Chris Aiello How is Business?
As we wind down 2022, in writing this month’s column, I felt compelled to reflect on something that stuck with me from a keynote speaker from an event I recently attended. The speaker had everyone in attendance stand up and instructed all of us to respond to his question with one word. The question he asked was, “How is Business?” Then with great exuberance, the entire audience responded with, “UNBELIEVABLE!” That certainly set the tone for his presentation and audience engagement, but also the past year or two really has been unbelievable for almost all of the dealers that I have spoken to.
As we approach the New Year and your KPI goals are achieved, projects completed, and end-of-year meetings and celebrations bring excitement for the year to come, however, the wrap to this unbelievable year may also bring uncertainty for what is to come. Discussions around whether there will be a recession in the coming year or whether we’re already in a recession definitely put a damper on things. Nonetheless, I hope you all are able to celebrate all the unbelievable things that happened for you and your businesses in 2022.
Some of your business plans for 2023 might include consolidation or merger and acquisition activity. Another MHEDA Trend for 2023 touches on this topic states, ‘Business valuation and succession planning will take on more importance as owners consider retirement and consolidation continues.’ This trend sets as a perfect segue of what I want to get into in this month’s column. The fine line between the manufacturer and dealer relationship, especially as our industry continues to see more and more mergers and acquisitions in forklift dealerships.
The OEM and dealer relationship is a mutually beneficial relationship. The OEM relies on the dealer/distributor to populate the market with the sale of their products. The dealer also provides local customers with parts, service, and both technical and after-sale support for these products. The end-user customer’s lift truck needs are continually evolving. OEMs work alongside their dealer networks to assist the dealer as needed, some examples include but are not limited to assisting with financing, process warranty-related inquiries, addressing any safety concerns, etc. Any OEM that I speak to will tell you that their dealer/distributor network is the key to their success.
Nonetheless, as we transition to 2023, I believe the lift truck industry is currently segmented into these categories: Factory Stores, Independent Distributors, Mega Dealers, and Third-Party Service Providers. Let us examine each:
Factory Stores
The rising trend of more OEM factory stores in the industry can be a direct result of independent distributors faced with the problem of succession planning. The owners or dealer principals do not have a succession plan in place; meanwhile, the factory cannot find a suitable buyer to buy said dealership, so the dealer ends up buying it and converting it into a factory store.
As mentioned earlier, the OEM factory relies on the dealer to populate the market with the sale of their products. If the dealer does not have a succession plan in place, the OEM does not want to lose their share of that particular market the dealer is operating in, therefore the OEM purchases the dealership and converts it to a factory store. In addition, the appeal to the OEM to purchase the dealership is the parts and service revenue that a dealership generates. This revenue protects the factory and flattens out the peaks and valleys of a crazy marketplace. Parts and Service revenue help a dealership weather the storm during an economic downturn.
Independent Distributors
My column’s predecessor Dave Baiocchi once said as it relates to the independent distributor: “Independent dealers are a necessary component of the material handling industry.”
As more and more OEM factory stores continue to enter the market, one of the main differences to note when comparing a factory store to an independent dealer is the entrepreneurial spirit. As a dealer principal once told me, it’s ‘their house on the line’ when it comes to business and that mindset is hard to replicate at a factory store. That entrepreneurial spirit is a scarce commodity these days and can provide the independent distributor more advantages than before and is more valuable to their OEM.
The independent distributor is also able to be more agile. They are able to make changes and decisions quickly, which could be a competitive advantage in the marketplace. For example, being able to respond quickly to changing market conditions or competitors.
Mega Dealers
Recent market conditions have made it more conducive for the independent distributor to sell their dealership, especially when approached with an offer they can’t refuse and they don’t have anyone else in succession to sell to. Enter the Mega Dealer. These mostly family-owned, sometimes 2nd or 3rd generation dealerships continue to grow their geographic footprint through mergers and acquisitions. What was once a trend of these acquisitions within their local or adjacent markets, we are starting to see more and more of these Mega Dealers’ footprints span from coast-to-coast.
The benefit of the Mega Dealer is economies of scale: reduction in costs from consolidation, elimination of redundancies, increased buying power, etc. Their competitive advantage in the marketplace is their ability to expand their reach to businesses across the country. In addition, many of these Mega Dealers within the industry today offer many products and services in addition to the primary lift truck OEM brand they represent. Some of these offerings include warehousing and distribution solutions, large rental fleets of aerial equipment, or representing OEMs of the adjacent category of heavy construction equipment or compact dirt construction equipment. These diversified offerings can also be that of an independent distributor; however, it is more prevalent within the offering of a Mega Dealer.
The Mega Dealer model can certainly come at a cost as well in regards to our topic of the fine line between the dealer and manufacturer relationship. A Mega Dealer representing multiple OEM lines can create animosity among the manufacturers of the products they sell.
Third-Party Service Providers
This segment of the material handling industry continues to evolve. As these third-party service providers look to provide complete fleet maintenance solutions. They will continue to present a competitive challenge in the material handling industry, especially if legislation is ever passed in regard to lift trucks that would mirror The Motor Vehicle Owner’s Right to Repair Act. Although there is not a dealer-to-manufacturer relationship in this third-party service provider segment of the industry, it is certainly one for dealers to be aware of for the potential resurgence of the independent service provider.
Nonetheless, whether a dealer is a Factory Store, Independent Distributor, or Mega Dealer, a common theme they all share is that the most valuable persons at their dealership today are the service technicians. Our industry needs more technicians for all types of equipment that these distributors represent. As I stated earlier, the OEM gets their products into the market through the dealer/distributor and the dealer provides local customers with after-sale support for these products. Technicians are vital to servicing and maintaining the installed base of the OEM brand the dealer represents in their local market. Independent Distributors, Factory Stores, and Mega Dealer’s success depends on this.
The fine line between the manufacturer and dealer relationship is that this relationship should never be viewed as the dealer being the ‘customer’ of the manufacturer. The key to a successful relationship is one that is a ‘partnership’ rather than a ‘buyer/seller’ relationship. When both parties are working together toward the same goal: the distributor gets the order that the manufacturer produces.
The end-user customer may never meet the original manufacturer so it is vital that the dealer and manufacturer collaborate to bring value and an exceptional customer experience to the end customer.
About the Author:
Chris Aiello is the Business Development Manager at TVH Parts Co. He has been in the equipment business for 15-plus years as a service manager, quality assurance manager, and business development manager. Chris now manages a national outside sales team selling replacement parts and accessories in various equipment markets such as material handling, equipment rental, and construction/earthmoving dealerships.
