Dealing With The Downturn
Top dealers share insights on state of the industry.
DEBORAH LOCKRIDGE
SENIOR EDITOR
Business is looking up for America's top truck dealers, but October '02 emissions regulations, industry consolidation issues and a continuing shortage of qualified technicians loom as dark spots on the horizon.
That's what we discovered when we talked to the nine nominees for the American Truck Dealers/Heavy Duty Trucking Truck Dealer of the Year award, which recognizes truck dealers for excellence in business practices, industry contributions and community leadership, as judged by a team of officials from the Indiana University Kelley School of Business.
Many dealers have been doing better than you might expect during the recent downturn in truck sales.
For finalist John P. Niebauer Jr., president and CEO of W.W. Engine & Supply in Kylertown, Pa., the downturn has actually helped his business by getting rid of some of the competition. He said 2001 was the best year his company ever had, and January 2002 broke all records.
Dealers who have a diversified customer base have been able to shift their efforts from the struggling long-haul market to more stable less-than-truckload, medium-duty and vocational markets.
"We've always concentrated heavily on the vocational market and don't do too much in the on-highway business, so we have not been hit as hard," says finalist Marshall Cymbaluk, president and general manager of Kenworth Northwest in Snohomish, Wash.
At Palm Peterbilt-GMC in Fort Lauderdale, Fla., President David Weiger says they had to shift gears from the previously strong owner-operator business, which has virtually dried up, and focus more on local and vocational businesses.
For Weiger and others, an emphasis on service means truck sales fluctuations affect them less.
"We run our business with the theory that parts and service is the end that makes us the money, and truck sales is the necessary evil," Weiger says.
Before the downturn, Palm Peterbilt-GMC started offering free maintenance clinics with the help of vendors such as component suppliers. Attendance has ranged from 30 to 60 customers for the half-day event, which includes lunch. The clinics have helped the dealership build loyalty among customers, Weiger says.
Dealer of the Year Ed Kyrish, president of International Trucks of Houston, has increased his service offerings with mobile maintenance. The dealer sells customers oil changes and basic maintenance, done at the customer's location and at their convenience. Customers are willing to pay a little extra, Kyrish says, and in most cases the dealership is able to capture the rest of the customer's repair work as well.
For some customers, leasing, not buying, is the answer. Dealers report they have been using both long-term leases and short-term rentals to meet customers' needs.
"There's a lot of customers who don't want to buy any new trucks right now," says John Muchmore, president of North Jersey Truck Center in Saddle Brook, N.J. "They may have a new contract but aren't certain how it's going to work out, so we lease them vehicles on a short-term basis."
Careful inventory control, of both new and used trucks, was cited by several of the dealers. "We have never been known to overstock on new trucks," Niebauer says. "We've missed very few sales, because we've been able to find the truck from the manufacturer or trade with a nearby dealer."
Finding Financing
One of the things that has made the downturn worse is tighter financing. Dealers are bending over backward to help customers get truck loans. A few of the nominees have in-house financing companies. Others are working harder, and going farther afield, to find a company that will finance their customers.
"It is much harder to get the same customer financed today than it was 12 to 18 months ago,"says Ken Yacobozzi, president of Chicago Mack Sales & Service in Summit, Ill. "In a lot of cases that customer has not missed any payments or changed his operation, yet is now required to have larger down payments to acquire equipment. For every person we put into a vehicle, there are a few we are unable to help, due to their financial status or the value of what they owe on their traded equipment. We innovate when we can, and exhaust all of our options before turning down any deal."
"We're going through some houses that will finance a little more risky accounts," says Niebauer. "Of course the interest rate is higher, and it takes a little more time and work on our part to get them placed, but we've lost very little business because of it."
At Peach State Truck Centers in Norcross, Ga., President/General Manager Tom Reynolds says, "we scratch to find financing somewhere for customers. It may be a holding company up in Montana. We've done some stuff we really had never thought about doing. And we've had to sell our customers on providing a little more down payment, too."
For John Muchmore, being able to offer good customers financing through his own finance company has gone a long way toward helping his used truck business. "It's ridiculous when you have a long-term, good-paying customer and all of a sudden the finance company says, 'No, we won't finance another truck.' We can put someone in a used truck when other dealers can't."
