REGS WILL PUT THE BRAKES ON SALES – AT LEAST FOR A WHILE
Top truck dealers talk about current business conditions, upcoming emissions regulations, future challenges.
By Denise Rondini, Contributing Editor
The Truck Dealer of the Year is selected annually by a team of judges at Indiana University Kelley School of Business. Candidates, who are nominated by their American Truck Dealers line representative or dealer association, are judged on excellence in business practices, industry contributions and community service.
The judges also select one Dealer of the Year Finalist, who will step in should the dealer of the year be unable to fulfill his duties. Those duties include meeting with Congressional leaders as spokesman for truck dealers, honorary membership on the ATD Committee and service as dealer-in-residence at Indiana University, where he addresses business school classes.
The Truck Dealer of the Year competition is co-sponsored by ATD and Heavy Duty Trucking magazine.
The way things are going in truck sales these days, it's pretty hard to wipe the smile off a dealer's face. But many of North America's top truck dealers say they're less optimistic about 2007 because of developments taking place to meet the new federal emissions regulations.
According to Bob Hunter, president of Hunter's Truck Sales & Service Inc., Butler, Pa., and the 2006 American Truck Dealers/Heavy Duty Trucking Truck Dealer of the Year, there is a pre-buy going on. However, he said it's hard to say how much of the current activity is pre-buy and how much is market demand.
Paul Storwick, president and COO of GreatWest Kenworth Ltd. in Calgary, Alberta, Canada, and Dealer of the Year finalist, said dealers won't know until the third quarter of this year what's really going on. But he added,"We have some customers who are concerned about the new engines."
"There is a lot of concern about the ultra-low-sulfur diesel fuel and the cost of it," added John Arscott, president of The Pete Store, Baltimore, Md., and one of a dozen Dealer of the Year nominees interviewed for this story. "I know order entry at Peterbilt is up, and it is starting to backfill from December forward."
This is true at other OEMs as well.
Doug Howard, COO of Fresno Truck Center in Fresno, Calif., said, "My guess is total production for this year will be sold out in the next couple of months."
Hunter believes his customers are concerned in part because the engine manufacturers did not have the new engines in the hands of the truck makers early enough.
"My own feeling is they needed to hit the street two years ahead of time for testing, and obviously that did not happen."
Don Emerson, president of FMI Truck Sales & Service, Portland, Ore., said bigger fleets are aware of the new emissions regulations, but he expressed concern that his customers who are not in trucking may not be up to speed."We're doing our best to educate them.They are not in a position to buy 30 extra trucks this year, but they are looking to see if they can budget for a few extra trucks."
Finalist Storwick believes dealers can play a role in managing the pre-buy." We almost have to sell this 2007 emissions program as a non-event – to the point of saying that this is the way the engines are. Customers are not necessarily going to gain a tremendous advantage by having a pre-buy, apart from avoiding some price increases."
A LOOK AT 2007
Most of the Dealer Of The Year candidates are predicting a slowdown in vehicle sales for 2007.Tom James, president of Fox & James Inc., Latrobe, Pa., said, "At least in the first half of 2007, new truck sales will be pretty iffy."
Arscott agreed, but added, "If history plays like it did the last time, we will see three or four months of slow vehicle sales and then we will be back up again.There are a lot of vocational customers and small private fleets that are unaware of the emissions changes.Those customers will be driven to buy trucks for business reasons, not for fuel economy reasons or potential engine durability reasons."
Tom Conway, president/CEO, Beam Mack Sales & Service Inc. in Rochester,N.Y., said, "Customers are going to come back and buy. It is a fact of life.We've got new emissions; we have to deal with them. I think 2007 will be a little slow, but it'll come right back in 2008. It has to. People will have to buy trucks."
There are a few dealers who say they're more upbeat about the immediate future.
For instance,Gary Rutherford, president of Central Truck Center in Lansing,Mich., said he's anticipating good sales this year and next. "A lot of companies have laid low for a while and have not bought anything. Eventually they are going to have to take some of their profit and replace some of their older equipment. Replacement of these older vehicles will help us."
"I think next year is going to be affected somewhat by the new engines, but not affected enough that I am really concerned," said Terry Frankland, president of V&H Inc., Marshfield,Wis.
FOCUSING ON PARTS & SERVICE
To compensate for any slowdown in new vehicle sales, dealers will look to other areas of their dealerships, with a great deal of energy being focused on the parts and service departments.
In recent years, savvy dealers have recognized the importance of parts and service to the success of their overall operations. "They are the backbone of our dealership," said Tom Boland, who owns Tom Boland Ford/Sterling/Western Star in Hannibal, Mo. "It is a great contributor to absorbing overhead and more importantly, it gives us the opportunity to take care of our customers."
