Raise or fold?
Can you believe it….another year goes by. Hope it went well for you and your company. Also hope you learned some things about running or working in a material handling company in this economic environment. I guess if you ended the year with more money in the bank account than what you started with you seem to be on the right track.
Let’s see…..2016 …..election year. Usually not much goes on in an election year except for my BS meter blowing its top. When I ask my industry contacts what to expect for 2016, I have been getting a few seconds of silence before they answer. It’s like they are having a hard time figuring out what to say. All I know is I am not getting an immediate spontaneous “It’s going to be a super year” respond. What are you hearing….I would like to know?
In my activities where I work with various dealer groups I always take some time to look up the industrial segment of the economy to see how the trends are moving. What I currently see (mid November data) is:
Year-over-year sales slowing
Increasing inventories
Export growth and import prices falling
Private sector hires slowing
Earnings and per share going negative.
Material Handling market experts are expecting a 1-2% increase in lift truck activity, without knowing who exactly will be the lucky ones to get that 1-2% increase. And we all know some may get 3-4% while others lose 1-2% where the overall average comes out to 1-2%. In short, my conservative 2016 budgets and projections would reflect equipment sales similar to 2015’s, assuming there is no normalizing entry to make for 2015 sales. Any other sales increases will have to be taken from competitors.
Bank analysts see the industrial section as soft in 2016 for many of the reasons noted above. The only real growth area seems to be construction. While the industrial section may be soft the aerospace and auto segments should be fairly strong. Does this give you any reason to assume lift truck sales will be strong in 2016?
When I dig deeper into 2016 people feel that dealers as well as customers are:
Taking a wait and see attitude
Focusing on short-term decision making
Avoiding taking on addition commitments
Not sure I blame them at this point. I guess 2016 should be approached by keeping your cards close to your vest, and deal with the growth opportunities when they surface.
The advantage material handling dealers do have going for them is their ability to work their aftermarket services as well as other value added services that help customers reduce cost. They do, however, need to provide these services on a competitive basis, meaning keeping up with technology, training their techs and using mobile technology to deliver better, faster, more profitable (for both parties) services using technology that allows you to take market share.
There are also some rental issues to consider.
Rental, in general, has been a growth industry the last 10 years and continues to grow because more OEM’s and dealers are getting into the rental business, both rent-to-sell and rent-to-rent transactions. While long-term and short-term rental has been a mainstay for material handling dealers I believe changes are on the horizon.
As customers get more educated about rental they seem to be analyzing the cost of rental on their business and are looking for and finding ways to better manage their rental dollars. It appears customers are more resistant to signing on for long-term commitments in exchange for more short-term control. If I were a customer reviewing the same industry data I see I would refrain from signing up for 60-month contracts and would suggest maybe a core group of 60-month rentals and a more flexible program for the remaining units where I could cut off the program for when my demand is weak and bring them back on as needed. Makes sense to me.
In the overall rental world…..
Rental companies are keeping units in the fleet longer to increase the ROI on the original equipment cost. (Possible with your equipment? I think so.)
Rental companies are buying refurbished units and also providing refurbishment services to upgrade both customer equipment and their own rental fleets. (Something you can do to increase margins on used equipment sales? I think so.)
There are now services out there to help equipment owners rent their equipment when it is not required by their business needs. (I had reservations about this one but they seem to have a system customers could find acceptable.)
The bottom line here is, if both our sales activities and rental activities are threatened, it could become a financial problem unless your product support activities are top notch….and I mean top notch.
So it looks like we are all in a wait-and-see position regarding 2016. See what the government is going to do, what the economy is going to do, what the international results will be, how the tax rules will change, what customers are going to expect from us in terms of analytics and data to manage their material handling costs.
This is probably a good year to sit down with your top 50 customers to get their take on 2016 so that you have more ammo to work with in terms of your plans for 2016.
I would like to hear what you are thinking. Send me your thoughts.
Whatever you decide to do, make sure you will have more bucks in the bank than you do today on January 1, 2017.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail [email protected] to contact Garry.