Kenworth Northwest also offers in-house financing, providing loans for about 90 percent of the used trucks it sells. "It's been a great help selling used trucks," Cymbaluk says. "We can do just about instantaneous approval, and we can take some riskier deals if we have to."
Used Trucks Looking Up
The used truck glut seems to be easing for many dealers, especially those that carefully managed their used truck business. In fact, some are having a hard time meeting the demand.
"Our biggest problem is feeding our used truck department trucks," says Muchmore. "We're constantly running out of trucks."
Volvo & GMC Truck Center of Carolina in Charlotte, N.C., had record volume and record profit in used trucks in 2000, and 2001 was still a "respectable year," says President Terry C. Young, a Dealer of the Year finalist. "We were reasonable with what we did with trade commitments and residual guarantees, not only on the sales side but also on our lease side. We were very judicious about inventory management. We realized early on we were heading into a deflationary cycle for used truck values, which meant you needed to turn your inventory very quickly."
More than one dealer predicted that the new emissions standards going into effect in October will help push the price of used trucks up, as there is more demand for pre-2002 engines. At Young's operation, they already have seen used truck values stabilize and increase since Thanksgiving. That's good news for truck owners who are upside down on a truck loan; bad news if they're looking for a bargain used truck deal.
Consolidation Concerns
As the business world in general moves toward consolidation, the trend is affecting dealerships, as well. Dealers are getting bigger, customers are consolidating, and manufacturer mergers and alignments with component makers are keeping everyone guessing.
"Customer consolidation is changing the marketplace," Kyrish says. "A lot of common carriers failed in the last two years. Somebody's still hauling the freight, so the remaining ones are bigger, and they still buy from one place."
Dealers have mixed feelings about dealership consolidation. Overall they believe the trend will continue, and that single-store "Mom & Pop" operations are a dying breed. But at the same time, these dealers say much of their success comes from their personal involvement in the business -- something that can't happen if they have too many locations.
"I don't know that a surrogate manager can compete with an owner-manager," Kyrish says. "It's such an intense people business, if you go up against a high-quality, highly involved local guy, it's hard to beat him except on price. Growth for growth's sake is not the answer."
Weiger, who has three locations, doesn't want any more. "I still want to have the personal touch that I can give the customers," he says. "I don't care how many good people you have to run a mega operation, you start to lose that personal touch."
With one of the largest dealership operations among the nominees, Cymbaluk has nine locations in Washington and Alaska. "The pro is you can spread your costs over a greater area and gain economies of scale," he says. "What I don't like about it is that I certainly don't have the rapport with the customers that I had when I had one or two locations."
Manufacturer consolidation has caused problems for some dealers and worries for others. When Freightliner parent DaimlerChrysler bought Detroit Diesel, some other truck makers decided to stop offering Detroit engines, and as a result Detroit has pulled its product line from many of their dealers. Some customers are following the engine to a different truck make, because they have too much invested in training and equipment to switch engines.
"I think we're getting to the end of the road" in the manufacturer consolidation process, says Muchmore. "In the end, I don't think there's going to be the choices in terms of componentry out there that there was before."
Technology: Necessary Evil
There is no doubt that computers and the Internet have changed the way dealers do business, but some fret about the cost.
"We are totally dependent on our computers," Kyrish says. "It has really simplified things. We access all of our manufacturers on the Internet. All the warranty is done on the computer and uploaded on the Internet. Most of our catalogs are now online." The dealership has shipped parts as far away as Saudi Arabia. "Can you imagine even thinking about doing business like that in the past?" he asks.
At Chicago Mack, new and used truck salespeople, as well as outside parts salesmen, have laptop computers. Building a database of customer information and using it wisely "really helps a salesperson schedule his day," Yacobozzi says.
At Bickford Motors in Snohomish, Wash., computers have made for better coordination, says Chairman Art Bickford. "The amount of information available is unbelievable."
While most successful dealers these days have web sites, they say they don't track a lot of sales directly to the Internet.
"At first I thought the website was going to be a competitor, but now I see it as an introduction to the dealership,"Bickford says.
