manager in Illinois and Wisconsin for the National Association of Manufacturers based in Washington, D.C. Being the face-to-face contact to recruit and engage members at the grassroots level, he recognized that listening not only helps build trust, but acting on what you hear is the real test of integrity, an attribute he values above all else. “It comes down to the fact that people have to believe you have integrity and that you’re going to follow through on what it is you’re discussing and what you’re committing to,” Brian said. “They have to be able to trust that you’re going to actually provide some return on their investment. People are interested in results – they don’t want to have a conversation for the sake of having a conversation.” • Forged blade
REAKER B D E T N U O M HYDRAULIC ALT CUTTER ASPH • High impact alloy steel
• Reinforcing rib adds strength and stiffness to minimize twisting and deflection loads MADE IN THE USA
We Make Pounding the Pavement Profitable!
800-323-9129 info@ajaxtools.com SPECIAL LENGTHS AVAILABLE UP TO 9.5 FT LONG
Visit www.ajaxtools.com to see our Post Drivers, Deck Busters, Frost Wedges, Tamping Pads & More!
Policy and Participation One of the areas where Brian will turn his results-focused efforts is on continuing the growth of members’ grassroots involvement in AED’s public policy advocacy. “I am a big believer that the messages members of Congress hear from our Washington office have to be heard back in their districts,” he said. “They have to connect with the work of AED to work back home. And they do that through meeting the owners of the dealers back in the district, understanding how those votes on EPA regulations as well as
28 | www.cedmag.com | Construction Equipment Distribution | January 2014
26_McGuire_feature_KP.indd 28
12/23/13 10:21 PM
AED Leader
Pre-AED: A Career Overview n President of the Tooling (now Technology) and Manufacturing Association based in Park Ridge, Ill., five-and-a-half years n Senior regional manager, (Illinois and Wisconsin), National Association of Manufacturers based in Washington, D.C., nine and-a-half years n Chief-of-state and then political consultant for Illinois State Senator Steve Rauschenberger, based in Elgin, Ill., eight years n Community Relations Coordinator, seniors residence in Schaumburg, Ill., three years n Marketing rep for business products company in Chicago, first job out of college, six months n Graduate of Southern Illinois University, Bachelors of Science in Speech Communication/Public Relations
tax policy [for example] affect local business. And that’s a connection I think we can build on – through local meetings outside the Beltway we can strengthen as well as raise the profile and the value of AED membership.” Brian is both a former consultant and chief-of state for Illinois State Senator Steve Rauschenberger, as well as an elected official himself. He is currently serving a second fouryear term as town supervisor for the township in which he resides, working with other elected and appointed officials and overseeing the community’s $12 million budget. “It certainly helps you understand finances. And it helps you understand service,” said Brian. “You can interchange the word ‘constituent’ with ‘member,’ and it’s a good learning ground of how to be responsive to folks.” But he also says that the shared experience of running for election and understanding the process that (continued on next page)
Multi-ply Your Money! with the award winning excavator rock ripping
Multi-Ripper
®
4 times faster than a hammer 6 to 9 times the force of a standard 5 tooth bucket
or the
Multi-Ripper Bucket
Maximize force one tooth at a time, with our patented "Shanks on an Arc" technology. Also, try our award winning Multi-Ripper Teeth (Twisted) for maximum penetration TM
eading dge
"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!"
January 2014 | Construction Equipment Distribution | www.cedmag.com | 29
26_McGuire_feature_KP.indd 29
12/23/13 10:21 PM
AED Leader
(“Meet Brian McGuire” continued from page 29)
members of Congress go through is a common ground that helps open doors with lawmakers in Washington. “A lot of them started in local
government,” he said. “It can be a good icebreaker when I go in and talk to them.” Brian credits his parents with instilling a sense of volunteerism and giving back to the community. Both his father and grandfather
The question isn’t
HOW MUCH WILL IT COST? The question is
HOW MUCH WILL IT PAY OFF?
The only thing it won’t clean out is your wallet. Whether you’re working in the oil & gas industry or on a construction site, the SweepMaster 400 is one mean cleaning machine that never backs down from a good mess. Visit www.laymor.com or call 800.323.0135.
130287_LAYMOR_CED_Magazine_Ads_DEC_2013.indd 1 Please visit us in CONDEX
Booth 615.
11/12/13 4:13 PM
were volunteer firefighters, and his mother was a committed school volunteer. Brian was first elected as a trustee in his township in 1993 and served 10 years; he was also the township’s clerk for six years, and has been supervisor for the last five years. “A lot of people complain about the way tax dollars are spent; this allows me to have a say in how they’re spent.” Playing to Win Brian is a guy who admits he likes to win – fortunately for AED, his favorite “game” is association bodybuilding. He’s a firm believer in what associations achieve for members because he’s seen firsthand how an industry becomes much stronger when it stands united, he says – much more so than when companies try to effect change individually. He knows that associations help people strengthen their businesses, whether through networking at events, through education programs they attend, and by playing a role in creating legislative change or, as he says, playing defense on some legislative issue. “I tend to be an action-oriented person, and I like to see points get put on the board and deliver wins for the association,” said Brian. “So I’m looking forward to working with the board to identify what those wins are going to be, and working with the staff to figure out how we’re going to deliver them.” Brian’s a reader of American history, and particularly favors the subjects of World War II and also the Civil War. But where he finds the time is a mystery. Between his many responsibilities as an association executive and also the civic duties of his role as chief elected officer for Hanover Township, Ill., it would appear that about the only possible thing for Brian McGuire to do in his remaining “spare time” would be to sleep. But the 43-yearold overachiever is a family man, too,
30 | www.cedmag.com | Construction Equipment Distribution | January 2014
26_McGuire_feature_KP.indd 30
12/23/13 10:21 PM
AED Leader
Brian (second from left) signed on as a volunteer firefighter at the age of 17 and also served on the volunteer department for fours in college – he retired as captain of the Bartlett Fire Protection District in April 2008.
and with three active kids, life on the home front is equally busy. Brian has been married to his wife Heidi for 17 years; she is director of recreational therapy for a children’s psychiatric hospital – and also directs most of the family’s comings and goings, which are numerous. Daughter Carly, 14, is a competitive swimmer, as is youngest son Kevin, 8. Middle-child JP, 11, plays football, baseball and basketball. Heidi will join Brian as he travels to his first AED Summit Jan. 15-17 in Houston. But the kids won’t accompany him. “That would be the end of my career,” he laughed. “If they went through the exhibit hall, the Executive Committee would quickly revoke their offer.” Brian, who resides in the Chicago suburb of Bartlett, grew up in nearby Hanover Park and claims he was a troublemaker as a child – but just the usual kind of little-boy mischief, he clarifies. As a four-year-old, he recalled, he hopped behind the steering wheel of his dad’s car that was parked (and apparently still running) in the driveway. Brian put it in reverse and backed out to the street, and vaguely remembers disciplinary action affecting his ability to sit down. He’s all about moving forward today for AED. n
IALIZEDTRAILER.COM/AED
XL 110 Low-Profile HDG
XL 110 Hydraulic Folding Gooseneck
XL 110 Low-Profile HDG
Check out XL Specialized Trailers’ 110 LowProfile HDG and the full line of market leading construction heavy haul trailers - designed for you and built to last.
877.283.4852 toll free | 563.927.4900 phone
WWW.XLSPECIALIZEDTRAILER.COM/AED BOOTH #2744
January 2014 | Construction Equipment Distribution | www.cedmag.com | 31
26_McGuire_feature_KP.indd 31
12/23/13 10:21 PM
-ad template.indd 1 13-KOBELCO-1491_AED_Conference_Show_Ad_RUN.indd 1
12/20/13 6:43 PM 12/13/13 12:15 PM
A Closer Look
Every Success Revolves Around One Core Concept. What’s Yours?
Your customers are hungry for the right mix of top quality and superior experience – make sure you can deliver and they’ll come back for more. By Jeffrey Gitomer
My friend, Andy Horner, and I were eating lunch at Chick-fil-A one Friday. My three-year-old daughter, Gabrielle, was with us. The minute we walked in the door, we were all handed a sample of their new tortilla soup. A bit spicy, but absolutely excellent. I should note the person serving the soup was a smiling young woman who seemed both happy to see us and happy to serve us. We placed our order, and it was ready before I got done paying. I should also note both the cashier and the food server seemed both happy and happy to serve us. When we got to our table we had a dilemma. Our food was hot and ready to eat, but Gabrielle wanted to go to the playground. So we compromised. After she ate three pieces of chicken, she got to go on the slide. The playground is a major kid’s attraction at Chick-fil-A. Meanwhile, as we were eating our lunch, not less than three people came by our table to offer us service of one
kind or another. When is the last time that happened to you in a fast food restaurant? Never? I thought so. These weren’t just people who asked us if we needed anything else. They were also smiling at us, chatting just a little bit, and suggesting things they might do to help, such as asking, “Would you like a refill?” or making a comment to make sure Gabrielle was enjoying her lunch. I should further note each person was both smiling and exceptionally sincere. I put one of them to the test. I gave him my credit card and asked him for a small bowl of their new soup. “Right away!” he said. And two minutes later the soup arrived. I could not tell if the people who stopped at our table were managers or janitors. It didn’t matter. They all acted exactly the same way, as if they owned the place and their life depended on our happiness and gratification
32 | www.cedmag.com | Construction Equipment Distribution | January 2014
32_Gitomer_feature_KP.indd 32
12/23/13 2:09 PM
Sales
(not our satisfaction, but rather on building loyalty). Andy and I began to talk after Gabrielle returned for a second visit to the playground. “What is it about this place? Why are we so enthralled with it? Is it the service? Is the playground? Is it the friendly people?” Certainly all of the above are contributing factors to the overall ambience and experience. But in the end we decided: it’s the quality of the food! We agreed that all of these extra elements would fall short of the mark if the quality of the fast food was inferior. What Chick-fil-A has done is add amazing services, conveniences, and happy people to a core of quality food. It sounds pretty simple, but their competitors, including the Burger King next door – which was almost empty at lunchtime – have failed to understand that quality is the attractor, not price. Chick-fil-A’s ad campaign of “Eat Mor Chikin” is immortal. The fact that they’re closed on Sunday, and all holidays, has created a new standard in business, not just in restaurants and not just in fast food restaurants. They’re dedicated to family, and prove it by offering excellent benefits, total diversity, and the opportunity for their employees to spend quality time at home. For some reason, all the people at Chick-fil-A seem both happy and bright. Not just happy to serve, but rather, happy as people. Whatever they do to train their people is working. Whatever their competitors do to train their people is not working as well. Whoever creates the menu is on the money. Whoever creates the recipes is also on the money. Whoever is in charge of consistent quality is really on the money. And whatever their competitors are doing is not nearly as effective. Many people have told me, “Chickfil-A is the only fast food restaurant
I’ll go to.” That’s a pretty powerful statement considering the fact there are hundreds of options. I cannot make the same statement because I also frequent In-N-Out Burger when I’m in California, and I have a very difficult time resisting the seasoned fries at Bojangles. Ok, now it’s your turn. Think about this story as it relates to your business. What’s the centerpiece at your place? Is it quality? I challenge you it’s most likely not. Most businesses focus on the ridiculousness of customer satisfaction. Or try to sell things at the lowest price. Or put things on sale to attract onetime buyers. Or have weekly specials. Or present some other message that does not focus on the central issue that has put Chick-fil-A at the top of the fast food empire: “Customers will pay more for quality, and return if the experience was great.” If you’re focusing on experience, and your quality is not superior, you will lose to someone one cent cheaper. If, however, your focus is on superior quality, and you add superior service, or should I say superior, friendly service, you will not just dominate your market place, you will also dominate your bank account like never before. Want my formula for creating loyal customers? Go to www.gitomer. com, and enter the words LOYALTY FORMULA in the GitBit box. n Jeffrey Gitomer is the author of many sales books including The Sales Bible, The Little Red Book of Selling, The Little Red Book of Sales Answers, The Little Black Book of Connections, The Little Gold Book of YES! Attitude, The Little Green Book of Getting Your Way, and The Little Platinum Book of ChaChing. His website, www.gitomer.com, will lead you to more information about training and seminars. He can be reached at salesman@gitomer.com, 704-333-1112. © 2013 All Rights Reserved
January 2014 | Construction Equipment Distribution | www.cedmag.com | 33
32_Gitomer_feature_KP.indd 33
12/23/13 2:09 PM
A Prevailing View
2014 Business Outlook Survey
Make More, Don’t Spend More Despite the convergence of unprecedented business challenges in 2014, most dealers see a foreshadowing of modest growth. By Kim Phelan
Taking their cues from their customers, the AED dealers who responded to CED’s annual Business Outlook Survey are overwhelmingly – more than three to one– anticipating total dealership revenues to be higher in 2014 versus 2013. What’s puzzling, however, is why, in almost the same breath, 41 percent of these dealers are also indicating no change to their new equipment sales inventory investments for this predicted year of growth. However, a little more than a third say they will increase that investment by 1-10 percent year over year, and close to 17 percent said they plan to spend less on new machines for sale. In other words, a small majority of dealers expect to make more money
yet plan to spend less on new iron inventory – so where do they expect to make that revenue, and where are they willing to spend? If you’re thinking rental, bingo on both counts – just under half expect rental revenue to grow 1-10 percent, and another 22 percent think 2014 rental business will grow more than 10 percent. The responses for how dealers will invest in their rental fleets correlates closely – just under half say they’ll increase the spend 1-10 percent, and 17 percent said they’ll raise it more than 10 percent. How dealers come at the business of rental is not dramatically different from last year but generally reflects a gradual jump for factory-authorized distributors toward the rent-to-rent
bandwagon. This year, close to 40 percent say that rent-to-rent (RTR) is their dominant methodology compared to 46 percent last year. A miniscule 12 percent do most rental as rental-conversions, and 26 percent of AED dealer respondents call it a 50-50 split between RTR and RPO. Breakin’ It Down Even though a two-thirds majority of dealers still say their best customers are cautious about project backlogs and will therefore lean toward rental again, a lot more of this year’s surveytakers say customers are optimistic versus this time last year: In 2013’s outlook survey, only 11 percent of dealers were seeing customer (continued on page 38)
