Issue link: http://read.dmtmag.com/i/330408
On the Numbers June 2014 | Construction Equipment Distribution | ZZZFHGPDJFRP| 53 Another wild weekend it was – which for me means carefully reading AED's latest and greatest Product Support Opportunities Handbook. I probably spent half a day reviewing it! It takes that long to really study the material, play around with it and come to an understanding of how much potential product support market share is out there for the taking. I just have to say, this report provides the yellow brick road to increased profitability and absorption rates if you make up your mind to develop the program outlined. Have you reviewed your absorption rate lately? There are some strange goings-on concerning product support profits because of reduced maintenance and repairs required on late model units. If you stop and think about it, if you have a standard number of customers for whom you provide maintenance and repairs, and they have been around a long time and purchased new equipment over the years, there is a good chance that the tech hours and parts purchases are declining because of improve- ments made on the machines. In other words, if you count on these standard accounts to supply the contribution to absorption you need to remain profitable and competitive, you can expect to have the product support margin dollars decrease in the future, (A) because maintenance requirements have been stretched out and (B) because the use of telematics reduces repairs related to machine failure. Whereas you may have had 20-25 annual hours of labor on a seven-year-old unit in the past, a newer model may now only require 10 hours, which means you have to find another 10 hours to sell to an existing or a new customer. What this all means is, if you do not have an active marketing and sales program to obtain new product support work, your absorption rate will start decreasing, product support profits fall, net profits decrease and cash flow decreases. You have probably observed this phenomenon at the car dealer you do business with. Oil changes are now only required every 10,000 miles, which may require only one or two trips a year compared to three or four when they used to use regular oil. And there is no doubt that cars last longer and require fewer repairs. Today, owning for 100,000 miles is nothing, and you probably only have to change tires, throw in a battery and have the brakes done a couple of times; a big difference in terms of service business for the dealer. So what have auto dealers done to get you in the door more often to hopefully find some work to be done on your vehicle? They have lowered the price on the oil change to a similar amount offered up by their lowest- priced competitors. And now custom- ers routinely bring their vehicle into the dealer because the price is right. The decision-making is even made easier because the auto dealer sends you an e-mail when service is required. I have said our industry lags what is happening in the auto industry, and I believe that newer machines offer up less product support profits for construction equipment dealers. As a result, dealers need to add more product support customers to their active customer list if you hope to maintain the absorption rate you have maintained up to this point! In other words, do the mainte- nance and get the repair work! The new Product Support Oppor- tunities Handbook takes you through a contractor survey that basically says they are willing to give you the maintenance work if you price it like the car dealers do. Wow! You mean all I have to do is ask for the work and I will get it if I can match what the independents charge or what it will cost a contractor to have an internal tech do the job? According to the survey, the answer is "Yes!" And if you are doing the mainte- nance, who is most likely going to know what repair jobs are on the horizon? You are. So, let's see – do the mainte- nance, get the repair jobs, and what do you know, product support profits improve, and so do absorption rates. It will take some time and dollars to set up a product support program, but in this day and age where maintenance, repair hours and parts have decreased on newer models, and where new business has to be taken from another dealer or service provider, having a formal product support effort is no longer an option but a necessity. Any questions? Call me at 708-347 9109 – I have about 20 pages of notes. And be sure to get this PDF report and circulate it to your team: www.aednet.org/psoh The Disappearing Absorption Rate Improved machines and telematics are hurting dealer absorption rates. The Product Support Opportunities Handbook can help you reverse the trend. BY GARRY BARTECKI GARRY BARTECKI (gbartecki@ aednet.org) is founder of Dealer-Rental Success LLC, is a financial consultant to the equipment industry. He can be reached at 708-347-9109.