Parts and service is so important to Drew Linn, dealer principal at Southland International Trucks Inc., Homewood, Ala., that he has five associate dealerships strategically placed in order to deliver parts and service to his customers. "These are businesses that have done business with our existing customers in areas where it does not make sense to have a full-service dealership."These businesses have a contract with Linn and he can have parts directly shipped from the factory to them.
To meet the needs of his customers, Pat McMahon, CEO of McMahon Truck Group in Charlotte,N.C., keeps his dealerships open 24 hours a day; has approximately 500 trucks on contract maintenance programs; and operates half a dozen mobile maintenance trucks.
One of the things that sets McMahon's dealership apart is that he doesn't offer his customers a menu of services. "We like to talk to a customer to learn about his operational difficulties and then try to come up with some sort of solution to the customer's problem."
Hunter said he learned the value of the parts and service department from his father, who described their business as a parts store that sold trucks.As a result, Hunter was one of the first dealers to institute outside parts salespeople.
"You are more likely to service a truck than to sell one," said Central Truck Center's Rutherford. "It is important to take care of the customer and be cognizant of his overall costs and build value for him.He has got to see value in you, whether it be great service, lower price or parts availability."
Arscott places a different emphasis on parts and service, calling it service and parts. "That is what keeps the customers coming back – a quality service experience."
TREND TOWARD VERTICAL INTEGRATION
One trend that may impact a dealership's parts and service departments and a fleet's options for where it gets its vehicles serviced is vertical integration.While some OEMs are manufacturing their own engines, others are aligning themselves with fewer suppliers. And some suppliers are offering certain components exclusively to certain OEMs.
According to Hank Fracalossi, dealer principal,Tri-County International Inc.,Dearborn, Mich., "It's getting less and less where you've got a big choice on components. We're going more to the European manufacturing idea."
He continued, "The engines are all good, as are the transmissions and rear ends. In the old days they weren't.You had to stock what you knew was going to work.Today they all work, so I have a very limited inventory. And, since you don't have to have all different kinds of vehicles, it is limiting our floor-plan expense. It's a good thing for us."
Bob Neitzke, dealer principal, GATR of Sauk Rapids in Sauk Rapids, Minn., sees positive and negative sides to the trend. "You might lose a customer who is stuck on a certain engine, but you won't lose him for something like a fifth wheel.
"Regarding the smaller components, as long as we are taking care of the customers service-wise and as long as our people are trained and can train our customers, [fewer choices] will not be a big issue."
Nominee Frankland said his opinion of vertical integration has changed over the years. "If you had asked me this several years ago, I would have said it was a terrible thing, but it really has been quite good for us. Seven years ago we sold three different engines in our trucks. Today 95 percent of the engines we sell are from one manufacturer. Maybe the narrowing down of options makes servicing easier."
But for some dealers, the trend has caused some concerns. "There are certain customers who like certain engines, and if you can't provide the one they want, it makes it difficult to hang on to business," Howard said.
"In addition, your salespeople really have to bone up on the features and benefits of the components we offer, so when they come up against a customer who wants a product we don't offer, they can sell him on our product."
Linn believes he has been fortunate in that his salespeople have been able to retain customers despite losing one of the dealership's main engine lines. But the Alabama dealer has concerns as these alliances and partnerships continue. "I hope our manufacturer continues to pick the right partner; to take the right girl to the dance, so to speak."
On the other hand, James has seen it as plus for his salespeople. "Our salespeople are probably more involved in choices and talking to customers about features and benefits.
"The potential for the dealership is pretty positive.With a completely integrated product, every time you sell a truck, every bit of the parts and service business on that truck comes back to the dealership," he said.
New York dealer Conway concurs. "From a customer support point of view, we're much better off when we're dealing only with one or two different engines. It's easier to train our people; it's less costly. From a diagnostic point of view, it is easier to have the proper equipment. From a parts point of view, we feel like we can have a better selection of parts for our customers."
He added, "In the past when we were dealing with four different manufacturers it was really tough to take care of everybody's needs."
CUSTOMER EXPECTATIONS
Given the changes taking place in trucks – government mandates, changing relationships between truck OEMs and component suppliers, and changing technology – the relationship between dealers and their customers has changed.
Boland does not believe that customers expect more from dealers, but they do expect it faster. "The expectations have not changed, but they want what they want now. Therefore we have to work on making sure we draw the information out of the customer and get the whole story, so that it gets to the right person in our organization and so that the customer gets taken care of as quickly as possible."
Neitzke concurred. "I think we've had to get better, be more aware and respond quicker."
According to FMI Truck's Emerson, medium-duty truck purchasers in particular rely on dealers quite a bit. "They are relying on us to have the knowledge to get them into the right truck and make sure that truck keeps working for them."