34 | www.cedmag.com | Construction Equipment Distribution | January 2014
34_Biz_Outlook_Feature_KP.indd 34
12/23/13 10:31 PM
2014 Business Outlook Report
(“A Prevailing View” continued from page 34)
optimism and 78 percent said customers were going to be cautious and renting. This year 35 percent of dealers said customer mood is more ripe for purchasing, and 61 percent said the mood was cautious. On a departmental level, dealer responses reflect a pretty upbeat outlook on how the slightly shifting contractor mood might play out for them. n Sixty percent look for modest uptick in new equipment sales in their markets; add another 10 percent who think the increase will exceed 10 percent year over year and it’s a solid majority who are bullish for strong new machine sales in 2014. n For used equipment sales, slightly more than half expect a moderate increase, and close to 10 percent say they’ll do more than 10 percent better than 2013. n Just under half of dealers think a 1 to 10 percent increase in rental revenue is doable this year, and another 22 percent say increases will go higher than 10 percent. n An even two-thirds predict modest parts sales increase and 11 percent forecast better than 10 percent higher over 2013. n Sixty-six percent predict 1-10 percent gains in service business sales with 8 percent more saying their service revenues will increase by more than 10 percent. n For used equipment, rental, parts and service, an almost perfectly consistent quarter of the survey-takers are banking on flat results for 2014. And 17 percent say their new equipment sales are going to be the same as 2013. This year, a few more dealers say they’re thinking about taking on a new product line compared to last year’s survey. While an obvious two-thirds majority are not looking to add to their offering mix, about 6 percent more than last year say it’s a possibility – two write-in comments indicated interest in Chinese lines,
Says Who? Executives from a wide swath of dealership types responded to this year’s Business Outlook Survey, but looking at majorities of certain responses, the following generalizations can be made about CED’s survey-takers: A majority (33 percent) employ 21-50 people and operate 1-3 locations (52 percent) and 40 percent have 4-10 branches. A majority (51 percent) are heavy equipment dealers/100 hp and above; 34 percent are medium equipment dealers/under 100 hp; 10 percent are specialized dealers, including engine, forestry, ag, industrial, mining and concrete equipment; and 4 percent are primarily rental companies. The largest respondent group by annual revenue (27 percent) is the $26 million to $50 million category; 23 percent of survey-takers estimate their 2013 revenues between $11 million and $25 million; 16 percent – $51 million to $100 million; 17 percent – $101 million to $300 million. Small percentages have annual revenues below $10 million or above $300 million. and another said it’s just got to be something compatible with existing products. 2013 Wrap-Up Although anecdotally you still hear an occasional dealer say they had a record year – even among nonshale play suppliers, believe it or not. However, year-end total dealership revenues on the whole were just ok – a little bit good (35 percent), a littler bit great (23 percent) and the rest just flat (23 percent) to down (17 percent). Most are happy with where their Q4 ‘13 inventory levels landed – but the fact that 40 percent were not satisfied with their year-end inventories is not inconsequential. We detect some passion on the subject when 13 surveytakers pause to make a comment, and nine said they had too much inventory. Even so, a trace of OEM product availability issues still remains for a sizeable group. Nearly a third say there’s been no change, but almost 20 percent allude to a worsened rather than improved situation. But the combined positives tally up to more
than 50 percent whose availability kinks are getting smoothed out. Where Does It Hurt? Some AED members are getting weary of complaining about the government’s ill effects on business; nevertheless, it’s hard to ignore the five major clouds rolling across the industry horizon with threatening speed, size and hue. CED asked survey-takers to rank the challenges that are converging in 2014 and here’s what we heard: n Adapting to and counseling customers through the official jump to Tier-4 Final came in as dealers’ No. 1 concern. n A close second among the most dreaded challenges: Dealer tax exposure in 2014 and 2015 due to the expiration of Bonus Depreciation and Section 179 expensing, as well as possible extinction of LIFO and LKE provisions in the tax code foretold in the Senate Finance Committee’s draft tax reform legislation.
(continued on page 40)
38 | www.cedmag.com | Construction Equipment Distribution | January 2014
34_Biz_Outlook_Feature_KP.indd 38
12/23/13 10:31 PM
2014 Business Outlook Report
(“A Prevailing View” continued from page 38)
HCT Has the Right Connections Leaking hydraulic fluid can be a minor annoyance, or a major catastrophe. Either way, HCT connections minimize the chance for leaks to develop. • OEM style ORFS or CD62 4 bolt flange connections • Higher safety standards • Efficient designs with fewer connections, reduce the number of potential leak points
Welded tube ends for maximum strength and durability.
www.hctkits.com 888.603.0080
n Almost tied at 3rd Place for biggest 2014 threats were (1) Obamacare and (2) the potential “Year Zero” scenario in which the Highway Trust Fund is depleted and Congress fails to authorize and adequately fund surface transportation in the U.S. n Labor and HR-related issues placed last among the most worrisome challenges we could think of, but almost everything that keeps a dealer up at night has its origins in Washington, D.C. – what a surprise.
Every Story’s Different – 5 Snapshots CED interviewed five equipment dealer executives to get a sense of what is happening regionally around the U.S. (please see our feature on page 46 for Canadian projections) – but speaking to one dealer in a geographic market does not a market summary make. Far from it. Like a flight of wine, we sampled very individual experiences and perspectives, and none are necessarily representative of what’s going on at a macro level in their territories; they speak only for themselves, except perhaps in the case of our Oklahoma conversation. Northwest Volvo Dealer. Patrick McConnell at Clyde-West based in Portland, Ore., had a fantastic year, but is it because employees worked harder than the year before? No, it’s more like “sheer blind dumb luck,” he jokes. Comparing the business to a baseball game, he says they hit a few grand slams in 2013, but those are the kind of deals you can’t really predict, and he isn’t planning for them in his 2014 outlook. McConnell also attributes some of ‘13’s results to the ongoing replacement cycle – customers who have decided they’re going to stick it out come to the realization that if they’re going to stay in the business they’ve got to buy some new equipment. He says credit in the Northwest is back to normal, and by that he means you have to have a 10-20 percent down payment for a house not a negative 3 percent down payment! “That kind of stupidity is thankfully gone,” he said. The new tax reform proposal out of the Senate Finance
The Biggest
250 Fluid Drive • McDonough, GA 30253 Please visit us in CONDEX Booth 533. 40 | www.cedmag.com | Construction Equipment Distribution | January 2014
34_Biz_Outlook_Feature_KP.indd 40
12/23/13 10:31 PM
2014 Business Outlook Report
Committee in December makes McConnell too queasy to discuss at length, but beyond even the impact of policy, he predicts the industry could witness some southerly winds perhaps 18 months down the road. A possible warning signal: In the early fall he was anticipating a hot rental conversion season, “but we got a lot more back than we got nailed down.” East Coast Mixed Line Dealer – Liebherr, Link Belt, Kawasaki, Terex trucks. Gerard Calamari of Contractors Sales Co., Albany, N.Y., has carved out a nice niche business from a one-location store that serves a relatively small but high-quality customer base. Although it’s a bit of a gamble depending on the 80-20 rule, where 80 percent of the business is generated by 20 percent of their customers, Calamari says his company is carried along nicely when their customers land good contracts. Case in point, a customer got the emergency state contract for highways and there were some floods, he said. “They rented a third of our rental fleet for a big part of the season because he was responding to 100 different jobs, literally...We’re a small company. We don’t have a big appetite; we don’t eat the whole pie. So we get pulled along.” His company recognized early that rental was going to be an essential direction for AED dealers and he was an early adopter – nevertheless, volume fell off the cliff by 40 percent in 2008, “like the rest of the planet.” They’ve made a strong comeback and they’ve ramped rental back up so the company is close to hitting the $20 million revenue mark. But rental has been somewhat disappointing the last two years, he says – they’re making it up through used equipment sales, creating their own good, late-model used machines from the rental fleet. Midwest Roadbuilding (including Volvo) and Readymix Equipment Dealer. Larry Glynn at CMW Equipment, St. Louis, couldn’t wait any longer for highway work to come back to Southern Illinois and Central Missouri. In a word, highway work in his region is “dismal.” One of his largest customers, an international contractor that was spending $5 million to $10 million a year on (continued on next page)
Sandboxes
The top three construction sectors served by AED dealers who took the CED survey are: surface infrastructure, housing, and commercial building. Unconventional shale energy places fourth, followed by niches that include concrete and scrap/recycling. Water infrastructure ranked sixth, then traditional mining, then forestry. Survey-takers wrote in additional sectors: landscaping; export; heavy industrial and steel and chemical; telecommunications; government/municipalities; and waste handling/landfills.
January 2014 | Construction Equipment Distribution | www.cedmag.com | 41
34_Biz_Outlook_Feature_KP.indd 41
12/23/13 10:31 PM
2014 Business Outlook Report
(“A Prevailing View” continued from page 41)
equipment is down to zero for capex today. “There are three big jobs going on in St. Louis,” Glynn said, “and all three are being done by a contractor in Chicago! None of the equipment is
being purchased here.” A modest amount of replacement activity was not enough to sustain his company anymore, so Glynn decided it was time to expand his territory, with OEM lines that permitted stretched boundaries, adding Oklahoma, Arkansas, and Iowa to his market
Don‘t maKe tHe tHe same mistaKe otHer HaVe otHers HaVemaDe. maDe. ITIT WILL COSTYOU YOU WILL COST EVEN EVEN MORE. MORE.
Pierce has a long history of supplying OEMs (and their dealers) with long reach excavator booms. Pierce booms are designed using sophisticated engineering software, built with mill-certified steel and manufactured right here in North America. All Pierce booms meet or exceed tough OEM design standards and all come with SAE-rated performance data for your specific machine. And with warehouses and technical support located throughout North America, you’re within quick reach of all you need. Hey, it’s your hard-earned reputation, don’t you think you should compare apples to apples? A Pierce boom is not an imitation wrapped in a different skin…can cheap offshore imitations make the same claim? PORTLAND, OREGON EDMONTON, ALBERTA JACKSON, MISSISSIPPI
SEE YOU AT CON-EXPO IN LAS VEGAS
Untitled-1 1
www.PIERCEPACIfIC.COM 800.760.3270
MARCH 4-8
EXHIBITOR
coverage. “It’s paying off for us. If we hadn’t made that move I don’t know what we would have done,” he said. “I have customers going places they’ve never been. [They say:] ‘We have to go outside our comfort zone and go do something different if we’re going to make it through this.’” Now that he’s spread into three more states with less emphasis on the home front, Glynn’s road and highway-focused rental business is down, (A) because the work is down, and (B) because rental is very much a home-market business – and Glynn is simply not home anymore. Oklahoma Ditch Witch Dealer. Gary Bridwell from Ditch Witch of Oklahoma indicates that 2014 will be a little slower for his company, and that’s just what he’s hoping for in a region that goes fast and furious with oil and gas. “We went absolutely full tilt in 2012 and we matched it year-for-year with less than 1 percent difference [in 2013],” he said. So having a flat year would be excellent, he says – “It’s kind of like Thanksgiving; we ate so much we need to digest it a little.” Product availability hasn’t been ideal over the last few years though it has improved. “What I think happened is that as we started ramping up in 2012, there were a lot of vendor people that supplied the OEMs that were behind and I think they are finally catching up to where the manufacturers can meet their lead times. His rental business is growing, which he attributes to the “nature of what’s happening in the oil field.” The sector prefers straight pure rental versus rent-to-buy. Bridwell sounds like he’s got ideas for growing his business but it’s premature to discuss his plans. Meanwhile, bumps in an otherwise smooth road are seen mostly connected with Tier-4 Final, he says. The unprecedented industry makeover is all about education, and “if we can understand it then we can start working with our customers and counseling them on times to change
12/23/2013 2:40:25 PM
42 | www.cedmag.com | Construction Equipment Distribution | January 2014
34_Biz_Outlook_Feature_KP.indd 42
12/23/13 10:31 PM
2014 Business Outlook Report
[machines] and what they may be required to do,” he said. “In a nutshell, [however], Tier-4 is just going to cost us all a lot of money.” South Florida Kubota Dealer. Todd Bachman, from Florida Coast Equipment based in Boynton Beach, says South Florida is hot, and he’s not talking about the temperature. It’s not export hot either – it’s building hot. And housing inventory is now among the lowest in the country compared to three years ago when the state was one of the worst housing markets. From his vantage point, Tier-4 Final is working in his favor, slowing down some of his competition – “we are literally getting some business just because some people can’t deliver,” he said. In Fort Pierce, Bachman’s company serves the agriculture market – vegetables and citrus – and it’s on fire. “They’re making money hand over fist and they’re trying to figure out how to get production up,” he said. “The only way to do it is to spray, and the only way to spray is to buy tractors.” Because of the ag market, Bachman’s No. 1 legislative concern is getting immigration done right. It takes 800,000 immigrant workers to get crops out of the field, he says. “If the Immigration Bill goes wrong, we will have a serious problem. His farmer customers will also be hurt if changes are made to minimum wage. Florida pays very high wages, so that’s not the issue – “The grocery store chain is going to have to pay a little bit more ...and they’re just going to want to squeeze on the other side, on the farmer’s side,” Bachman said. A niche company that knows “you can’t out-Cat Cat or out-Deere Deere,” Bachman has found holes where he can excel and made a good living. And he doesn’t try to compete for rental business against all the nationals in South Florida, either – “it’s the Super Bowl of equipment down here,” he says. So he takes a different approach with rental and aims for the RPO market. “My angle is, if you don’t want to just pitch your money down
the road at a rental, I’ll charge you a little bit more than the rental company will, but I’ll give you 80 percent toward your purchase.” Like other dealers we spoke to, Bachman is deeply dissatisfied with the current administration, its policies, and also a spreading sentiment
of entitlement in the country where people can wriggle away from financial obligations and get the proverbial free lunch. But someone’s always got to pay. And while Florida grows a lot, it hasn’t figured out yet how to grow money. n (continued on next page)
Ground
Engaging one Scoop at a Time
s See U h ot at Bo #739
• Dedicated and Quick-Change Buckets for Compact Excavators, Backhoes, Wheel Loaders and Large Excavators • Mechanical & Hydraulic Couplers • Material Clamps & Grapples • Skid Steer Attachments
woodsequipment.com 800-848-3447
• Industrial Box Scrapers
Please CED_2014 AED SHOW_half HORZ.indd 1
visit us in CONDEX Booth 739.
