August 2014

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Consequences of Poor Parts and Service Market Share It doesn't seem to matter to anyone, but shouldn't it? In the 2013 Product Support Opportunities survey, customers told us that they give 6.45 percent of their routine maintenance work to the authorized OEM dealer. Let's just review for a moment the fact that over the lifetime of a machine the repair hours and the maintenance hours performed on the machine are roughly equal. (That is with a 250-hour main- tenance cycle machine, typical of the current machine population) So the dealer obtains 6.45 percent of the routine maintenance, which is 50 percent of the total labor opportunity. That means we obtain 3.23 percent market share from maintenance. If we obtain 100 percent of the repair work we will have a total of 53.23 percent market share of all labor. Do you have 100 percent of the repair work in your territory? Of course not. The same survey told us that factory-authorized dealers obtain 33 percent of the repair labor. That is 16.5 percent of the total labor market share. The combined maintenance and repair market share for dealers, then, is 19.73 percent. Round that number up to 20 percent and as dealers we obtain one hour of labor for every five performed on machines in our territories. Today, we have GPS on most equip- ment sold as well as "Electronic Control Units," which allow us to track the condition of equipment working in the field. Shouldn't that allow us to obtain most of the maintenance work? Not just 6 percent? We have no lesser a source than Caterpillar talking about the dealers needing to pay more attention to the customers, to their machines. Listen to this from reuters.com: "The average dealer, or lower-performing dealer, he only knows 40 percent of his opportunity," Levenick says. [Stu Levenick – group president, Dealer Relations). "And we demonstrated that if we just take the best practices of the first group and apply it to the other group, they automatically get a 6 to 8 percent aftermarket share improvement ... just by doing some- thing obvious. But they haven't done it because we haven't directed them to do it or helped them to do it." Again, I am struck with the fact that there doesn't appear to be any consequence for this low market share. To use a hockey analogy (hey, I'm Canadian), where is the "penalty box?!" We know by now what we need to do to make the changes. Mr. Levenick provides us with some of the evidence. The customers tell us that 51.16 percent would let us do the routine maintenance if our price were the same as theirs. They also tell us that 82.5 percent would give us the routine maintenance if our prices were less than theirs. I think that is a rather strong indication of what they want us to do. Why don't we do it? There are many reasons – this is a short list I have obtained from attendees to our Service Management Training class – or are they excuses? We must have a journeyman tech- nician do maintenance We have to be able to do repairs when we are at the machine, not just maintenance We have to do the work "off hours" The cost of the maintenance vehicles Shortage of manpower "We repair things, we don't maintain things" One of the other obstacles I see is our "peanut butter" labor rates. We take various technician skills, from laborers to highly skilled, extremely well educated, and we put a peanut in a blender for each of their skill levels – from rebuilding components to replacing filters. Then we take highly variable work elements and put a peanut into a blender for each of them too – such as rebuilding a water pump, changing lamps, changing undercarriage or tips and teeth, trans- mission rebuilding, and fusion welding. Then the jobs that require special- ized tooling. We put all of these tasks, all these peanuts, into a blender and grind them up until we have a single labor rate, which underprices highly complex work that only the dealer can perform and overprices simple work, which encourages the customer to hire independent mechanics. What do we need to do to address the issues? I think it is quite clear, and I think that Caterpillar thinks it is quite clear. So I repeat my question: What is the consequence of poor market share? I believe we are getting closer to seeing the answer. The time is now. RON SLEE (ron@rjslee.com) is the founder of R.J. Slee & Associates, Rancho Mirage, Calif., celebrating more than 30 years in business in the United States, a consulting firm that specializes in dealership operations. Ron also operates Quest Learning Centers, a company that provides training services specializing in product support, and Insight (M&R) Institute, a company that operates and facilitates "Dealer Twenty" Groups. Fol- low Ron on Twitter: @RonSlee; and read his blog at learningwithoutscars.com. BY RON SLEE Aftermarket August 2014 | Construction Equipment Distribution | www.cedmag.com | 57

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