November 2013

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Margins True Grit: Behaviors of the Dealer Admit it or deny it, but CE dealers operate in a profitability plight compared to other parallel distribution industries – experts offer tips to break away from 'average.' BY JOANNE COSTIN The numbers tell a story that AED dealers may not want to hear. A comparison of AED Cost of Doing Business reports with similar reports compiled by other wholesale distribution associations,* reveals AED dealers are consistently, over the economic cycle, in the bottom quartile of financial performance. "Over time we have become an industry of low expectations with respect to financial returns," said Mike Marks, managing partner for Indian River Consulting Group, speaking to dealers attending AED's Executive Forum held in September. To shed light on the profit plight, Marks delved into association financial research, interviewed six extremely profitable construction equipment dealers and two investors, and moderated a panel of industry experts at AED's Executive Forum, held in September. Recognized for his expertise in distribution channel strategies and supply chain management, Marks offers considerable insight on a topic that many dealers are reluctant to discuss. Based on a poll of dealers conducted at the Forum, there doesn't seem to be a consensus on the reasons why AED dealers rank so low on profit. Nearly half said they didn't think there was only one reason. Another 27.4 percent felt 26 | www.cedmag.com | Construction Equipment Distribution | November 2013 the reason is that most dealerships were comfortable with running a lifestyle business. The Facts A direct comparison of AED and MHEDA dealer financials provides a starting point for analysis. There is nearly a 21-point spread between the absorption rate of MHEDA median performers and AED median performers, and a 20-point spread between high-profit performers. The median MHEDA dealer's profit from parts, service and rental paid for 91.5 percent of expenses, while the AED median dealer covered just 70.7 percent. Additionally, high-profit

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