12/16/13 9:21 AM
January 2014 | Construction Equipment Distribution | www.cedmag.com | 43
34_Biz_Outlook_Feature_KP.indd 43
12/23/13 10:31 PM
Key Findings From the 2014 Annual Business Outlook Survey
2014 Business Outlook Survey
CED’s Business Outlook Survey received a 17 percent response from the total AED dealer membership.
Top Construction Sectors Fueling Dealer Revenues in 2013
2014 New Equipment Sales Inventory Investment Plans (vs. 2013)
Surface Infrastructure 1%-10% increase
Housing Commercial Building Unconventional Energy/Shale Oil & Gas Niche, i.e. Concrete, Scrap/Recycling
More than a 10% increase
Water Infrastructure
1% -10% less
No change
Mining Traditional
Reduction of more than 11%
Forestry
Predicted 2014 Total Dealership Revenues Business Mood of Dealers’ Best Customers
2013 2014
Optimistic about backlog and projecting equipment purchasing in H2 2013
10.26%
11.5%
23.08%
35.9%
66.67%
Cautious and leaning toward rental for any increased needs 78.2% 61.5%
Planning to add a new equipment product line in 2014?
Skeptical about remainder of 2013 and not planning to do much business with you 10.3%
39.47%
2.74%
60.53%
44 | www.cedmag.com | Construction Equipment Distribution | January 2014
34_Biz_Outlook_Feature_KP.indd 44
12/23/13 10:31 PM
2014 Business Outlook Survey
Predicted 2014 Gross Revenues by Department vs. 2013
6.7%
1%-10% higher
More than 10% higher
The same
1%-10% lower
New Equipment Sales
60.53%
9.21%
17.11%
13.16%
Used Equipment Sales
55.26%
9.21%
26.32%
9.21%
Rental
47.37%
22.37%
26.32%
3.95%
Parts Sales
63.16%
11.84%
25%
0%
Service Sales
65.79%
7.89%
26.32%
0%
2014 New Rental Fleet Inventory Investment Plans vs. 2013
Biggest 2014 Challenges
1%-10% increase Tier-4 Final supporting customers, machine issues
More than a 10% increase No change We don’t distinguish between for-sale vs. rental fleet
Your tax exposure due to expiration of Bonus Depreciation, Sec. 179 changes, possible LIFO repeal, etc.
1%-10% less Reduction of more than 11%
Obamacare implementation (employer mandate)
RTR vs. RPO
No rental at all
End of Map-21 highway funding, Congress’ ability to pass new legislation
Most rental is RPO; little RTR Equal RPO and RTR Labor or HR issues/regulation More RTR vs. RPO Majority RTR
January 2014 | Construction Equipment Distribution | www.cedmag.com | 45
34_Biz_Outlook_Feature_KP.indd 45
12/23/13 10:31 PM
LiuGong.pdf
1
12/18/13
11:19 AM
C
M
Y
CM
MY
CY
CMY
K
Let’s face it, moving earth is a dirty job, but with the right equipment you can make it a little more simple. As the largest manufacturer of wheel loaders joins the North American market, you’ll gain access to productive, reliable and cost effective machinery. In addition to wheel loaders, LiuGong offers a full line of construction equipment, including hydraulic excavators, backhoe loaders, skid steers and the premier dozer and pipelayer product lines. Discover the possibilities at www.liugongna.com.
LiuGong Wheel Loaders Wheel loaders from 1 cu yd to 6.5 cu yds Cummins diesel engines with up to 350 HP Operating weights up to 66,139 lbs Breakout forces to over 58,450 lbs ZF transmissions All with 3 year/4000 hour XtraCare warranty
Visit our hospitality suite at the AED Summit 2014, Suite 7039. Dealer inquiries welcome.
North America
LiuGong, Dressta, their respective logos, as well as corporate and product identity used herein, are trademarks of Guangxi LiuGong Group Co., Ltd and may not be used without permission. © 2013 LiuGong. All rights reserved.
-Ad_template.indd 2
12/23/2013 9:10:37 AM
-ad template_Spread.indd 2
11/26/13 9:49 PM
Please visit us in CONDEX Booth 507.
-ad template_Spread.indd 3
11/26/13 9:49 PM
-Ad_template.indd 2
10/21/2013 1:29:05 PM
Ring Of Fire Cools, But Canadian Prospects Are Generally Hot
A Closer Look
Chromite mining in Northern Ontario – with epic potential – isn’t the country’s one-hit wonder; resources and infrastructure projects are smokin’ all over. Tom Van Dusen Jr.
Northern Ontario’s Ring of Fire may have cooled off for the time being, but in several other areas of Canada construction projects are looking hot, hot, hot right through 2014 and into 2015. They’ll heat up even more when Ring of Fire takes hold again. All those with a stake in the mega mining venture insist it’s a matter of when, not if. “Ring of Fire,” is best known as a song made famous by Johnny Cash, but in a remote part of Ontario, 250 miles northeast of Thunder Bay, the borrowed title has also come to identify what many predict to be one of the biggest financial opportunities the province and perhaps the country has ever seen. It’s the name given to a massive chromite mining and smeltering project in the mineral-rich James Bay lowlands, some 3,000 square-miles in all, centered on McFaulds Lake. The tantalizing possibilities have attracted more than 35 mining and exploration companies to the area. The nickname was bestowed by Sudbury lawyer turned mining entrepreneur Richard Nemis who made the first significant mineral finds in the area – apparently for no other reason than he’s a devoted Cash fan. Ring of Fire stuck and now senior politicians such as Canada’s Treasury Board President Tony Clement are singing the praises of the project. Clement claims the region could become the economic equivalent of the Athabasca oil sands, with potential for generating as much as $120 billion in economic activity. He adds that it represents a once-in-a-lifetime opportunity to create jobs and long-term prosperity for Northern Ontario and the nation. Clement has been looking to business, not
the federal government, to invest in the power and transportation infrastructure necessary to develop the deposit. So far, so good! But let’s not forget that it “burns, burns, burns, the Ring of Fire.” Much of the infrastructure investment had been resting on the shoulders of Cliffs Natural Resources, a U.S. international iron ore and coal mining company, which, in November, announced it is indefinitely ceasing participation in the chromite project. Cliffs decided not to allocate additional capital given the uncertain timeline and risks associated with installation of the infrastructure. It previously suspended the environmental assessment process because of issues impeding progress. By the end of 2013, Cliffs planned to reduce its project team and close its offices in Thunder Bay and Toronto, as well as the exploration campsite. The company emphasized that it still believes in the value of mineral deposits and future potential of the Ring of Fire and will continue to work with the Ontario government, First Nations and other interested parties to explore solutions related to the “critical issue” of infrastructure. Following Cliffs’ estimated $3.3 billion pullout, some analysts have described the project economics as “questionable at best.” “I went down, down, down, and the flames went higher,” we hear Cash echo. Ontario Minister of Northern Development and Mines Michel Gravelle wasn’t singing the tune and didn’t seem to feel the burn when he learned of Cliffs’ decision. On the contrary, he made a bold pronouncement that the Ontario government would continue to work toward success of the Ring of Fire. (continued on page 48)
46 | www.cedmag.com | Construction Equipment Distribution | January 2014
46_Canada_feature_KP.indd 46
12/23/13 10:33 PM
Canada
(“Ring Of Fire Cools, But Canadian Prospects Are Generally Hot” continued from page 46)
“This development is about more than one company,” Gravelle insisted. “It’s a multigenerational economic opportunity with known mineral potential representing one of the largest known deposits in the world.” He said Ontario is prepared to invest in vital infrastructure to create the right climate needed to support Ring of Fire development. Meanwhile, Gravelle’s boss, Ontario Premier Kathleen Wynne, has been knocking on the federal government’s door, suggesting the senior level should help get the project in the ground even though the Treasury Board President tagged the business sector for that investment. However, Wynne came out of a meeting early in December with Prime Minister Stephen Harper claiming the two levels of government are singing the same notes when it comes to Ring of Fire. The Liberal premier noted that Harper’s Conservative government has strongly supported resource development in other parts of Canada, particularly the oil sands in Conservative Alberta. “This is a project of national interest in the same way there have been projects in Alberta and Newfoundland & Labrador of national interest,” said Wynne, who has estimated the preferred federal Ring of Fire infrastructure commitment at up to $2.5 billion. “We’re looking for engagement.” Be it corporate or government investment, billions are needed to either push a dedicated resource railway into the wilderness or build a road that would also connect several isolated First Nations communities to Ring of Fire territory. A power grid is another key part of the equation. Nice Icing The Ring of Fire would be the icing on an already very plump construction cake. Even without it, 2014 is expected to be a banner year nationwide, with many resource development projects continuing unabated and even picking up steam. Generally speaking, the federal Bank of Canada has forecasted 2.3 percent GDP growth in 2014. While that’s down from an earlier estimate of 2.8 percent, it’s still a full percentage point up from 2013. The Royal Bank of Canada, one of the country’s top five commercial lending institutions, is even more optimistic, predicting 2.6 GDP growth in 2014 and 2.7 growth in 2015. RBC says job growth has driven up wages by 2 percent over the past year, while inflation has only risen by .9 percent. The bank’s most recent economic outlook says the West will continue outperforming the East with the dividing line on the Ontario-Quebec border. Another sound general economic indicator is the federal government’s budget balancing path. The government had given 2015 as the target; but because of increased revenues and concentrated spending cuts, some analysts are now suggesting a balanced budget could happen in 2014.
