Garry Bartecki As the rental, financial and technology markets change, is your dealership?
Much is going on that impacts OEMs, Equipment Dealers, Financing Sources, and Customers. Inflation, supply chain disruptions, and geopolitical tension lead to cautious customer behavior, thus creating new levels of management manipulation to keep the ships upright.
In addition to these significant disruptive sources, you add the risk associated with technology decisions, not only for your company but also for a high percentage of your customer base familiar with emerging technologies.
Here are just a few concerns dealers have on their minds:
- Revenue per employee
- Tariffs
- Tax opportunities
- Overtime Regs
- On-shoring
- Near-shoring
- AI and IT for manufacturers
- AI and IT for warehouse and distribution centers
- Having products and services to fit the needs of manufacturers and distributors
- Finding other programs and methods to increase sales.
- Providing consulting services to customers.
- Emerging Technology
- Electrification
- Hydrogen cells
- Inventory changes and management.
- Supply chain disruption
- Collateral value of equipment
- Planning for rental income to represent a higher % of sales.
- Resale value uncertainty
- Bank and Financial source education
- Programs to find and keep personnel
- Cybersecurity threats
- Supply chain management
- Need for more dealer consolidation
- Quarterly cash flow requirements
- Cap-X for AI, IT, and customer consulting
And I am sure you are also trying to hire to fill talent needs throughout your organization.
And how about those equipment prices? Used values are falling, leaving you with the problem of having high-priced pandemic units now dropping in price and a collateral problem with the banks.
And let us not forget the new elephant in the room….AI. Making an AI decision can be high risk if you do not know what you are doing, so MHW is premiering a new column next month to help with the process.
And as far as your sales silo is concerned, you will be adding new accounts to track new types of equipment, including automated guided vehicles, and different types of fuel sources being offered, such as electric trucks using lithium-ion batteries as well as hydrogen fuel cells. We can all agree that customers will look to YOU to provide insight into what type of unit best fits their needs. I have heard hydrogen is growing its market share because it is cheaper and avoids the “green costs” associated with mining and disposing of lithium.
All these issues have produced some interesting discussions with bankers.
CEO and shareholder anxiety must be the name of the game regarding the balance of 2024. As I have said in the past, if you are not ready or able to roll with the punches and make the investments necessary to stay in the game, it may be time to investigate transitioning out of the industry. Consolidation is taking place in all types of markets, with equipment dealers and rental companies appearing in every business publication I read.
One final option before pulling the plug is to find and hire a manager prepared to deal with the issues at hand.
On the FINANCING side of the business, banks and finance companies are having their own problems because many customers are experiencing cash flow challenges, resulting in payment delays to either the bank or dealer. Credit risks are also increasing because of economic uncertainty affecting dealers and customers. Having numerous financing sources available is a must for today’s markets.
Financing sources are asked to finance unfamiliar new types of equipment for both the dealer and customers. Lenders must contend with the value of what is currently on their balance sheet instead of financing new equipment types with which they have zero history of working. Consequently, dealers should prepare examples of the expected values of the equipment over at least a five-year period.
Dealers should prepare an annual equipment appraisal covering used equipment inventory and rental units. I also suggest you track the sales of your used equipment and compare the sales price to what appears in the valuation report. If you can show the bank that you are selling used equipment for more than what appears in the valuation report, the bank will rely more on the report when considering your credit requests.
Remember that many buyers are waiting for interest rates to be reduced before purchasing new or used equipment. If so, sales will be deferred, reducing the cash flow to finance the business.
I see that rental activity is increasing rather than purchasing units, eventually impacting dealer cash flow and borrowing capacity.
Dealers will have little say in how all this works out. Changes in emerging technology and advancements in warehouse automation and shop floors will dictate what lift truck dealers must provide. The trick will be eliminating the old, bringing in the new, and becoming more efficient using the latest technology and AI (if it works for you). Cash flow schedules incorporating these changes should be adjusted and updated quarterly to stay ahead of the game—notice I said cash flow schedules, not budgeting worksheets.
In the end, the revenue silos will produce less profits and cash flow, and dealers need to be prepared to deal with this situation. On the other hand, you may be selling more technical equipment and systems that make up for reductions in other sale categories. Change is coming faster than you think. Be prepared to produce a company ready to provide products and services and consulting to the ever-changing manufacturing and distribution world you will be living in.
About the Columnist:
Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail [email protected] to contact Garry.
