Garry Bartecki What happens in the auto industry…..
OEM’s and Lift Truck dealers have always been paying close attention to what is happening in the auto industry, thinking that these large major industrial players that also sell via dealer networks are a step ahead of the equipment industry, and that most of the current as well as any expected financial and economic changes incurred by the car industry will eventually wind up on the equipment dealer’s doorstep. And you know what, that is probably truer than you think.
For example, let’s consider the latest auto industry adventure called the latest UAW contract renewal terms. They are asking for some substantial pay increases as well as benefit adjustments. The Ford contract asked for 25% increases over the term of the contract which will put the top rate up to $40 an hour, with a 68% increase for starting wages to over $28 an hour. That makes the top wage salary alone $83000, plus health and retirement benefits. All in, you are probably pushing $140,000 to $150,000 a year. This will not take place upon the agreement by the workers to accept the plan, but over the term of the new contract.
So how will this new contract impact the auto industry?
- The PRICE of cars will increase, as if they haven’t already.
- The cost of REPAIRS will increase, as if they didn’t already.
- PARTS costs will increase for parts generated by the OEM.
- And my best guess is they will sell fewer cars annually compared to the past.
- OEM’s will reduce the number of employees by automating the build process along the lines of Tesla.
- Their stock prices will feel the negative impact of all the above.
So, if what happens in the auto industry eventually winds up in your office, what can you expect and what can you do about it.
I will bet you a cigar (Dean will provide them for you) that every manager reading this column will hear about the UAW deal from employees expecting to receive a comp adjustment starting January 1, 2024. Most of you have probably received these requests already. And since your techs, parts and rental folks drive your absorption factor, you probably will have to do something to keep them on board since we all know there is demand for experienced techs and parts personnel.
So where does this leave you, the material handling dealer? Let’s compare the list above to your operation.
- If you increase your any fixed or variable costs (like payroll and benefits) you will have to sell more or INCREASE PRICING, thus increasing margin dollars to cover the new cost levels.
- The cost of your REPAIRS will have to be increased to maintain service margins, including work performed on maintenance contracts.
- Any PARTS department cost increases will also have to be covered via pricing upgrades.
- Seeing how all these factors impact new unit sales, I suspect customers will shop for the units and in the end your new unit sales will be lower than expected.
- Used sales and pure rental transactions should increase.
- Probably the biggest issue a dealer will have to investigate is how his/her competitors are doing regarding the same issues. If they hold to their current pricing, you have a problem.
- You will have to predict your competitor’s next move.
- You will need to find ways to improve productivity which will improve profit margins on a high percentage of your sales.
- To add to your problems, you will need to assist manufacturers and warehouse customers to improve productivity (this may come with a substantial cost component).
Your CFO will need to play around with these various budget and cash flow implications. You could wind up with two or three versions to track, depending on how the sales numbers work out. Monthly and quarterly budgets are required along with the related cash flow analysis. We are talking about quite a bit of work here which may need to be outsourced.
When you ponder your options long enough you come to realize that no matter what happens you need to take steps to improve productivity. Improve productivity and all the other problems become manageable because you have the flexibility to adjust as necessary without putting yourself in a bind financially.
I also wanted to comment on last month’s column. In the Material Handling Wholesaler reader survey conducted in July you asked for more current info regarding ESOP’s. Consequently, I asked Nathan Perkins to provide some comments on the current state of the ESOP market and he produced a small book doing it. In any event it is a readable overview of the current ESOP market. If enough of you have questions, we can have a ZOOM meeting to discuss any questions you may have. So let us know if such a meeting would be beneficial and we will put it together. And, as mentioned before, there would be no disclosure of who is asking the questions.
Next month, we will provide our annual tax report, current taxes as well as potential changes to the code. If you have any tax questions you would like addressed, please contact me and we will follow up and report next month.
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.