While Finance Minister Jim Flaherty won’t commit to 2014, he insists 2015 will bring a budget surplus. Back in 2009-’10, the deficit stood at $55.6 billion. By 2012-’13, the shortfall was down to $18.9 billion, $7 billion below the stated target of $25.9 billion and on track for an impressive balancing act by 2015 at the latest. The Conference Board of Canada, a nonprofit economic think-tank, says Alberta will lead the way in economic growth in 2014 thanks in large part to oil sands investment and a strong labour market. The province is expected to experience GDP growth of at least 3.4 percent compared to the national 2.3 percent. Resources development will also continue to carry Saskatchewan and Newfoundland & Labrador as economic powerhouses, but at a slower pace. The outlook for other provinces is sunny as well, the conference board states, predicting a boost in the Ontario economy due to a partial recovery in exports and strong growth in commercial and financial services. Summing up, the board claims good times are in store over the next two years, due largely to improved outlooks for the U.S. and global economies. Total exports are forecast to grow by 3.7 percent in 2014 and by 4 percent in 2015. Meanwhile, the domestic economy should keep humming along over the next two years, thanks to continuing low interest rates and improving business and consumer confidence. Equipment Picture Never Better The construction and equipment industry in Canada is reflecting the rosy economic picture. In Alberta, one of the strongest construction markets in North America,
48 | www.cedmag.com | Construction Equipment Distribution | January 2014
46_Canada_feature_KP.indd 48
12/23/13 10:33 PM
Canada
CERF Incorporated, which operates equipment rental and waste management businesses, says customers remain bullish about projected workloads. “This translates into strong current and future demand for our equipment and services,” said CERF President Wayne Wadley, who said more than $8 million has been invested by his company to meet demand for construction rental equipment. In response to demand for oilfield rentals, $2.7 million has been invested. Wadley said CERF’s oil and gas rentals business has diversified its customer base through fleet expansion and has increased its sales force by 25 percent. Cam Tyhurst, Ottawa, Ontario, general manager for Nortrax, John Deere’s forestry and construction equipment dealer, said eastern Canada is the “right place to be” for the industry, not just in the short term but over the next decade. With projects already in the ground and others such as the Ring of Fire poised to possibly come on stream, things have never looked better. Nortrax received zoning approval in December to construct a new 12-bay shop and showroom over 34,000 square-feet in Ottawa’s rural west end. Including the 16-acre site, the project all-in is worth close to $10 million. Expansion from a current four-bay centre has been planned for five years and reflects heavy regional demand for Nortrax excavators, loaders, backhoes and skid steers, Tyhurst indicated, including right in Ottawa where light rail expansion is ongoing. Completion of the new Nortrax building in 2014 will add about 12 people to the Ottawa employee roster of 35. Looking ahead, Tyhurst sees tremendous potential for heavy equipment in municipal infrastructure projects in Ontario and other parts of the country. All levels of government agree that major investments must be made in bridges, roads and underground pipes that are literally crumbling from neglect. As usual, it’s a question of how much it’ll cost and where the money is going to come from. As an example of how infrastructure is falling to pieces, Tyhurst pointed to a recent incident with the Champlain Bridge in Montreal, where a sudden crack in a steel girder doubled in length over three weeks. As a Band-Aid solution, it was reinforced with the addition of a new super beam. Discussing recent company sales in eastern Canada, Tyhurst said 30 pieces of Nortrax equipment were purchased for about $500,000 per unit by two contractors working on the Muskrat Falls hydroelectric project in Newfoundland & Labrador. Now under construction, the $7.7 billion development will be capable of generating up to 824 megawatts of electricity a year as soon as 2017. The province’s power-hungry customers will be able to bank on stable, emissions-free electricity, said Premier Kathy Dunderdale when she announced the provincial government will take out a loan of $5 billion over 40 years to help finance the project. Borrowing a tune her Ontario counterparts use to describe
Photo credit: Ashley Fitzpatrick/The Telegram. Heavy equipment works on a site near the Muskrat Falls Hydroelectric project in August, 2012.
the Ring of Fire, Dunderdale called Muskrat Falls “one of the most significant ventures Canada has ever undertaken.” B.C.’s Robust Activity Like Tyhurst, Garry Frelick, president of Douglas Lake Equipment in Surrey, British Columbia, is counting on hydroelectric development as a source of great things to come for the industry in 2014 and beyond. Add to that some B.C. transportation infrastructure projects, increased pipeline activity, and a forestry sector ready to ride a wave of new construction in the U.S. and Asia – well, it looks like its feasting time in the feast-or-famine cycle. The gravy on that feast, Frelick said, would be the launch of Site C, a $9 billion proposed third dam and hydro-generating station on the Peace River in northeast B.C. Subject to environmental certification, Site C would produce 1,100 megawatts of capacity every year as the third dam on the Peace River system. Offering several lines of equipment and locations in B.C. and Alberta, Frelick said Douglas Lake business continues to be healthy, especially in rental activity and parts and service. Which Hat Are You Wearing? Toromont Vice President of Marketing Rick Van Exan said one can look at 2014 prospects wearing an optimist’s hat or a pessimist’s hat. With most economic indicators accelerating and some regions of the country, notably Alberta, “red hot,” it’s pretty difficult to keep the pessimist’s hat on for very long. Toromont, headquartered in Ontario, also serves Newfoundland & Labrador, Manitoba and the Arctic, and Van Exan said all regions look promising for equipment sales and service. In addition to Muskrat Falls and revitalizing transportation infrastructure, he cited the light rail system in Ottawa as projects with growing potential. And as for the Ring of Fire – it could flare up again in 2014, spreading the landscape with bonus opportunities. n Tom Van Dusen Jr. has written for daily and weekly newspapers in Canada for more than 40 years. A freelancer based near Ottawa, Ont., his specialties include the general economy, politics, agriculture and the environment. He can be reached at 613-445-3407, tomvandusen@sympatico.ca. January 2014 | Construction Equipment Distribution | www.cedmag.com | 49
46_Canada_feature_KP.indd 49
12/23/13 10:33 PM
JOIN OUR TEAM! Earning a profit is easy when you carry Hyundai Construction Equipment. The attraction is simple: Hyundai delivers your customers competitively priced products with a long list of standard features. All backed by a category-best total coverage warranty: 3-year/3,000-hour full machine and 5-year/ 10,000-hour structural. To get the inside story on how to become a Hyundai Dealer, contact us at becomeadealer@hceamericas.com.
Please visit us in Meeting Rooms 335A & 337B.
Dealers Wanted - CED.indd 1 -ad template.indd 1
11/6/2013 3:06:30 PMPM 12/20/13 6:50
A Closer Look
The Dealer’s Changing Role in Machine Control As machine control moves from aftermarket to OEM-installed, equipment dealers that embrace the opportunity are positioned to serve an increasingly interested customer base. By Joanne Costin
work hard to prove technology benefits and when the The introduction of Komatsu’s new D61i-23 dozer light bulb goes on, adoption accelerates. This drives market last June marked the beginning of a new era in machine control technology and how its acceptance in the marketacceptance to a tipping point where OEMs are expected place will spread – in a way, it is symbolic of changing times to streamline and integrate the systems. That’s where we and evolving skill requirements for dealers. are now, and it’s a great opportunity for both positioning With the new machine, gone are the blade-mounted providers and equipment dealers to better partner with GNSS (Global Navigation Satellite System) antenna (includtheir customers.” ing a mast, cables and brackets), as well as blade-mounted “It’s a user-driven technology that customers have been orientation sensors. Instead, all the dozer’s external hardware demanding,” said Ron Schweiters, product marketing manager for Komatsu. He says that failures with the cabling of a typical aftermarket automated blade-control system is on blade-mounted machine control systems have been a integrated into the base machine. source of pain for contractors. It’s a huge shift and one that has major implications for “With the new dozer, operators appreciate not having the market – and for dealers who have been sitting on the to climb on the blade to attach external components,” said sidelines with respect to machine control technology. Mike Salyers, product marketing manager for Komatsu. “It‘s a pretty predictable technology paradigm,” said “Set up is much easier.” Randy Noland, vice president and director of Machine Six months after the machine’s launch and subsequent Control for Carlson Software Inc., and also cofounder/editor demos around the country, Komatsu’s Intelligent Machine of machinecontrolonline. Several manufacturers have taken Control Director Peter Robson says the message that resosteps toward added integration including Caterpillar, Deere, nates best with customers is a phrase they call, “The Three CASE, Atlas Copco, and Wirtgen. Cs – No cables, no climbing, no connections.” “OEMS own the platform. Innovations such as machine guidance and control are introduced as an add-on comple- Most experts believe the trend toward factory-installed machine control will continue especially as applications menting the platform (or machine). Positioning providers 50 | www.cedmag.com | Construction Equipment Distribution | January 2014
50_Machine_feature_KP.indd 50
12/23/13 3:21 PM
Equipment Technology
grow beyond motor graders and dozers to hydraulic excavators, compact machines, compactors and drilling equipment. OEM adoption of machine control technology is likely to influence market acceptance, as well as the demands on dealers to support it. Komatsu’s intelligent machine control system can be used from first rough-cut pass to the finishing pass with significant productivity benefits. By comparison, most aftermarket systems are only used in final grading. This helps contractors get more production out of less skilled operators. Robson envisions less skilled operators using the intelligent dozer to perform basic controls at a faster rate and eventually learning higher level skills in the manual-operating mode. “They won’t be under so much stress and pressure to perform at a high level right away,” said Robson. Komatsu recognized its dealers needed a new skill set to support intelligent machine control and put in place a strategic plan to accomplish that. The addition of a technology solutions expert (TSE) at each dealership is a key component. After completing a regimented training program, that person is responsible for troubleshooting and getting others in the dealership educated on machine control. Continuing education is also a requirement. According to Komatsu, the company’s dealers will work in partnership with Topcon dealers on jobsite management while Komatsu dealers will focus on the machine itself. Topcon was their strategic partner in the development of the intelligent dozer. “Initially it is a new area for [dealers], but Komatsu has provided a support structure for them to become acclimated with the technology,” said Salyers. “Overall, they have become more familiar with it, more comfortable with it, and have gained more confidence as we’ve moved along.” In general, Komatsu believes the immersion in machine control has made their dealers a more valuable resource to their customer base. Machine Control Market Growth The consensus among dealers and suppliers we interviewed is that with increased integration, the pace of machine control adoption is likely to accelerate. “Heavy equipment manufacturers are driving this topdown toward their dealers, and some dealers are early adopters and getting involved,” said Tony Vanneman, senior manager for Topcon. “They all realize that this is inevitable.” Machine control offers savings in time and fuel, while improving productivity by 30-50 percent. Kelly Gress, vice president of RDO Integrated Controls, sees this as a huge opportunity for the construction industry, where productivity has actually declined since 1964, a sharp contrast from other industries. With machine control already accepted among larger highway/heavy contractors, Mark Rinehart, director of Technology for Ziegler CAT, is looking to increase adoption among other land improvement type customers. “Eighty out of 100 dozers still don’t have a machine
Ziegler CAT will typically help customers adopting new technology set up two or three jobsites.
control solution on them, so we still have a ways to go,” said Rinehart. The growing need for skilled machine operators will also drive usage. “Through the downturn, a number of operators left the industry to do other things. Now that the economy is coming back, it is more difficult to find skilled operators,” said Gress at RDO. There are clear competitive advantages to those companies that stay ahead of the technology curve. “If competitors are using it and you are not, it makes the competitive landscape difficult,” said Gress. “You are seeing large construction companies get larger. They are leveraging the technology. It is inevitable that you have to go that way.” Vanneman at Topcon believes that soon machine control will be like GPS in your car. “It’s going to be there in the console. You won’t even think about it.” Dealer Support Key to Adoption Dealer support is widely recognized as a key success factor in adoption rates for machine control. This may be one reason why machine control adoption varies so much from market to market. Not all equipment dealers have fully embraced the technology. Gress believes some of the barriers for dealers are the time and resources that must be devoted to machine control. “It’s not the easiest thing to do,” he said. “I would guess that as the OEMs start integrating the hardware into the system, you will see quite a dramatic increase in dealers with machine control expertise.” Gress believes their technology expertise sets them apart from other dealers. RDO Integrated Controls is a division of RDO Equipment Co., Fargo, N.D., which represents John Deere and Vermeer. “The successful, forward-thinking dealers that are involved in machine control are putting a significant amount of resources into it,” acknowledged Vanneman. “Primarily they are hiring people. They are hiring trainers, technicians and support personnel to do installs, service calls and provide field support.” (continued on next page)
January 2014 | Construction Equipment Distribution | www.cedmag.com | 51
50_Machine_feature_KP.indd 51
12/23/13 3:21 PM
Equipment Technology
(“The Dealer’s Changing Role in Machine Control” continued from page 51)
Since 2009, RDO Integrated Controls, a distributor for Topcon, as well as Carlson Software and other technology products, has expanded its territory to nine states. In just four years they have grown from three employees to more than 70. Ziegler CAT, with 20 locations in Minnesota and Iowa, was one of the first Cat dealers in the U.S. to represent Trimble. According to Rinehart, the company recorded its highest technology sales ever in the past two years. He finds the strong ROI of machine control a huge selling point that makes technology sales resilient, even through economic downturns. Future plans include the expansion of existing connected site solutions to help customers focus on production and utilization of their fleet. Noland at Carlson Software contends that increased adoption will increase demand on distribution to know what they are doing. That means dealers will need to expand their skill set to master digital terrain models, site management, site connectivity, and production analysis, to name a few. Noland supports the idea of dealers investing in “technology champions,” such as the Komatsu Technical Solutions Expert. However, at this time he thinks the talent primarily lies with the positioning dealers, rather than iron dealers.
Attendees at a demonstration event for Komatsu’s new D61i-23 dozer learn how machine control improves efficiency.
phone support from technology experts. RDO has been proactive in working with dealers representing many different brands. According to Gress, some dealers want a finder’s fee, while others have invested in people, carry stock and rent systems.