He added, "More medium-duty dealers are starting to realize that what you really have to sell to a customer is a complete package.That is what they want."
Finalist Storwick said his dealership is seeing a new kind of customer. "The buyers today are smarter.They're more informed and come into the dealership with far fewer questions.They've done their homework.
"What that means for us is that we really have to have an experienced person building the truck so that it fits the application."
Fracalossi, of Tri-County International, added, "The small fleets that we service are really sophisticated.The local guy who hauls propane has all the safety equipment on board, computers and all the things he needs to protect himself from lawsuits.
"He can be technically more advanced than we are in some cases, and if we don't come up to that level to be able to answer his questions, we will have problems. Our customers expect us to be at the same technical level that they are at."
McMahon believes that since today's trucks are all of high quality, customer expectations have broadened. "Customers are demanding more of us in terms of the value added.What do we bring to the party? Do we bring education? Do we bring risk management? Do we bring something to the party that reduces their cost of operation or enhances their proficiency?"
Other industry issues, such as the technician shortage, have impacted customer expectations, according to Linn. "Customers are looking for us to provide service and to have the right parts at the right time to keep them on the road.
"It's more difficult for these customers to hire trained technicians, so they look to us to have the people who are able to get their trucks back on the road."
Hunter agreed."We're getting a lot of service work that people are just plain afraid to touch anymore, particularly with the electronics and the engines themselves."
He added, "They depend a lot more on the salespeople. A customer will come in and say he wants a truck, but if we ask him if he wants a Cummins or a Cat engine, he will ask us which one we think is better.
"Sometimes the more sophisticated guys want to sit down with somebody who can answer their questions about everything about the engine as far as fuel consumption rates and everything else."
Hunter continued, "As far as the customer expectations, some of them have changed and some of them haven't. It used to be the customer came in with a strong idea of exactly what he wanted. If you had a salesperson who tried to sell him on what he felt was best, he probably would lose the deal.
"Today the guy typically comes in saying, 'On my last truck I really liked this. It had a Cat, but I've been hearing that the Cummins is doing a lot better now.Tell me what you think about that.'
"They are using the salespeople a lot more to bounce things off of than they used to."
A LOOK AT INDUSTRY ISSUES
Customers' increasing reliance on dealership personnel is a concern for dealers, because the industry is not drawing young people into it.
"I think the biggest challenge we face is finding good qualified management for the dealership," said Rutherford of his Michigan business.
"Our biggest shortcoming is going to be people.You can have all of the product in the world, but unless you have the right people in the right positions, you will not be successful."
Howard agreed. "The toughest thing we are facing is finding and hiring new personnel.There is no pipeline of young up-and-coming technicians who you can hire for the shop, or people who want to go to work in parts departments.
"What we end up doing is having to take young people with no experience and train them ourselves from scratch."
But the people challenge doesn't stop with technicians and managers. Emerson believes the industry is going through changes. "We've got a lot of privately held companies that are going through a transformation to a second or third generation. Some dealers are having to decide whether they should sell, retire or turn the business over to their children."
Pennsylvania dealer James added his thoughts on the people shortage. "Virtually every dealer I talk with talks about the difficulty in finding technicians. But I think another challenge is the rate of change in this industry.
"When I started in this industry, a new engine platform had a 10- to 12-year life. Now it might be half that. Basically people are just getting up to speed and trained on the last round of emissions-compliant engines and we're one year away from another new technology."
He added, "The rate of technological change is a lot to cope with.You also see it on an industry basis with the consolidations and buyouts. These all change relationships to some degree and change the way things work. All of that can be a challenge."
Arscott, too, sees technology as an industry issue. "As technology continues to drive our product, you have to be concerned about your ability to stay ahead of it and have a trained staff that is able to service your customers.
"There is a lot of technology – new exciting technology – coming down the pike. It is a great opportunity, but our customers are not going to be excited if their truck is going to be in line for 10 days for service before it gets looked at."
Despite all the challenges dealers face in trying to meet customer expectations, stay ahead of technology and regulation, most of them said they would not want to be doing anything else.
"It takes a lot of work, energy and thought to run one of these places day after day," Boland said. "Not a day goes by where you don't learn two or three things. It is a fascinating, action-packed business, and that probably is why I like it."
Conway added, "If you look at the people in this industry, they rarely leave.And people do not retire at 65 years old. It's a fun industry and people hang around as long as they can."
He added, "There always are opportunities to expand this business. As long as I have been in this business, there's never been a lack of opportunities, and that's what makes it fun.That is probably the most enjoyable part of the business, looking at how you can expand it."
And that attitude can mean good things for fleets – knowing that dealers will continue to improve their businesses to offer better service to their customers.
Truck Dealer of the Year Continued...
|