Weiger, who also runs an RV business, says there's a big difference in web use between his consumer and commercial customers. "On the RV side of the business, the benefits of the website are clear and measurable," he says. "But I don't see a lot of our truck customers using it to conduct business. It's still one on one, face to face."
Although the benefits of technology are there, the expense and frustration are, as well.
"It's amazing how much it costs for all the technical support items you have to put into a dealer operation," says Young, "computer systems, PCs, phone systems, staying reasonably up front on the technology curve. The investment is very steep." However, it's not something you can avoid.
"Your real-time communication and the speed in which you conduct business has drastically changed," Young says. "If you're not investing in all those things that create speed and efficiency, you'll disappoint the customer."
Growing Technicians
Nearly every dealer lamented the continuing difficulty in getting and keeping good technicians.
"Even today, it's hard to find bona fide mechanics and knowledgeable parts people," says Yacobozzi. "When we come across one, we find a place for him."
Most dealers agreed that the way to go is to "grow" technicians. "You just don't accomplish anything by stealing one from another place," says Reynolds.
Most dealers work with local community colleges, vocational schools and even high schools to fire up interest in the field. "You almost have to be at the door as they come out," Bickford says. Bickford Motors has built a mock dealership at a local college, where students are trained in a realistic environment. Peach State helps new technicians with their school loan payments. Kenworth Northwest uses a four-year apprenticeship program to train its technicians, and has created a video for use in the local high school.
Palm Peterbilt-GMC years ago developed an unusual technician training/mentoring program. Each journeyman technician is responsible for one to four trainees, brought in from local vocational schools or other sources. Each team of journeymen and helpers gets paid the journeyman's rate for the total sold hours generated each week. Out of that amount, the helpers are paid by the hour, between $8 and $12. What's left is the journeyman's "profit," so to speak, his compensation for training the up-and-coming technicians.
Weiger notes that a single journeyman might generate 60 to 70 sold hours each week, but a team with four helpers could generate 160 to 200 hours a week. As a result, he says, "we have taken a blue collar job to where it can pay more than $100,000 a year for the ones with consistent helpers."
Outlook
When we spoke to dealers in late February and early March, most reported they were seeing more optimism among their customers and truck sales were improving. However, they're not sure what to expect from the new emissions regulations that kick in this October.
While nearly every dealer predicts some pre-buying before October, and a drop in sales afterward, few as of late February had seen any indication of that pre-buying starting yet. And there's a lot of frustration because the engine and truck manufacturers have not been able to provide a clear picture of what exactly will happen to truck and engine prices, fuel economy, and engine durability. More than one dealer used the term "gray" to describe the situation.
"We really don't know exactly what kind of a cost it's going to end up at for the consumer," says Cymbaluk. "If it's going to cost $3,500 more and the longevity of the engine won't be there as some of the manufacturers are suggesting, I'm sure we'll be able to convince customers to buy early. We're waiting to get educated a little better so we don't tell them something that's not true."
Some are concerned that, because they don't have the information they need, customers will wait until it's too late to pre-buy. Young predicts that the number of pre-buys will only be limited by the industry's ability to increase production rates. And while truck makers can fairly easily ramp up assembly rates to keep up, he says, components such as axles and transmissions may be harder to come by.
Nearly everyone predicts that new truck sales will fall sharply after October, what one dealer called the "cliff effect."
"We see a total dearth of orders after October for at least five or six months," Kyrish says. "I don't know of one customer we have who says they plan to buy a truck post emissions changes until late in 2003."
But no matter what truck sales do, these dealers all agreed on the key to success: their people, and the relationships those people develop with the customers and the reputation they build.
"If a customer has a complaint, I'll get out of a meeting to go see what's wrong," says Kyrish. "I guess we have an attitude of it's our fault until proven different."
"If you look at it from the customer's point of view and try to put together what's best for him in the long run, they're going to come back to you and be in better shape each time," says Bickford.
• See nominees on page 96
More Dealer of the Year
Edward A. Kyrish
Marshall Cymbaluk
John P. Niebauer Jr.
Terry C. Young
Past Dealers of the Year
Nominess