Getting the Right People What makes them successful technology dealers? Both Rinehart and Gress cite the importance of getting the right people. “Great people are the hardest thing to get,” said Gress. “There is a limited supply and you don’t just walk out of school and are able to do this.” RDO Integrated Controls hires experienced people as well as conducts its own training sessions for staff. They also send staff to attend Topcon training. Serving the Mixed Fleet Owner “We look for people with experience in the construction Both RDO Integrated Controls and Ziegler CAT stress the industry, and people who have experience with technology importance of serving mixed fleet owners, and both dealers in general – being able to understand the fundamentals have positioned themselves independently from their primary of how GPS works, and the fundamentals of surveying brand. “We treat the technology sale independently from the techniques,” said Rinehart. “This all helps. But making sure machine sale. To our technology specialists, it doesn’t really the customer is taken care of and utilizing the technology matter what color of equipment that technology solution effectively is most important.” goes on,” said Rinehart. “At the end of the day, RDO is a service company, not just Training is Equally Important for Customers John Deere dealer,” said Gress. “The hardware is really the At Ziegler CAT, customers who purchase a technology solueasy part; supporting it is the hard part. RDO has a solid tion can send their team to classes at the Ziegler University support structure to back up the product.” An RDO Solutions of Position Technology for a full year free of charge. They Center in Billings, Mont., is where customers can call in to get also assist customers in setting up two or three jobsites. They help them partner with firms to get the data, which Rinehart says is the most difficult part of the process. At RDO as well, initial training is included in the price, but annual refresher training or specialized trainings are paid for by customers.
Operators test John Deere’s 850K dozer utilizing Topcon’s 3DMC2 at an RDO Equipment Co. demonstration event. Hands-on time is key to selling contractors on machine control.
Selling Iron Versus Selling Technology Dealers may wonder how selling positioning equipment is different from selling iron. “Most of it will require an entirely difficult skill set than selling equipment,” explained Noland. “It is highly technical, spatial geomatic technology. Most of the equipment sales folks want to tell you about hydraulics or horsepower.” Vanneman concurs that dealers need to obtain specialized knowledge and a new skill set to succeed.
52 | www.cedmag.com | Construction Equipment Distribution | January 2014
50_Machine_feature_KP.indd 52
12/23/13 3:21 PM
Equipment Technology
Both dealers and technology manufacturers say that demonstration events with hands-on time for customers are one of the more effective ways manufacturers and dealers sell machine control. “Talking about it, reading brochures and videos are all fine, but when they get their butt in the seat of the machine, run it for themselves and really experience it – that is a huge benefit,” said Vanneman. “You can’t learn to swim from reading a book. You have to get in the pool.” At RDO, rental machines equipped with machine control technology have been a great way to get new customers started with the technology. “That gives them the opportunity to utilize it and have a clear understanding of what they are getting,” explained Gress. Putting a machine to work on a customer’s jobsite is also a favorite tactic of Rinehart.
Although customer adoption of technology is on the rise, the price for machine control is still high, which is why scalability is so important. “Starting your small to medium customers out with basic equipment that can be then upgraded to more advanced equipment to improve their operation is highly important,” said Brand Stemper, solutions marketing manager for Case Construction Equipment. Why Should Dealers Get Involved Just as customers need to get on board with the technology to compete in their marketplace, so should dealerships. Stemper believes machine control technology is often overlooked or misunderstood by dealers. “Whether it is as simple as saving fuel through getting the job done quicker, or through job savings by properly laying the correct amount of material, or through bonus opportunities by
completing work ahead of schedule, it just makes sense for dealers to involve themselves in their customer’s operation to provide greater insight to improvements or cost saving opportunities.” Staying out of the machine control market is risky. Dealers are in jeopardy of losing customers to competitors who can provide them the information they need about machine control. “Dealers need to be willing to take the first step,” said Gress. “If customers are not demanding it today, they will be demanding it tomorrow.” Today is the time to get a step ahead. 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.
Please visit us in CONDEX Booth 300. January 2014 | Construction Equipment Distribution | www.cedmag.com | 53
50_Machine_feature_KP.indd 53
12/23/13 3:21 PM
A Closer Look
Arm Yourself: Know Your Market Potential and Go Get Those Customers Executive Summary from AED’s Product Support Opportunities Handbook By Ron Slee
The third edition of AED’s Product Support Over the years, market coverage in the parts and service Opportunities Handbook (PSOH) is designed to help dealerworld has been a particular passion of mine. I don’t believe ships perform a number of activities related to the parts and that we cover our markets, our customers, with any degree service business in their territory. The report is based upon a of certainty. To this end, I believe in market segmentation survey among equipment owners, which AED has conducted and that we need to “touch” our customers as often as every five years – this enables us to view trends in customer possible. Currently, most dealers leave some 50 percent preferences over a period of time. We can view buying habits of their customers without any direct, personal contact of our customers and their purchasing ratios. We can see from year to year. We will provide simple, market-proven which supply sources they use for many different categories methods to employ for covering your customers properly in of parts and labor – and why. This is powerful information your marketplace. by itself, but used in conjunction with some of the other Finally, as noted, we review market capture rates, which material in the handbook, it provides an inestimable value to is the politically correct term for market share. The survey you, the dealer. this year has delved more deeply We begin the PSOH with most into this area and there is valuable of the market survey results. (We To order your PDF copy of the Product insight to be gained by reviewing break out results about detailed Support Opportunities Handbook, visit the survey materials and the market labor and parts market share in the aednet.org and click on Products. For one share sectors in this handbook. back section of the report.) low, member purchase price of $595 ($1,095 The groups traditionally served by Also in the second section, we for nonmembers) you can share this industry Associated Equipment Distributors provide a model for you to calcuinsight with all your branches and key service include heavy equipment dealers, late your market opportunities personnel – it’s required reading for dealers light industrial dealers, compact for parts and service. This market equipment dealers and general line who are serious about capturing a bigger opportunity can be viewed as the equipment dealers. There has been share of the product support pie. overall parts and labor market much material presented to AED potential for the dealership’s territory. One of the obstacles members over the years regarding the equipment area. Over to management of a parts or service business is that we the past decade or so, more material has been presented usually have no idea of the size and scope of the marketplace. regarding parts and service, as these two business sectors This challenge is overcome by applying this market potential have become and continue to be even more critical to the model. Is it perfect? No, but it is a remarkably close represen- success of the dealership. tation to the truth. I would not want to have to be perfect There are many tools available for dealers to determine and waiting for perfection rather than having a workable how they are doing relative to their competitors in the sale of model against which we can measure our performance. new and used equipment. This handbook is aimed at helping (continued on page 56) 54 | www.cedmag.com | Construction Equipment Distribution | January 2014
54_Parts&Service_feature_KP.indd 54
12/23/13 3:25 PM
Parts and Service
(“Arm Yourself: Know Your Market Potential and Go Get Those Customers” continued from page 54)
dealerships determine their actual market potential for parts and service so they can establish programs and strategies to obtain more of the available market. Obtaining more of your market share has become increasingly important as we see most markets across North America becoming rather static, not growing as rapidly as
The Parts Order Taker Passes On Although written for the forklift industry, this mock obituary contains truth for the CE dealer’s parts team. By Niels C. Ostergaard
It is with great sorrow and regret that I notify you of the passing of our old friend the parts order taker. Over the years, we grew to love this individual for he had the unique ability to explain his product to a customer and gain the order – the product, with its unique features and advantages, provided obvious benefits to the customer, negating the need for our friend the order taker to develop any type of relationship with the customer. Understanding the customer’s business was not necessary as the orders frequently rolled in. Our friend the order taker was admired for his success but, unfortunately, the market and economic times, in addition to his lack of interest in improving his skills, led to his unfortunate demise. You see, the order taker started slow but as the market and economy began to expand, interest and demand for his product grew rapidly. Economic growth also led to increased demand for support of the products, leading to greater profit for his business. Business grew rapidly, and our friend the order taker was writing more and more orders; too many to handle, so the business hired more people. These people took notice of the success our friend was having and began to do what he was doing. Before long, the business was comprised of numerous order takers, many of them experiencing the similar success of our friend. As the orders flowed in, the support team grew as well. Everyone began doing everything they could to take the order. Suddenly, the growth of the market and the economy began to sour. Our friend the parts order taker continued his usual approach and found it more and more difficult. He began to reduce his GP, ask for greater discounts and ultimately gave up his commission to get the order. It’s unfortunate and didn’t have to happen, but the order taker did not want to change. Ultimately he passed and faded away while stating, “My price was too high, so I could not get the order.”
they once did. Of course, there are exceptions – consider the oil and gas industries. But the common thread to the market we see in 2013 and beyond is: If you are going to increase your sales, you will do so by obtaining business from customers that your competitors have been enjoying. Customers are much more capable business partners these days than ever before and are more knowledgeable about the products and services available to them. Obviously, the availability of information for them has never been Again, it didn’t have to happen. Recent studies have shown that 25 percent of the professional sales consultants (equipment, rental, support, parts) generate 90 percent of the company’s revenue and gross profit. What do these 25 percent do that the order taker did not? n Recognize that price is not the No. 1 issue with customers, no matter what they say. (The order taker always viewed price as the issue.) Customers are looking for partners willing to work with them through the good and bad to bring value to the relationship for all parties. n Recognize the importance of thoroughly explaining their products’ features and advantages and confirming the customer recognizes the benefits the product will provide them. (The order taker asked for an additional discount.) n Recognize the importance of thoroughly understanding their customer’s business and asking probing questions as to why they do things a certain way – always willing to try something else to add value to the business relationship. (The order taker knocked a few more dollars off.) n Recognize that developing a business relationship takes time. (The order taker did not have the time for relationships – too busy taking orders.) n Recognize the importance of empathy, feeling the customer pain and offering suggestions to overcome the pain. (The order taker did not care how the customer felt – no time for feelings in this business.) n Recognize the importance of continuous education, practicing the basics, and keeping abreast of changes in the industry. (The order taker did not find it necessary to invest in himself; it’s easier to blame a lost order on the price or product.) n Recognize that no matter what the customer claims is his priority, you should never provide a quote for your product until you have had the opportunity to discuss what you, your business and your product can do for the customer. (The order taker only talked price.) It’s about time the order taker passed on. Our new economy is creating tremendous opportunities for all of us in the forklift [and CE] industry; these are the good old days! Invest in yourself, invest in your customers, and invest in your business. Niels C. Ostergaard is the training manager for Sales, Product, Parts & CSSR, Toyota Material Handling U.S.A. He can be reached at nostergaard@sbcglobal.net, or 812-341-3607
56 | www.cedmag.com | Construction Equipment Distribution | January 2014
54_Parts&Service_feature_KP.indd 56
12/23/13 3:25 PM
Parts and Service
greater. Dealers have information available online, and, as we all know, the Internet has no boundaries. Manufacturers have also provided a great deal of information through their Intranet and Internet portals. This will continue. Buyers will be much more discerning and savvy purchasers in the future. Dealerships, as well, must become more skilled at evaluating market opportunities and matching these opportunities with appropriate and necessary products and services. You simply cannot make good decisions on what is required in the marketplace without good market intelligence and proper marketing information. Market intelligence is typically obtained through customer surveys and information obtained from the field sales force. Marketing information is obtained from facts regarding the customers in the territory. The key element in any business is the working machine population. There is an old saying, “If you don’t know your working machine population, you don’t know your business.” This has always been true in the parts and service business. Now more than ever, it is a critical component in the success of your dealership. The working machine population needs to be obtained and maintained – not just brands the dealership sells but all of the competitive brands. During the past 10 years, there has been more effort on the part of many manufacturers and dealers to sell parts and service to more than just their brand of equipment. This has been very true for undercarriage, ground-engaging tools (GET) and maintenance services. This trend will continue. Specialty manufacturers have always sold products such as bearings, hardware, seals, packings, etc., across brands. As parts manufacturers continue to consolidate, this trend also will continue and accelerate. The working machine population needs to be obtained by make, model and serial number. This is the basic information. We should also know the number of hours that each machine works in a year. We could refine this by making a determination of the type of work that is done and the working conditions, but we will leave that to a later time and document. If we know how many hours a machine works per year we can make good estimates as to the parts and labor the machine consumes in a year. This handbook provides you with tools and models you can use to make a determination of the overall size of the parts and labor market in which you compete. Armed with these tools and good information, you’ll be able to determine where the opportunities exist and what you want to do about them. n
Be the #1 Dealer with the World’s #1 Business Analytics #1 Mobility Solution #1 Business Management Software All on a Single, Fully-integrated Dealer Management System B4 Consulting helps you lay the foundation for success with SAP software. Integrating and optimizing all your business operations, SAP gives you access to real-time information – anytime, anywhere, and on any device. Be the #1 Dealer with B4 Consulting For a Free Consultation, Email: hem@b4-consulting.com
Ron Slee (ron@rjslee.com) operates a consulting firm that specializes in dealership operations (R.J. Slee & Associates, est. 1983) and a management and operational training business (Quest, Learning Centers, est. 1994). You can find more specifics at www.rjslee.com, or follow him on Twitter: @RonSlee or his Blog: learningwithoutscars.com.
B4 Consulting, Inc. +1 877 777 9480 www.b4-consulting.com January 2014 | Construction Equipment Distribution | www.cedmag.com | 57
54_Parts&Service_feature_KP.indd 57
12/23/13 3:25 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 Please visit us in Suite 20029.
