Once in a while, the second time is the charm

Two years ago, the Western Equipment Dealers Association held its first International Dealer Conference. It was the first conference following the mergers of three dealer associations that served Canadian and U.S. dealers.

Like many things, the first go around was a good conference but the association’s board wanted to see more in the form of better speakers, better programming and more dealer participation. The 2017 conference delivered on all counts.

Attendance was up 35 percent. There was a more balanced mix of Canadian and U. S. dealers. The lineup of speakers was terrific and the various discussion panels, which included dealers, manufacturers and staff, were excellent. The association even launched a WEDA conference app for program updates and a way for attendees to reach out to each other. The app was downloaded by nearly 100 percent of attendees.

Needless to say, the conference was a success but the WEDA board and association members want more and more is already in the planning stages for next year. Yes, there will be a third conference but the second time was the charm.

Members who didn’t attend missed out on plain talk from an economist, dealers, manufacturers, and staff.

The economy

You don’t need to overhear whispers around a water cooler to know the equipment economy has been chilly the last couple of years, especially in the U.S. But J.D. Gervais, vice president and chief agricultural economist at Farm Credit Canada, said one of the economy’s key indicators – personal disposable income – is “actually very strong and will remain in 2018.”

He also said that the picture of world economic growth is also pretty strong. “If you think of all the commodities, from oil to ag, that picture is driving a lot of the optimism.”

But Gervais cautioned there is something odd about the current U.S. expansion. He says in the 33 business cycles on record since the 1800s, the U.S. is experiencing its second longest expansion in history (and it could become the largest) but it’s also the weakest.

He said the source of the expansion is the labor market. However, what puzzles Gervais is the U.S. is bucking the countercyclical trend that when jobs are scarce, growth and wages go down. But, in this current expansion the unemployment rate has gone down but wages have stayed flat and wages are “a big driver of inflation expectations.”

“If wages are not expected to grow like they normally would, then that sort of brings inflation expectations down, which makes it tough to push interest rates higher.”

In Canada, Gervais said the most noticeable problem is consumer debt, which he said continues to grow. He said after the U.S. financial crisis, “consumer debt shrank quite a bit but it’s still growing in Canada and it can’t go on forever.”

He added, though, that debt concerns are overblown to some extent and other countries with large debts, such as Brazil, have issues not seen in North America. He said you have to consider the distribution of the debt within the economy – who owns it, who carries it and the disposable income of those in debt. He said Canada’s debt picture isn’t as alarming as some might think but, like the U.S. where debt has been reduced, Canadian debt needs to be corralled and consumer debt needs to come down with respect to income. 

With regard to agricultural cycles, Gervais says they’re unpredictable, even though they’re measured in five-year increments. On the downside, he said we’re still in a depressed environment and he doesn’t think it’s going to improve really fast. On the positive side, he says the industry has ways to actually maintain and increase agricultural receipts, although he cautioned 2018, which expects to be stronger, could still be relatively flat.

There is concern, of course, whether the U.S. will experience another downturn in the farm economy that could mirror the devastating scenarios that played out in the 80s. “What we’ve learned with the most recent downturn,” noted Gervais, “is that how you approach the downturn in the farm sector matters a great deal. Equity positions, working capital, liquidity – all those things from a financial standpoint show a much stronger balance sheet than what we saw in the 80s.”

Although Gervais didn’t predict an immediate windfall for the industry, he suggested the indicators suggest a stronger equipment economy will surface in 2018. Dealers, especially those in the U.S., hope Gervais’ optimism is on the mark.  

Dealer Panel One

Conflict is as old as the planet. As the panel on interdepartmental relationships noted, conflict is a source of frustration and, according to Dr. Larry Cole, “anyone who thinks it’s normal is burning money.”

Cole, an industry consultant and trainer with the association’s Dealer Institute, has been working with equipment dealers for more than 15 years and he says the key to eliminating conflict requires a change of thinking. He says research shows that conflict can reduce efficiency within an organization by 25 percent.

