Aftermarket Dave Baiocchi
Inflation Strategy—Part Two As we traverse the road forward in 2022, the business climate is becoming clear. High demand, dwindling supply, rising prices, and an uninspired workforce. What a combination! In my March 2020 column (Inflation OMG!), I laid out a series of strategies that could be employed in order to reshape and align the sales department in this new and different distribution landscape. At the end of the March article, I promised some ideas on similar strategies for the rental, parts, and service departments. This month I am going to make good on that promise. My first intention was to provide these strategies in my April column. I rethought that course of action. Because the disruption to our businesses is so acute, I thought it better to do “first things first”. The first step in the creation of an effective plan is to take stock of your resources and use your collected data as a basis for a SWOT analysis (Strengths – Weaknesses – Opportunities – Threats). In times where resources are running low but customer expectations are high, we tend to panic and naturally react by “shooting” before we “aim”. This consumes resources even more quickly. Although you can re-read the April issue, in short, a properly executed SWOT analysis does the following five things: 1. SWOT Slows everyone down. As customer urgency rises, our response is to “speed up” and answer quickly. SWOT counteracts this by preplanning responses and understanding the ramifications of a kneejerk reaction. 2. SWOT tells the TRUTH about existing and future resources. It is, what it is. We are not magicians. We can’t simply wish more resources into existence. 3. SWOT defines how resources will be distributed. No shortcuts, no workarounds, no rogue ideas 4. SWOT defines what we are best at doing. When supplies are short…. they MUST be pointed at the CENTER of your target. 10
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May 2022
5. SWOT warns us about what we struggle with. Don’t throw shrinking resources at a black hole. With a well-defined SWOT analysis behind us, we can now talk about rental, parts, and service strategy. The reason I wanted to talk about a SWOT analysis BEFORE I present strategies is because not every idea presented here will square with your SWOT findings. So, use what fits. Discard what doesn’t. Rental Department Strategies Make no mistake. Rising prices and the absolute lack of new inventory in 2022 will mean that the OTHER departments in the dealership have to produce more profitability for the dealership to meet its obligations. The rental department is critical to producing these profits. Rental asset decisions One of the natural tendencies that dealer principals have, when inventory is in short supply, is to reallocate new equipment (ordered for the rental fleet) to the sales department to fill waiting customer orders. I understand the temptation to do this, and on its surface, it might seem like the right decision to make. The downside to doing so however must be recognized. The benefit to the dealership as a whole is served by rental assets adhering to a cycle of replacement that is proven in our industry. Extending the rental life of units in rental service increases maintenance costs affects depreciation allowances, and most importantly, precludes the rental department from raising their rates in an inflationary environment (see next section). As attractive as these rental assets may be to the sales department, the fact remains that the sales department’s long-term appetite for inventory will likely not be satiated. The needs of the DEALERSHIP will be better served by putting that new unit in service at an existing rental customer. This will allow the unit currently in service, to be retired, refurbished, and made available to sales. It also may allow the rental department to RAISE THE RATE on