Institutional Ad - Construction Equipment Distributors (Feb Issue)_00016.indd 1 -ad 11 -ad template.indd template.indd
1/18/2012 3:55:15 11/26/13 9:24 PM 10/29/12 1:30 PM 1/26/12 2:34 PM
Profit Improvement Report
A Supplier Price Increase Is Your Friend
Income Statement--$ Net Sales Cost of Goods Sold Gross Margin Expenses Fixed Expenses Variable Expenses Total Expenses Profit Before Taxes
Exhibit 1
Exhibit 1 The Impact of Different Price Strateg the Typical AED Member The Impact of Differentfor Price Strategies for the Typical AED Member Income Statement--$ Current Net Sales Cost of Goods Sold Results Gross Margin $35,000,000 Expenses 27,475,000 Fixed Expenses 7,525,000 Variable Expenses Total Expenses 5,145,000 Profit Before Taxes Income Statement--% Net Sales Cost of Goods Sold Gross Margin Expenses Fixed Expenses Variable Expenses Total Expenses Profit Before Taxes
1,750,000 6,895,000 $630,000
5. Current 5.0% Vendor Pass Price Results Dollar $35,000,000 $36 27,475,000 28 Pass Through 7,525,000 7 $36,373,750
28,848,750
5,145,000 7,525,000 1,750,000 6,895,000 5,145,000 $630,000
1,818,688 6,963,688 100.0 $561,313 78.5
21.5 Income Statement--% Net Sales 100.0 100.0 14.7 Do yourself a profit favor and pass on as Cost ofit Goods Sold 78.5 5.079.3 Gross Margin 21.5 19.720.7 a straight percent, not as dollars. Expenses 1.8 Fixed Expenses 14.7 14.1 By Dr. Albert D. Bates Variable Expenses 5.0 5.0 are forced upon the distributor, some angst Even in a sluggish economy, supplier price increases Total Expenses 19.7is inevitable. 19.1 The activity level associated with price changes has two occur fairly frequently. It is safe to say that most distribuProfit Before Taxes 1.8 1.5 separate components. First, there is simply the operational tors approach such increases with a sense of dread if not aspect of making changes in the management information unbridled hatred. system to reflect the changes in cost, updating pricing The reality is that supplier price increases are an unparalleled information outbound and the like. It is a minor irritant, but opportunity to increase profit. However, achieving that profit still an irritant. improvement requires a reversal in the thinking of distribu The more important aspect of the activity-based concern tors and a certain degree of fortitude in passing the price is the need to explain the resulting outbound price increases increases along to customers. to customers. Even though blame can be laid clearly at the This report looks at the nature of the supplier price foot of suppliers, there is still apprehension about rocking increase issue. It does so from two distinct perspectives: the boat with customers, who have seen too many price n The Emotionalism of Price Increase – A discussion of the increases before. fact that price increases are often viewed with emotion Finally, the competitive response gets to the very heart of rather than logic. the economic issue. There is a high degree of uncertainty n The Economics of Price Increases – An analysis of the profit impact associated with the proper handling of such increases. as to how competitors will respond. It is possible some will absorb a portion or even all of the price increase as a competitive tool. Any time things change there is the The Emotionalism of Price Increases The typical response of distributors to supplier price increases potential for disaster. The heading of this section used the term emotionalism for a can probably best be summarized by the old political phrase, reason. All three of these issues are perceived by distribu“There you go again.” This antipathy toward price increases tors as being worse than they are. If the price increase arises from three distinct issues. First, there is something of can be viewed as a tool for profit improvement, then such a loss of control in the pricing process. Second, there is a emotionalism can be tempered. If it cannot, the emotionsubstantial amount of activity that must support the price increases. Third, there is the unknown nature of the competi- alism only increases. tive response. The issue of lost control arises because some other entity The Economics of Price Increases Exhibit 1 looks at the economics of a 5.0 percent supplier – namely a supplier – is making decisions that impact the price increase. All of the figures in the exhibit are for the typifortunes of the distributor. cal AED member, based upon the latest CODB Report. The The more the distributor’s operation is functioning first column of numbers reflects current results. The last two smoothly under current pricing arrangements, the lower columns examine different responses to the price increase. the degree of eagerness to make changes. When changes 58 | www.cedmag.com | Construction Equipment Distribution | January 2014
58_Bates_Profit_Feature_KP.indd 58
12/23/13 10:07 PM
5 1 6 $
Profit Improvement Report
1 Price Strategies ED es Member
As a starting point, the typical firm generates $35 million in sales volume. It operates on a gross margin 5.0% Vendor Price Increase ent Dollar Percent percentage of 21.5 percent % PriceThrough Increase ultsVendor Pass Pass Through of sales. Finally, it produces Dollar 00 $36,373,750Percent $36,750,000 a pretax profit of $630,000 00 28,848,750 hrough Pass Through 28,848,750 or 1.8 percent of sales. 00 7,525,000 7,901,250 73,750 $36,750,000 In order to fully under48,750 28,848,750 stand the economic impact 00 5,145,000 5,145,000 25,000 7,901,250 of price changes, it is first 00 1,818,688 1,837,500 00 6,963,688 6,982,500 necessary to break expenses 45,000 5,145,000 00 $561,313 $918,750 down into two components – 18,688 1,837,500 fixed expenses and variable 63,688 6,982,500 expenses. Fixed expenses 0.0 100.0 100.0 61,313 $918,750 8.5 79.3 78.5 remain constant for this 1.5 20.7 21.5 fiscal year, unless the firm takes some sort of action. 100.0 100.0 4.7 14.1 14.0 For the typical firm, these 5.079.3 5.0 78.5 5.0 are $5,145,000. 20.7 21.5 9.7 19.1 19.0 In contrast, variable 1.8 1.5 2.5 expenses tend to rise and 14.1 14.0 fall automatically 5.0 5.0 as sales rise and fall. As an estimation, these are assumed to be 5.0 percent of sales volume. As sales 19.1 19.0 increase or 2.5 decrease, they will continue to be 5.0 percent of 1.5 the new sales volume. The most common response is the second column of numbers labeled Dollar Pass Through. With this approach prices to customers are increased by the same dollar amount as prices inbound have been raised by the supplier. This is probably the most common approach used by distributors. With the 5.0 percent price increase from suppliers, cost of goods sold increased from $27,475,000 to $28,848,750, an increase of $1,373,750. The result is that gross margin dollars remain constant. However, given higher sales volume (even though there is no more sales activity), variable expenses rise along with the price increase, and profit falls to $561,313. In point of fact, the dollar-for-dollar approach will always cause profit to decline. The last column of numbers is labeled Percent Pass Through but should be labeled Don’t Ever Do Anything But This. It involves passing through a 5.0 percent outbound price increase because of the 5.0 percent inbound supplier price increase. In doing so, sales, cost of goods and gross margin all increase by 5.0 percent. Once again there is an automatic increase in variable expenses because of the higher sales volume. Even with this increase in variable expenses, profit rises to $918,750 and the pretax profit margin increases to 2.5 percent of sales. What this means is that when suppliers increase prices their distributors should actually thank them for their actions. The distributor has the potential to make a lot more money. On top of that, the distributor can also blame the price increase on the “idiot” supplier – the best of all possible worlds.
In reality, the congratulations are offset by the emotional panic that sets in when raising prices sets in. If it were only one SKU increasing in price then the firm’s MIS system could simply apply the same set mark-up and raise the price of the item by 5.0 percent. Unfortunately, it is usually an entire product line or an entire product segment that is affected. It is big and it is noticeable. When competition is hot and heavy, firms often retreat back to the dollar-for-dollar pass through. Strategically, the goal is to find the level of a price increase that will not cause any customer complaints. It is an admirable strategic approach, but an ill-fated profit approach. All of this leads to an important rule. When prices are rising, follow the percent-for-percent price increase formula to drive higher profit. So easy to understand, so difficult to do. Like so many other things in life. Moving Forward Pricing will probably always be the most difficult decision process for distributors. Simply put, no firm wants to be perceived as charging excessive prices. This means that when a supplier price increase materializes there will be the inevitable temptation to raise prices dollar for dollar. Whenever possible, the percent-for-percent approach needs to be substituted. n
A Managerial Sidebar: The Price Increase That Would Maintain Profit It is possible to estimate how much firms must raise their prices to keep profit exactly where it is in the face of a supplier price increase. The estimation process is relatively straight forward. The formula for holding profit steady, using a 2.0 percent price increase as an example, is simply:
Current Cost of Goods Percentage x Size of the Supplier’s Price Reduction = 78.5% x 2% = 1.6% Extreme care should be taken when employing this ratio. While it holds profit constant, the intent should always be to try to increase profit via supplier price increases. Dr. Albert D. Bates is founder and president of Profit Planning Group. His latest book, Triple Your Profit!, is available at Amazon and Barnes & Noble. It includes Excel templates for understanding the profit structure of the firm and developing meaningful financial plans. ©2013 Profit Planning Group. AED has unlimited duplication rights for this manuscript. Further, members may duplicate this report for their internal use in any way desired. Duplication by any other organization in any manner is strictly prohibited.
January 2014 | Construction Equipment Distribution | www.cedmag.com | 59
58_Bates_Profit_Feature_KP.indd 59
12/23/13 10:07 PM
A Closer Look
Nate Miller, regional sales manager for Tesmec, (pictured) believes the versatile GALLMAC is a natural fit for rental and municipal markets.
It’s a Backhoe. It’s a Mower, It’s an Excavator. No, it’s a GALLMAC! Tesmec seeks dealers for a machine that redefines “multipurpose” By Joanne Costin
Many machines cite versatility as a benefit, but the GALLMAC by Tesmec truly comes close to doing it all.
The Gallmac TG12 with 150 hp engine, hosts a trenching attachment. More than 30 attachment options increase versatility.
This multipurpose machine can be used for hammering, digging, drilling, trenching, boring, hoisting, plowing, wall and pavement milling, flail mowing, ditch cleaning/scraping, and more. Versatility Powered by Attachments Distributed by Tesmec USA based in Alvarado, Texas, for its Italian parent company, The Tesmec Group SpA, GALLMAC is a new introduction to the North American market. Buyers can customize their machine with more than 30 attachments to handle an endless variety of tasks. The capabilities of the GALLMAC can be summarized in four functions: loading, lifting, excavation, and special applications. For this reason, the company contends that GALLMAC machines cannot be compared to traditional excavators and backhoes. “There are lot of machines that perform similar functions, but there is not one machine that does everything that GALLMAC does,” said Nate Miller, regional sales
60 | www.cedmag.com | Construction Equipment Distribution | January 2014
61_A Closer Look_KP.indd 60
12/23/13 3:57 PM
A Closer Look
manager for Tesmec Agriculture and GALLMAC. “The challenge is changing the mindset of someone who may have purchased an excavator, backhoe or other machine to think, ‘I can purchase a GALLMAC instead.’” Road capable with a top speed of 20 miles per hour, the GALLMAC is easy to move from one job to the next without incurring hefty transportation costs. Quick connect/disconnect hydraulic couplers decrease the time needed to change hydraulic attachments. Three steering modes (four-wheel drive, rear-wheel drive, and crab) offer efficiency in operating on the road, in tight spaces and rough terrain. Three models vary in weight and horsepower from 21,000 pounds and 100 hp (TG10) to 30,000 pounds and 150 hp (TG14). Retail prices range from approximately $175,000 to $199,000, depending on the model and attachments chosen. According to Miller, municipalities, utilities and rental fleets are a key target for the multipurpose GALLMAC. Other markets well suited for the machine are road construction, residential development, and industrial environments. Municipal Magic “We think there is a big opportunity in municipalities because of the machine’s ability to perform so many different functions,” said Miller. “It allows counties and municipalities that are downsizing or streamlining operations to purchase one machine that performs several functions. It’s a more cost-effective way to go about it from a maintenance standpoint also.” Rental fleets are another area of opportunity. “This is a great rental machine because of the number of different functions it can perform,” added Miller. “It allows dealers to continue to rent it out at a high utilization rate because it’s not going to be pigeon-holed into just a wheeled excavator. Every customer has a different need. The GALLMAC can fit that need with one of the attachments.” According to Miller, operation is simple, an important characteristic for rental machines. “It can be set up with whatever steering pattern the operator is most comfortable with.” Tesmec is in the early stages of its North American launch of GALLMAC. And while the product made its debut at the ICUEE show last October, it has proven itself in Europe since 2000, when The Tesmec Group acquired Gallotti SpA. Looking for Dealers Building a U.S. and Canadian dealer network is at the top of the priority list for Miller, who previously worked in dealer development with Arctic Cat all terrain vehicles. But Tesmec isn’t starting from scratch in the U.S. Tesmec USA has been in operation in the states since 1984. Its high-performance rock trenchers are well known in oil and gas markets. The company also manufactures stringing
With the addition of a pallet fork attachment, the GALLMAC TG12 can do the work of traditional lifting equipment.
equipment for overhead and underground power lines as well as railway equipment. The GALLMAC is the first of the company’s products that is sold through dealers. “We feel strongly that it’s a product that needs to be sold through a dealer network,” said Miller. The target market for GALLMAC is much larger than those markets the company services directly for its other product lines. Understandably, dealers want to know how a manufacturer will handle parts and provide technical support. Miller has the answer that potential U.S. dealers want to hear. Through its centrally located headquarters in Alvarado, Tesmec can ship parts efficiently throughout the U.S. In addition, the company has technical and engineering support for the GALLMAC from the same hub. “Our technicians in Texas have been working with the machine for the last couple years,” said Miller. “They are very familiar with the product.” TESMEC’s Ideal Dealer Tesmec is committed to making their dealers successful with the GALLMAC line. They are offering exclusive territories and flexible terms. “Above all we want dealers to be profitable with the machine,” explained Miller. “That’s how you build a dealer network.” Miller believes a good dealer prospect for GALLMAC would have solid relationships with customers in the target markets of municipalities or utilities or a dealership that wants to expand its reach into these markets with a truly unique product. A strong rental business is also important to future growth with the product line. “We aren’t looking for 250 dealers,” said Miller. “We want a smaller number so we can provide the best services.” Demos are a key component of the company’s marketing strategy. “It is a machine that needs a demo,” said Miller. “If we identify a dealer that is pretty serious about stocking the product, we will bring it to them along with one of our technicians. We will let them touch it, feel it, and operate it.” Dealers can get a closer look at the GALLMAC at CONDEX Jan. 16-17, Booth 607, as well CONEXPO-CON/ AGG in March. For more information about becoming a GALLMAC dealer, e-mail Nate Miller at nmiller@tesmec.com. n January 2014 | Construction Equipment Distribution | www.cedmag.com | 61
61_A Closer Look_KP.indd 61
12/23/13 3:57 PM
Please visit us in CONDEX Booth 238.