But it’s the money that’s lost that makes conflict so detrimental. Cole worked on a study with the association’s Michael Piercy, who’s also with the Dealer Institute. Using an average of $5,000 an hour to operate a dealership over an eight-hour day, Cole said they determined conflict costs dealers $1,250 per hour when you factor in the 25 percent loss of efficiency. That’s $10,000 a day. “It takes time to argue… and it’s a waste of time.” Plus, added Cole, the usual after-argument griping can have an effect on morale and production – more money burners.

According to Cole, conflict occurs for various reasons, including ego and stupidity. For example, parts and service employees have different needs but their mission should be to help each other succeed but that’s not always the case. He said one department may not understand why the other does things this way or that way, which can lead to conflict. He said this is where brainstorming would help.

He said brainstorming should include all stakeholders in a business and they should all understand the issues and have the facts. “Decisions should be driven by vision, mission and values and they should define a mutual purpose, which should be a desire that all departments are successful,” said Cole. “Brainstorming is one of the most underused management tools. I’m a strong believer that collective intelligence is smarter than any one of us individually.”   

Shawn Skaggs, vice president and CEO of Livingston Machinery, said he relies on three basic principles to reduce conflict within his company that operates four locations in Oklahoma and Texas. Those three principles are education, communication and trust.

He said it’s important to educate employees about what makes the dealership tick, why the other departments do what they do and how they do it. He said employees are made aware of departmental goals, performance measures and standards. He said quarterly game-plan meetings are used to disclose financials and revenue of the company, which is employee owned.

With regard to communication, Skaggs said it’s the most important thing in any dealership. He said everyone in the company needs to know what’s going on. “As seriously as we all take it, we can never take it seriously enough.” He said when there is conflict between employees, poor communication is usually at the heart of it.

He said it’s vital that all employees know how the business is doing and how each department is performing. He said weekly emails update each department on sales and he said the dealership also provides a way for employees to constructively critique other departments or who to contact if there are questions about other departments.

Skaggs added Livingston Machinery works hard to establish trust between employees, between departments and between stores. “Trust begins with follow through on commitments. When trust is broken,” said Skaggs, “people remember it.”

One way Skaggs’ dealership builds trust is to conduct teambuilding events that are not related to business. Skaggs said nonbusiness events allow employees to speak with each other about things other than business and to see someone as “a real person who is just like them… someone who wants to be successful just like them… someone who wants to help the business just like them… who wants to do well just like them.”   

“If employees can see each other as people and not just somebody on the other side of the parts counter or office wall,” added Skaggs, “it helps to build trust, employees start to understand each other.”

Skaggs concluded that management consistency in how things are handled is another key to building trust and retaining it.   

Dallas Smith is general manager of Western Tractor, which is a merged quartet of dealerships in southern Alberta. Smith noted that merging one family dealership with another three-store family dealership into one name represented a considerable cultural change for managers and employees. He said one of the first tasks was to break down the silos employees built around themselves. With 165 employees, that’s a lot of silos to topple, especially when a lot of long-term employees become entrenched. He said two current employees have been with the business for 40 years.  

Smith said the lack of communication was noticeable, that everyone seemed to be working for personal goals. He said there was little interaction between departments and morale was low. “We were wasting a lot of time because we were fighting all the time.”

As a result, Smith said in the early days of Western Tractor, the dealership had a culture of complacency. He said market share and profit were suffering and there were what he referred to as “terrorists” in the organization, people who always try to cause problems and bring down what you try to change for the better.

After breaking down the silos and moving out the “terrorists,” Smith said the dealership created a system for evaluating the passion and commitment of employees. He said employees were put into four categories – dead, job, career, and calling.

Those in the dead and job categories were determined to be paycheck collectors and not committed to the dealership. Those people were weeded out. For those remaining, Smith said Western Tractor focused on training and development of management staff and employees. He said the dealership also defined its visions and values. “We never had that on paper,” Smith admitted.

He said consultants, including Dr. Larry Cole, were used and the process was relatively simple. Once it was written down, said Smith, “it changed the movement of our organization. It’s something we have on our walls in our dealerships for everyone to see and it’s something we use as an accountability tool.”