-Ad_template.indd -ad template.indd 21
12/17/2013 10:01:12 AMPM 12/20/13 6:55
On the Numbers
Great Expectations Learn as much as you can about new tax policy, and count costs carefully before hiring this year.
By Garry bartecki
I asked Kim Phelan what month my next column was for, and she replied “January – and please include something upbeat.” “No problem,” I laughed. As some of you know I spend a lot of time reading and studying economic and industry-specific data, talking to our banker members, talking to dealers and vendors, and I always ask, “How’s business?” As a result of listening to people and doing my homework I arrive at my ideas of how I would plan out 2014 for the market I am in. From the standpoint of available business or market opportunity, I suggest that there is more business available but not enough to soften up the competitive environment to the point where the dealers are once again in the driver’s seat. Yes, I know there are various hot areas in the marketplace where business stays hot and heavy and with profits measuring in the top tier. But these dealers also have to manage their business to stay in the top tier. It is not surprising to find more and more competition in a given territory if above-average business opportunities prevail. In short, it is not easy no matter where you work. So the good news is, there is more business to be had, but it is business from contractors who still find themselves in very competitive environments. Even though there is sales potential no matter what market you are in, there are headwinds to be considered that could make the difference between a profitable or not-soprofitable year. Consider: n Both new and used equipment
costs are increasing. This is both good and bad – bad especially if you can’t pass on the increases to your customers. n If equipment costs increase, rental rates should increase as well, but will they? With the Tier-4 units, it may be tough to generate the same dollar utilization as you do with older units. Hopefully the higher used equipment prices you can get for your own used rental units will cover any shortfall from Tier-4 rental rate discounts. n Employee costs are increasing for any number of reasons. There is still a need to consider your options before hiring on another employee. n Federal, state and local compliance issues take more time and effort than ever before, with the risk of serious consequences rising every day. n My banker friends tell me interest rates are going up no matter what the Fed chief does. If this happens it is sure to put a damper on construction and equipment purchases. n Any quantitative easing most likely will cause a market slump, which should trickle down through the entire economy. n The new tax proposals will drive more taxable income through flowthrough entities. Isn’t this great – more taxable income without any additional revenue. Those are the risks as I see them for 2014, some not unexpected, but some new issues that we have to work through sooner rather than later. Employee cost is certainly one area that needs attention. As “Big Al” Bates says, your revenue increases have to keep up with payroll increases if you hope to maintain your margins. If you estimate your total compensation
dollars for 2014, is your projected revenue expected to keep pace? The tax changes, if they become law, will be another cash-killer that requires attention. In an attempt to reduce the corporate rate to 23 percent, and paying for it by eliminating loopholes and deductions, the lawmakers seem to have forgotten that most corporations are flowthough entities in which individual taxpayers are in much higher brackets. When all is said and done, I would avoid highly leveraged expansion plans or acquisitions in 2014 until we have a clearer picture of what lies ahead. We don’t want to miss revenue growth opportunities, but don’t lose sight of the fact that those with the cash will be the kings of the hill should the economy continue to muddle along or slump once again into recession territory. We will have some examples of how these new tax laws will impact your business at the Summit on Jan. 17 at the CONDEX Centerstage. As it turns out, the phasing out of personal deductions, increase in payroll taxes and the elimination of business deductions increase a dealer’s taxable income substantially. The more you make, the higher your tax percentage will be. I admit this hasn’t been too upbeat, but I will add: Our AED members are some of the best business operators in the world and will work through these trials and tribulations as they historically have done – and come out the better for it. See you at Summit. Garry bartecki (gbartecki@ aednet.org) is AED’s vice president of Finance.
January 2014 | Construction Equipment Distribution | www.cedmag.com | 63
63_On_the_Numbers_KP.indd 63
12/23/13 4:20 PM
G185 Gas Powered Air Compressors Economical and Clean
Call Us For Show Specials! See Us At Booth #415 At the AED Summit G185 Gas Powered Air Compressors Meets Emission Standards
D750 - D1800 Tier 3! Available From Stock D185 Tier 4 Final Air Compressors Durable and Dependable Industry Shows 2 Tools Sold with Every Compressor
template.indd 2013-ad DEC RER.indd 1 1
Sullivan-Palatek 1201 W US Hwy 20 Michigan City, IN 46360
PH: 219-874-2497 - 800-438-6203 www.sullivanpalatek.com
12/20/13 1:21:41 7:05 PM 12/12/2013 PM
Business Outlook
Outlook 2014: Optimism Continues To Grow
Most world markets stabilize; U.S. construction activity climbs. Eli Lustgarten
A recent Barron’s headline talked about “Dreaming of a Just-Right 2014.” As the U.S. economy enters 2014, macroeconomic indicators have been improving, which is similarly generating optimism for improved economic growth both here and abroad. After all, the U.S. economy grew 2.8 percent in 2012, about 1.7 percent or 1.8 percent in 2013 (year over year) and the consensus forecast for 2014 of about 2.6 percent does not seem much of a stretch. The manufacturing sector has righted itself and the Institute of Supply Management Purchasing Managers Index has shown remarkable strength since last summer. Moreover, economic activity is also seen to be improving in most developed countries, led by positive ISM PMIs in Europe. Even economic activity in most emerging markets has begun to stabilize. The ingredients for the upcoming modest improvement in economic growth include a series of big transitions. Barron’s argues that these changes include reduced monetary support (Tapir), a shift toward more organic growth, and hopefully the Wall Street boom finally trickling down to Main Street. The big surprise: Even Congress has helped by agreeing to a modest two-year budget deal to keep the government operating. In the current environment, the construction sector is growing. In 2013, construction spending is likely up about 5 to 8 percent (versus 9 percent in 2012) according to the Associated General Contractors of America. Residential spending is growing about 15 to 20 percent (versus 15 percent in 2012) led by the multifamily sector. Private nonresidential spending (55 to 60 percent of total nonres.) is up 4 to 7 percent in
2013 (versus 16 percent in 2012) led by manufacturing, warehousing, data centers, hotel remodeling, office, and retail. Healthcare, private education and power are about flat. However, public nonresidential spending is likely to decline 3 to 5 percent in 2013 (versus -3 percent in 2012) with highway flat, education down 5 percent, federal and local spending down while state spending is flat. Meanwhile, construction spending hit a four-year high in October 2013. Construction employers added 17,000 jobs in the sector in November, bringing employment to 5.85 million, the highest levels since 2009. The unemployment rate among construction workers has fallen from 12.2 percent in November 2012 to 8.6 percent in November 2013, though employment in the sector was still 1.9 million below the April 2006 peak. The outlook for 2014-2017 is for construction spending to rise about 6 to 10 percent per year. Main drivers are shale (both gas and oil), Panama Canal widening, and increased spending on elderly and kids. Housing and retail should continue to improve, but public spending is likely to remain negative for the foreseeable future. Our assessment for 2013 construction equipment demand has improved modestly for light (small to medium) equipment at flat to down 5 percent (was forecast flat to down 10 percent) in North America though heavy equipment is still expected to decline 5 to 10 percent, driven by the weakness in mining. Europe still is projected to have a 5 to 10 percent decline in demand; Latin America remains on track for about a 5 to 10 percent gain (was forecast up 9 percent) underscored by resurgence
in government spending across most regions, led by civil construction, infrastructure, and energy. At the time of this writing in mid-December, China’s reviving outlook for 2H2013 continues to support expectations for a modest improvement. Construction activity in the U.S. should continue to improve in 2014, driven by further growth in housing and higher spending in private nonresidential construction markets. We look for double-digit growth for light and medium equipment demand next year, but a 5 to 10 percent decline in larger, heavy equipment. Mining’s multiyear outlook is for the sector output to stabilize in 2014-’15 and demand for equipment returning toward replacement level hopefully in 2015, well below the sales recorded in 2010-2012. Besides macroeconomics, the key input into the equipment buying decision in 2014-2015 is Tier-4 Final emissions regulations, which become effective for larger equipment over 174 horsepower in 2014 and all equipment in 2015. Unlike the truck emissions cycle, the good news is that Tier-4 Final costs are probably only 60 percent of the costs associated with moving to Tier-4 Interim in 2011-2013. However, that still suggests a mid-single-digit price increase (estimated at 4 to 6 percent), though less onerous than the doubledigit price increases that characterized the move to Tier-4 Interim. Structurally, the construction sector is poised for multiple years of modest to moderate growth. Eli Lustgarten (elustgarten@aol. com) is president of ESL Consultants, an industrial consulting firm.
January 2014 | Construction Equipment Distribution | www.cedmag.com | 65
65_business outlook_KP.indd 65
12/23/13 4:20 PM
Gorman-rupp engine-driven trash pumps are the perfect solution for sewage bypass operations, construction site dewatering, hydraulic fracturing and all your other tough pumping applications. Gorman-Rupp’s priming-assisted pumps feature a positive priming and sealing system that virtually eliminates leaks, reducing environmental concerns and allows these pumps to run-dry indefinitely. For positive, reliable priming time after time, you can count on Gorman-Rupp pumps.
-ad template.indd 1
12/20/13 6:56 PM
Aftermarket
Let’s Make This Year About Growth Four steps to recapture product support business, and three keys to employee buy-in.
By Ron Slee
Since the financial disruption of 2008, we have been in a hunkered down mode. Equipment sales have not recovered to their previous levels and as a result we continue to fall short of our goals. However, the success of equipment dealerships does not rest alone on equipment sales and rentals. It is dependent on customer satisfaction, reducing the owning and operating costs for the equipment owner, and protecting the residual value of the machine. These factors are at the heart of the product support world. If we are to succeed going forward we must regain our confidence and our ambition to grow the business again. The recent release of the Product Support Opportunities Handbook, produced every five years, provides fresh evidence of the needs and wants of our customers. It provides us with insight into our market share in various labor categories and parts families. In other words, it gives us insight into where we can grow our businesses and what the customers want from us in order for that to happen. Ignore this at your own peril. We have to do some basic things that are fundamental to customer service and are a prerequisite to growth. Market Segmentation. In the marketing world segmentation is about selecting customers that have similar needs and wants. Then we have to create a strategy of satisfying those needs and wants. Then we need to act on that strategy and implement it. Market Coverage. We need to determine which of the market segments warrant a field sales coverage model. We then need to create the telephone coverage model
for the remainder of the customers. Targeted Selling. With the segmentation completed and the coverage assignments in place we need to create a plan for each customer. What are we going to sell to them? What don’t they buy from us? Customer Retention. With segmentation and coverage in place I subscribe to a simple truth: If I have assigned a customer to a salesman I expect that customer to continue to be a customer of ours for their lifetime. I believe that retention is improved dramatically when we have a sales person contacting the customer on a regular basis. These four steps are rather selfevident; it is the details that are problematic. A session at Summit this month will go over these elements in detail – a “how to” seminar to help execute each of these four elements. Of course that is not the end of it at all, is it? We need to have skilled and able people executing the strategy. This is a dangerous area for most American businesses. The statistics are very compelling: 90 percent of U.S. companies fail to implement their strategy. The thing that is so disturbing to me is that 95 percent of the employees of business in America cannot tell us what the strategy of their company might be. That is the primary cause for the failure in implementing strategy. It is all about communication. I always fall back on a simple, threestep approach on communications. n Understanding n Acceptance n Commitment (1.) You have to ensure that everyone understands what it is we are trying
to do. (2.) Then I want to open that understanding up for debate so that everyone accepts that what we are trying to do is the right thing to do. If they don’t accept it then we must have open debate and seriously explore the goals. Everyone can understand what we are trying to do but if they don’t agree that it is the right thing you’re never going to succeed in implementing it. (3.) When we have both understanding and acceptance then, and only then, will you be able to get everyone to commit to accomplishing it. So let’s start with understanding what we are going to do in 2014. We are going to grow the parts and service business, in real terms, in excess of 10 percent. How? By completing the four points above. We are going to assign customers to an individual who will have responsibility to “look after” the needs and wants of each of their customers. We are going to identify what parts families and labor categories each of those customers does not buy from us and we are going to find out what we have to do to get the business back. And then we are going to just do it. Let’s make 2014 a return to serious growth in parts and service. 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.