Once the visions and values were penned, it set the course for Western Tractor to create clear expectations, to give employees something to focus on and to change their thinking from just having a job to building a career.

Smith also said the process of turning a business culture in a positive direction is transparency. “It’s an uncomfortable place to go originally but transparency is key to the change of culture in an organization and moving people to another level.” He said being open gives employees a sense of where the dealership is week to week, month to month and year to year.

With transparency, noted Smith, comes accountability. He said it’s not just what the boss says or how a department performs, it’s a matter of peers holding each other accountable for the success of the dealership and pushing back when people don’t perform within the framework of the dealership’s visions and values.  

Manufacturers’ Panel

Perhaps the most anticipated panel discussion of the conference involved representatives from major equipment manufacturers. Six people took the stage and each person provided comments about the state of the industry and what each company’s dealer network would look like in the future.

The panelists included:

• Joe DiPietro – AGCO
• Jim Walker – Case IH
• Jason Tucker – John Deere
• Todd Stucke – Kubota
• Cleo Franklin – Mahindra
• Bret Lieberman – New Holland

With a few twists, the six panelists generally agreed on the state of the industry. Sales over the last 36 months, especially in the states, have not been robust. However, with the exception of strong sales in Canada, the panelists also agreed they were hopeful the optimistic economic comments made by economist J.D. Gervais will hit the mark in 2018.

While several panelists acknowledged their company’s broad product base insulated some manufacturers from relying too heavily on one industry segment for revenue, most expect the opportunities for retail and service growth to improve next year and into 2019. 

The discussion about contracts usually makes people nervously clear their throats and Jim Walker, Case IH, said recent changes to the company’s contract resulted in some push back. But the six panelists offered articulate explanations about how the market, which is constantly changing, can and will factor into revising agreements and the association will continue to evaluate the proposed changes.

Obviously, manufacturers want their dealers to have long-term business development plans and the resources to serve their customers. But if anyone expected the panel to put a number on how many dealers will be around five, 10 or 20 years from now, someone walked away disappointed.

Only one panelist suggested consolidation could be a factor with his company’s dealer network but he added it would be driven more by dealer principals rather than company mandates. He said dealers who don’t have succession plans, financial resources to support the brand long term and a strong commitment to embrace technology to serve a more demanding customer base, might consider an exit strategy… but that would be something between the dealers and the manufacturer.

Perhaps the most interesting question posed to the panel centered on what three things dealers should focus on in the future. Again, there were similarities in the responses but the content of the responses was worth a listen.

Bret Lieberman, New Holland North America, said dealers will need to 1) keep pace with technology, 2) increase their knowledge of products (and know more than customers who are getting fat on product information from the Internet) and have the ability to service those products, and 3) grow their parts and service business. “Customers are going to rely on us, the manufacturer, for reliable equipment solutions; they will rely on dealers for dependable service if there is an issue.”  

Cleo Franklin, Mahindra North America, said his company wants its dealers to invest in CRM (Customer Relationship Management) to help a dealership understand the value of its customers from end to end. “It takes so much effort to generate a lead and then make that a prospect. But once they become your customer, the question is not to get them to buy again but how to get them to be your salesperson and advocate for you.” Franklin also said dealers need to sharpen their digital presence. He said brick and mortar appearance is important but so is “click and mortar” and how dealers appear online could determine whether customers come to your store. Franklin also encouraged dealers to focus on employee training to service and support their customers.

Todd Stucke, Kubota Tractor Corporation, echoed the sentiments about customer needs, technology and people. “The customer out there is changing. If you look at the different segments, the way customers receive their data, the way they want to interface with you, and the way they want to interface with the manufacturer is different.” He noted the technology today is so much different and we – the industry – have to work together to harness the technology and train ourselves fast enough to keep up with it to create value. Lastly, Stucke said at the end of the day it’s all about the people. He said both dealers and manufacturers need to find people who will commit to this industry “to get things done to drive your business.” But, said Stucke, “Finding people is an industry dilemma.”   

Jason Tucker, John Deere, picked up where Stucke left off when speaking about talent. He said talent is vital, whether it’s in the parts, service, sales, or administrative side of a dealership. The issue of talent, noted Tucker, keeps people awake at night at John Deere. “Not only are the customers evolving and getting younger, their thought processes are different than what a lot of us grew up with… and they react differently.” He said the industry needs people who speak the language of these new customers. He also said dealers of the future will need to be able to manage multiple facets of the business, which will include working on the ground and working in cyberspace.  Finally, equipment technology, whether it’s precision planting or the data spit out by machines, will need to be understood and how the information that’s collected can be used with current and future customers.

Jim Walker, Case IH North America, agreed with each panelist about the need for talent in the industry and understanding the technology of the machinery and the various ways dealers and customers will access technology and use it. But, Walker also suggested the next generation of dealers will need to evaluate their value to the marketplace. He said a lot of new products will be rolled out in the near future and dealers will need to map out how to differentiate their dealerships from the competition. “Your dealership is the final piece of differentiation. You’ll need to take advantage of all the products you can, making sure you’re represented in the marketplace for those products and establishing who you want to be. This will give you the best return in the future.” 

Joe DiPietro, AGCO Corporation, agreed focusing on talent, especially on long-term employees, is vital. He said dealers should look at current employees and begin assessing who might be retiring or is close to retiring and figure out how to recruit people for potential vacancies. He also suggested having a plan in place if a key employee unexpectedly decides to move on. DiPietro also agreed a dealership’s digital presence will be a factor not only with jobseekers but with customers, too. But, said DiPietro, absorption, related to aftermarket parts and service business, will be huge drivers for dealers in the future. “A better parts experience and a better service experience are primary reasons why someone would switch brands.”

So, there you have it, key drivers, as viewed by manufacturers, for dealers of the future. Simply, the drivers are to have a plan to exit or expand, be financially strong, establish your role in the marketplace through differentiation, recruit and retain talented employees, know your products and your customers, understand technology, create a strong parts and service experience, and improve your digital presence.

Dealer Panel 2

The second dealer panel at the conference centered on pricing jobs in the service department and whether to use flat-rate pricing or bill customers for time and material.

Jeff Irwin, with Brandt Holdings, is aftermarket manager of a 32-store John Deere operation. He said the dealership has nearly 300 technicians and job pricing has been a journey. He said the dealership was using the manufacturer’s system as well as some of its own codes and that resulted in a “muddled mess.” He said communication about the benefits of consistent pricing was poor within the enterprise… and some service department managers had a tendency to just fall back on the old way of billing jobs by using time and materials instead of standard job pricing.

Fast forward to 2013, the year Brandt purchased about 30,000 job codes. All of the codes were evaluated by the organization’s service managers. “This is when we really took off on our initiative to become more consistent. What we’ve seen is about 50 percent of our work orders now have a job code attached to them where we can measure and really see what the impact has been with those job codes. Our goal is to get to at least 80 percent.”

He said the results show an increase in labor performance of almost 10 points, which, based on the number of Brandt technicians, is about $750,000 per point. “The results aren’t solely from using job codes but it was more of a focus on what we were hemorrhaging.”

He said as important as defining your pricing platform, communication remains a key element of the process. “We have to communicate with our customers and we have to communicate with our technicians to get everybody on the same page so there’s no confusion on quoting or scheduling,” concluded Irwin.     

Sean Young is assistant general manager at Young’s Equipment, a nine-store Case IH operation. He said the dealership’s rapid growth over 15-plus years revealed that job pricing was all over the map. He said the use of standard pricing varied. Some stores used it, some didn’t, some never heard of it. Young said there was no consistency and communication between stores was poor. “It’s a really poor customer experience when customers get something fixed at one store for a certain price and then go to another store – same company – and get the same job done for a different price.”