January 2014 | Construction Equipment Distribution | www.cedmag.com | 67
67_aftermarket_KP.indd 67
12/23/13 4:21 PM
D, A AE 17 36 at 5- #3 us ry 1 ite sit a Su Vi nu ty Ja tali i sp Ho
GE Capital
SMART, SPEEDY EQUIPMENT FINANCING. AND THAT’S JUST SCRATCHING THE SURFACE. At GE Capital, we’re not just bankers. We’re builders. With unique insight into what’s important to you, we provide more than rapid, turnkey customer financing programs that help move inventory. We provide tools and services that help build success. From web-based application submittals to online account management, we bring knowledge and expertise to every relationship. Uncovering a depth of know-how only GE can offer. Stop just banking. And start building. GECapital.com/construction
Nothing herein shall be construed as an approval or commitment to finance or provision of other service by GE to any person. All transactions are subject to final investment/credit approval by GE and the execution of mutually satisfactory definitive documentation.
GEAD213 GE_Construction_tab_8.25 x 10.875_r1.indd 1
12/11/2013 10:04:54 AM
Washington Insider
Boring Yes, But Very Important Cost recovery rules take center stage in tax reform debate, where writers’ goal of increasing tax revenue is thinly veiled. By Christian Klein
Most people’s eyes glaze over when they hear the words “depreciation” or “cost recovery.” But at this point in the tax debate those words couldn’t be more important to AED members. Over the past decade, changes to cost recovery rules – which determine how quickly a business can “write off” capital investments – have incentivized purchasing and improved dealer profitability. As part of the economic stimulus package in 2008, Congress increased Sec. 179 expensing levels and reinstated bonus depreciation to encourage businesses to buy more equipment (a primer is at DepreciationBonus.org). Given the economic depression in the construction industry, it took a while for those measures to work. But ultimately they did. Ninety-two percent of the respondents to a 2012 AED member survey said bonus depreciation had a positive impact on their 2011 sales and 70 percent said their companies had taken advantage of the law to add equipment to their rental fleets. The lesson is simple: Allowing business to write off investments more quickly can stimulate demand. So what would happen if Congress did the opposite and extended cost recovery periods? That’s exactly what the Senate Finance Committee recently proposed doing. In late November, the committee’s Democratic staff unveiled draft tax reform legislation to radically change cost recovery and accounting rules for American companies. At the heart of the committee’s discussion draft is a plan to eliminate the Modified Accelerated Cost Recovery System (MACRS), which has been used since 1986 (the last time we had comprehensive tax reform).
The committee’s plan would replace MACRS with a new system in which assets would be depreciated on a class rather than individual basis. All assets in the same class would be put into an accounting pool and each year a company could deduct a percentage of the total tax value of that asset pool. Construction equipment would be in a pool with other assets with an 18 percent annual deduction rate. So, if you bought $100,000 worth of equipment, you could deduct $18,000 in the first year. Your deduction the following year would be calculated by adding the value of any equipment that had been added to the fleet and subtracting the value of any that had been withdrawn, and then multiplying that total again by 18 percent. If there had been no additions or withdrawals, the next year’s deduction would be $14,760 (18 percent of $82,000 – the ending tax value of the pool from the prior year). Currently, the Year 2 deduction is $32,000. Under current law, if you buy a $100,000 machine you can depreciate it over five years and wind up at the end of that period with zero tax basis. However, under the Finance Committee’s proposal, a piece of equipment would conceptually never be fully depreciated. Instead, its tax value would decline at a rate of 18 percent per year from the prior year’s tax value as long as you owned the machine. The basic effect of the new system would be to expand cost recovery periods for all types of business property. Longer cost recovery periods mean that you don’t have as must to deduct on an annual basis, which, assuming current tax rates, could lead to higher tax bills for AED members and their customers.
There’s little question that raising tax revenues is one of the Finance Committee’s tax reform goals. And there’s more. Many dealers dispose of some rental equipment in the same year that the asset was acquired, generally resulting in a tax loss that the dealer can recognize in the year of the disposal. However, under the proposed rules the loss would be deferred. There are those who have suggested that the pooled asset cost recovery mechanism would streamline accounting for businesses and have other tax advantages. For example, as long as the value of the asset pool never fell below zero, equipment could be added and subtracted without triggering a negative tax event (as you might encounter now if you sell a piece of equipment with book value that exceeds tax basis). Whether a business would fare better or worse under the new system would depend on how low tax rates were set and whether the new lower rates would be applied equally to C-corporations and pass-through entities. Those questions, like others will be answered as the tax reform process moves forward. At minimum, the Senate Finance Committee’s proposal should be a wake-up call to distributors that the stakes are high for our industry. Go to http://1.usa.gov/18qsViR to take a look at the committee’s plan, then tell us what you think by sending an e-mail to aeddc@aednet.org. Christian klein (caklein@aednet.org) AED’s vice president of Government Affairs and Washington counsel. He can be reached at 703-739-9513.
January 2014 | Construction Equipment Distribution | www.cedmag.com | 69
69_washington insider_KP.indd 69
12/23/13 4:21 PM
Save the Date
AED Fly-In
April 2-3 Washington, D.C.
Advocacy Training Political Insider Perspectives Capitol Hill Visits Network with fellow dealers in Washington, D.C., to make a difference on the policy issues impacting your dealership.
AED Fly Dec 2013.indd 1
12/23/13 3:10 PM
Advertisers’ Index Ajax Tool Works. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 B4 Consulting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Bell Trucks of America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 BidSpotter.com. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Charter Software Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Coneqtec/Universal/BIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Construction Equipment Guide. . . . . . . . . . . . . . . . . . . . . . . . 9 DIS Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 e-Emphasys Technologies, Inc.. . . . . . . . . . . . . . . . . . . . 36-37 EPG Insurance, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 FRD Furukawa Rock Drill, USA. . . . . . . . . . . . . . . . . . . . . . . . 24 GE Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Glynn General Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . 33 Gorman-Rupp Co.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 HKX, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 HydrauliCircuit Technology. . . . . . . . . . . . . . . . . . . . . . . . . . 40 Hydrema Exports A/S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Hyundai Const. Equip. USA Inc. . . . . . . . . . . . . . . . . . . . . . . 47 IHI/Compact Excavator Sales LLC. . . . . . . . . . . . . . . . . . . . . . 10 Infor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Knapheide Manufacturing Company, The. . . . . . . . . . . . . . . 13 Kobelco Construction Machinery . . . . . . . . . . . . . . . . . . . . . 27
LayMor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Leading Edge Attachments. . . . . . . . . . . . . . . . . . . . . . . . . . 29 LiuGong Construction Machinery. . . . . . . . . . . . . . . . . . . . . 35 Lowe Manufacturing Company, Inc.. . . . . . . . . . . . . . . . . . . 25 Manitex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IBC Okada America, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 PFW Systems Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Pierce-Pacific Manufacturing Co. Inc. . . . . . . . . . . . . . . . . . . 42 Ritchie Bros. Auctioneers . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 SANY Heavy Industry Co., LTD . . . . . . . . . . . . . . . . . . . . . . IFC Screen Machine Industries, Inc.. . . . . . . . . . . . . . . . . . . . . . . 21 Sentry Insurance Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Strickland MFG, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Sullivan-Palatek. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Toku America, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Towmaster Trailers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Woods Equipment Company. . . . . . . . . . . . . . . . . . . . . . . . 43 XAPT Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OBC XL Specialized Trailers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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 nonmembers. Office of publication: 600 W. 22nd St., Suite 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
Please visit us in CONDEX Booth 614. January 2014 | Construction Equipment Distribution | www.cedmag.com | 71
71_Ad_Index_KP.indd 71
12/23/13 4:22 PM
Dealer Data
October Construction Advances 5 Percent 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
October 2013
September 2013
% Change
$216,905
$181,430
+20
209,494
204,255
+3
159,204
170,098
-6
$585,603
$555,783
+5
Source: McGraw-Hill Construction, www.construction.com
Nonresidential Building Residential Building Nonbuilding Construction TOTAL Construction
10 Mo. 2013
10 Mo. 2012
% Change
$140,217
$132,456
+6
173,605
138,310
+26
119,163
143,381
-17
$432,985
$372,463
+4
Source: McGraw-Hill Construction, www.construction.com
Monthly Sales Volume by Original Equipment Cost with Recovery %
This graph 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 2012 representing 100 percent, (e.g. total OEC sold in February 2013 was approximately 80% of total OEC sold in December 2012). 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. February 2013 sales $ recovery was 47.8% of total OEC sold).
Source: Rouse Asset Services. Contact Gary McArdle at gmcardle@rouseservices.com, (310) 363-7520
The Dirty Dozen - UCC filings on 12 earthmoving units. Equipment Description Articulated Dump Trucks Crawler Dozers
OCT 12
Excavators - Wheeled, Hydraulic Mini Excavators Motor Graders
Tractor Loader Backhoes
JAN 13
FEB 13
MAR 13
APR 13
MAY 13
JUN 13
JUL 13
AUG 13
SEP 13
Grand Total
57
69
86
32
24
40
57
86
72
91
111
82
807
306
375
340
184
291
269
307
267
355
365
349
3,776
1
6
10
7
9
3
6
11
4
9
15
13
94
691
550
741
624
408
529
662
719
733
700
845
775
7,977
22
31
47
31
10
22
20
20
27
14
26
35
305
681
615
717
824
435
615
749
925
775
888
808
809
8,841
99
115
133
89
44
54
96
104
112
110
88
105
1,149
7
4
7
5
6
2
2
13
15
6
7
6
80
1,122
1,479
1,677
1,393
752
994
960
1,074
897
916
797
904 12,965
423
366
384
335
246
231
361
356
294
400
383
363
Scrapers - Conventional Skid-Steer Loaders
DEC 12
368
Crawler Loaders Excavators - Crawler, Hydraulic
NOV 12
4,142
Wheel Loaders < 80 HP
69
72
96
78
50
61
44
66
64
58
84
78
820
Wheel Loaders > 80 HP
539
625
625
608
330
335
489
484
440
522
464
509
5,970
4,079 4,238 4,898 4,366 2,498
3,177
3,715
Grand Total
4,165 3,700 4,069
3,993 4,028 46,926
Supplied by Equipment Data Associates, Charlotte, N.C.
72 | www.cedmag.com | Construction Equipment Distribution | January 2014
72_dealer data_KP.indd 72
12/23/13 4:23 PM
NEXT GENERATION OF TRUCK MOUNTED CRANES THE
I N T R O D U C I N G
T H E
MANITEX TC700 70-TON (63.5 mt) TELESCOPIC CRANE The highest capacity crane available for installation on a commercial chassis in the western hemisphere. This heavy-duty crane is engineered with advanced technology to meet the wide-ranging needs of operators around the globe.
-Ad_template.indd -ad template.indd 21
V IS I T U S
in the Gold Lot - 2115
12/20/2013 8:47:08 AMPM 12/20/13 7:02
.
AT HOME IN THE
AMERICAS.
MARCH 4-8, 2014 BOOTH 3516 - SILVER LOT
SANY America Inc. 318 Cooper Circle, Peachtree City, GA 30269 Tel: 678-251-2810 | Fax: 770-632-7820 www.sanyamerica.com -ad template.indd 1
Please visit us in Suite 21002.
12/23/13 11:21 AM
The COMPLETE COMPLETE Microsoft Microsoft Heavy Heavy Equipment Equipment The Solution for for Successful Successful Dealers Dealers Solution Improve productivity, decision making and customer satisfaction while increasing your competitive edge Improve productivity, decision making and customer satisfaction while increasing your competitive edge with Microsoft Dynamics AX for Equipment Dealers, developed and delivered by XAPT. with Microsoft Dynamics AX for Equipment Dealers, developed and delivered by XAPT. Microsoft Dynamics AX for Equipment Dealers delivers the following core capabilities: Microsoft Dynamics AX for Equipment Dealers delivers the following core capabilities: • • • • • • • • • • • • • •
Equipment Management Equipment Management Rental Management Rental Parts &Management Inventory Management Parts & Inventory Management Service & Warranty Management Service & Warranty Management Sales, Marketing & CRM Management Sales, Marketing & CRM Management Power Systems & Project Management Power & Management Project Management HumanSystems Resource Human Resource Management
• • • • • • • • • • • • • •
IT Management IT Management Financial Management Financial Management Supply Chain Management Supply Chain Management Business Intelligence Business Intelligence Performance Management Performance Management Workflow Management Workflow Management And much more... And much more...
Find out why other dealers have turned to XAPT and Microsoft Dynamics AX for their dealership needs. Find out why other dealers have turned to XAPT and Microsoft Dynamics AX for their dealership needs.
Visit us online at www.xapt.com Visit us online at www.xapt.com
FOR MORE INFORMATION FOR MORE INFORMATION Phone: 1 866 727 XAPT (9278) Phone: 1 866 727 XAPT (9278) Email: Contactus@xapt.com Email: Contactus@xapt.com Web: www.xapt.com Web: www.xapt.com
-Ad_template.indd 2
12/16/2013 8:04:32 AM