Young also spoke of the challenges dealing with the competing priorities of the sales and service departments. Sales wanted lower numbers for repairs, service wanted higher numbers. “We also had to deal with the usual resistance to change.” Young said employees who were used to using a lot of discretion in how many hours should be charged ran into conflict with technicians who used six hours to complete a four-hour repair. All of this was made more challenging because job codes from the manufacturer were not always on the mark and some service managers and technicians weren’t familiar with new job codes on newer machinery brought in for repair.

But to ignore the need to have guidelines to simplify the process wasn’t an option for Young’s Equipment. They eventually used the manufacturer’s codes for baseline pricing and spoke with other dealers who serviced the same equipment. In doing the latter, they learned how other dealers priced repairs and what multipliers they may have used if the manufacturer’s codes were not reflective of the actual time it took to make a repair.

Although consistency came about slowly, Young said. “We’ve got our flat rates incorporated into our business system and we’re starting to see more consistency in our organization.” He said the dealership also conducts annual reviews of its flat-rate times and engages service managers, service writers and top technicians for their comments about the job codes and whether the repair times are on the mark or need adjustment.

Robin Hayes is vice president of aftermarket for Pattison Agriculture. The dealership operates 19 stores. When asked to participate in the conference panel discussion, Hayes said he was a little reluctant because he’s not sure his dealership has completely figured out job codes and flat rates but he doesn’t think Pattison Agriculture is alone.

Hayes said the journey into standard pricing began 15 to 20 years ago when the dealership operated three stores but expansion required changes. “Not only did we add stores but we threw curveballs at our teams with business system changes, which made our job pricing journey more of a challenge.”

Like Young’s Equipment, Hayes said Pattison Equipment also started to see the same jobs priced differently throughout the enterprise. “That’s when we started to build and adapt codes for our most common and repetitive jobs,” which Hayes said actually made the jobs of service managers easier. “As the team started to use them, they actually started to like them… and it does work. We offered more consistent pricing, which resulted in reduced customer complaints and that’s a bonus.”

While developing job pricing codes eased the conflicts that sometimes surfaced between the sales and service departments, Hayes said management noticed that when more people got involved in creating codes, the dealership found inconsistences beyond having multiple business system platforms. They found duplicate codes with different names and different descriptions of the work to be performed. “We also had some challenges with our pricing strategy,” said Hayes, “so we had to have a reset.”

That reset included sitting down as a group and figure out a structure and a strategy for job codes and what the dealership had to have out of them. “We set it up with one manager and two job code writers,” said Hayes. “We set goals for the quality and amount of job codes the team would do and we created real specific detailed instructions on how to format a new job code.” The dealership also put a system in place where code writers could get feedback from service managers, service writers, technicians.”

Hayes said the strategy and focus on consistency has worked well for the dealership and the overall labor performance has improved – and so has the bottom line. If a job is coded for two hours and it only takes 90 minutes, the customer pays for the two and what’s left boosts margins and allows the dealership to have revenue to upgrade rolling stock and purchase the tools required to repair today’s modern machines. He concluded by noting the buy in from service managers and service writers to use the codes has improved their attitudes because their jobs have become a little easier.

Dealer Panel 3

Kelly Mathison is owner of Kayzen Management, a consulting and training company. He also is a former dealer and current trainer with WEDA’s Dealer Institute. Mathison noted that aftermarket absorption is nothing new to dealers. However, he did suggest it’s an area that needs to be fully understood by the managers in parts and service (even sales and accounting), which is another reminder about the need for communication within the dealership. “It’s important to the success of the dealership to make sure the departments generating the cash, namely parts and service, are contributing enough to pay the bills of your business.”

Citing the association’s recent Cost of Doing Business study, Mathison said dealers who participated in the study showed a net income of 1.34 percent, which doesn’t offer much wiggle room for waste or extravagance. He then spoke of the strain on finances caused by postage, phone bills and new employees. He said just adding a new employee with an annual base salary of $40,000 would require the dealership to generate an additional $2 million or more in sales to cover that hire. He said even going over limits on mobile data usage for cell phones can result in the need to generate tens of thousands in additional revenue.

He concluded noting the aftermarket requires understanding and focus. He said customers know dealers have parts because “we tell them in our advertising.” But, he asked, is that what customers really want? He encouraged dealers to become more proactive in the aftermarket instead of reactive and be equally proactive in controlling expenses.

Trent Hummel is another former dealer who is a trainer with the association’s Dealer Institute. He also works with other dealers in managing new and used wholegoods. One metric Hummel supports is one that measures used inventory as a percent of rolling 12-month revenue. “It’s a really important metric that’s designed to help us manage how much used inventory we should have for what we’re selling,” he said. “A lot of dealers have made wise decisions about used inventory based on this metric.”

Hummel also spoke of controlling expenses but he said that’s something everyone works on during down cycles. But, he cautioned, that dealers tend to ignore expenses during good times and get “sloppy.” He said expenses should be controlled during good and bad times.

Hummel also looks closely at gross margins for salespeople. He said he doesn’t want any salesperson who doesn’t want to earn six figures a year. “If you have a commission structure that works properly, one that pays a salesperson at least 25 percent of gross margin, that means that person is bringing in $300,000 for you.” He added that too many dealers chase away salespeople who make too much money. He said the problem isn’t that someone is making too much money. He said the problem is not having a good commission structure to drive desired behaviors.

Finally, Hummel barked about aged inventory. Simply, he said dealers have to stop holding onto equipment. He said when you look after your aged inventory, you will improve your new and used turnover. “Your margin percent will be accurate because you’re selling your used in the same year you’re taking it in,” said Hummel, “versus selling something new and selling the trade three years later.” 

Like his fellow panelists, Gord Thompson is another former dealer and current trainer with WEDA’s Dealer Institute. Thompson, who works with the association on the Cost of Doing Business study, said the sluggish market has cut into gross margin by only 2 percent. That’s not to suggest all is well but he noted that while gross margin has declined, expenses have gone up 17 percent. “This tells me our expense management is not up to snuff.” However, he added, you can’t always rely on getting ahead by simply cutting expenses, which can have an effect on how a business functions, especially if you get into personnel.

Thompson also noted the 1.34 percent net income figure from the study is mediocre at best and insufficient to sustain a dealership long-term. He said dealers need to be at 3 percent or better to remain “players” in the industry. He noted this wouldn’t be easy with market share demands being made at a time when equipment sales are trying to recover. “To be profitable, we’re going to have to work with our manufacturers to help them succeed. If they’re not making it, we’re not making it so we have to find where the common ground is and how to get there.”

This brings us back to aftermarket absorption and the profitability of the parts and service departments and, according to Thompson, back to communication. He said a dealership can have a great leader but it takes more than one person to make things happen. “If you can’t get your people to buy into the plan, buy into the goals, it’s just not going to happen,” he said.

Thompson also pointed out that in seminars he conducts for the Dealer Institute, he’s been surprised by how many people who have revenue objectives and financial goals at some dealerships have never seen a balance sheet, don’t understand turnover or how much money it costs to operate a dealership. “I don’t think we’ve done a very good job bringing our staffs up to speed because very few people outside of the accounting department have ever had any training in that area.”

Thompson concluded change is happening and it’s something everyone has to deal with. He said those not willing to change face an uncertain future. Even those willing to accept change need to rethink their approach not only to the aftermarket but how they train and communicate with the people responsible for moving the dealership forward.   

WEDA CEO John Schmeiser updated members on a list of issues, a list that is too extensive to detail here. He encouraged members to follow the association on LinkedIn, Facebook and Twitter and to read information sent by email to members.

Schmeiser said the association is fully engaged in keeping watch on issues that may have an effect on how dealers operate their businesses and he also encouraged dealers to get involved when needed.

For members who didn’t attend the 2017 conference, they missed a great opportunity to learn why some economic observers feel better about 2018, how fellow dealers have handled challenging problems within their businesses and what officials representing major manufacturers believe are key drivers for dealers of the future.

The second conference was a charm – the third WEDA International Dealer Conference will be Dec. 5-7, 2018, in Scottsdale, Arizona. Mark the dates and watch for more details or visit WEDA at www.westerneda.com.