September 2013
Drive profits out of the mud with a new product line. See our special Dealer’s Guide to ICUEE
www.cedmag.com
Blaze a New Trail
Plus:
n Credit is still about the relationship n Contractor wants technology help from dealers n Look over the pond, where mechanics are respected
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Contents
Winner 2012 Journalism Award Construction Writers Association
september 2013 Vol. 79, No. 9
Editorial Team
Executive Editor and Director of Programs Kim Phelan kphelan@aednet.org
Features
from the cover
Engage your leaders in AED’s hallmark experience.
Contributing Editor Joanne Costin pr@aednet.org
Editor’s Note 7
Six ways to stay relevant in the hyperconnected world
Graphic Production eva Belmonte design@aednet.org eva@neggie.net
On the Numbers 47
LKE in danger, grassroots work is urgently needed.
Columnists
Garry Bartecki AED Vice President of Finance Christian Klein AED Vice President of Government Affairs and Washington Counsel Eli Lustgarten ESL Consultants
Recruitment & Retention 49 Credit Aplenty 20 Experts say the only thing that’s tight in the CE credit market is the relationships they build with their dealer and contractor customers.
Jerry Randecker & Chris Sitter Jordan-Sitter Associates
Dive in with your customers at the “Demo Expo,” and be sure to visit our featured exhibitors and CED advertisers who are looking to do business with dealers.
View From the Hill 53
Finally, a fresh way to fund highways
Inside AED 8 Groundwork 12 Industry Beat 14 Play It Safe 18 Advertisers’ Index 55 Dealer Data 56
Vice President–Sales/ Publisher David W. Gordon 800-388-0650 ext. 334 dgordon@aednet.org
Plus:
Advertising Sales Manager Albert J. Ramirez 800-388-0650 ext. 311 aramirez@aednet.org
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Aftermarket 51
How to reverse the parts business tailspin
departments
Advertising Contacts
600 22nd Street, Suite 220 Oak Brook, IL 60523 630-574-0650 fax 630-574-0132 www.aednet.org
What it takes to get the rockstars
The Dealer’s Guide to ICUEE 24
Ron Slee R.J. Slee & Associates
Production Manager martin cabral 800-388-0650 ext. 313 mcabral@aednet.org
Columns
From the Chairman 5
Taking It To The Street – Al Bates’ latest Profit Report 38 If You Are Helping Me, I Will Buy From You 30
Solving Our Great Big Workforce Problem 34
As the ICUEE show approaches, After all this time, we’re still we caught up with this year’s wiping mud off the image of NUCA chairman for his indus“vocational education” – but try insights – and found out an exemplary model of what contractors like him are cultural respect for the tech is struggling with most. is plain view.
Little Did You Know: Supreme Court Has Been Minding Your Business 42 A Closer Look: Versatile Argo ETVs Go Where Others Can’t 44
September 2013 | Construction Equipment Distribution | www.cedmag.com | 3
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From the Chairman President & CEO - TOBY MACK Associated Equipment Distributors Oak Brook, Ill.
Send Your Next Gen Leader to the Dealer Executives’ ‘Boot Camp’
Executive Vice President & COO Robert Henderson Associated Equipment Distributors Oak Brook, Ill.
Officers
Chairman - mike quirk Wagner Equipment Co. Aurora, Colo.
This November, Leadership Academy leaps to a higher plane with Disney Institute.
Vice Chairman - Tim Watters Hoffman Equipment Co., Piscataway, N.J. Sr. Vice President - Don Shilling General Equipment & Supplies, Inc. Fargo, N.D. Vice President - Rick van exan Toromont Industries Inc. Concord, Ontario Vice President - whit perryman Vermeer of Texas Inc. Irving, Texas Vice President of Finance Michael D. Brennan Brandeis Machinery & Supply Co., Louisville, Ky. Past Chairman - Larry Glynn CMW Equipment St. Louis, Mo.
At-Large Directors ron barlet Bejac Corp. Placentia, Calif.
Paula Benard C.N. Wood Co., Inc. Woburn, Mass. Gregg R. Erb Erb Equipment Company, Inc. Fenton, Mo. Dennis J. heller Stephenson Equipment Inc. Harrisburg, Pa. Mike Rooney Thompson Tractor Co., Inc. Tarrant, Ala. Michael J. Savastio Groff Tractor & Equipment, Inc. Mechanicsburg, Pa.
Regional Directors Bruce A. Bowman Upper Midwest Reg. Star Equipment, Ltd Des Moines, Iowa
gary frelick Western Canada Reg. Douglas Lake Equipment Langley, BC Patrick McConnell, West Reg. Clyde/West, Inc. Portland, Ore. christopher palmer Northeast Reg. Wood’s CRW Corp. Williston, Vt. Mark Romer, Southeast Reg. James River Equipment, Inc. Ashland, Va. Jeffrey Scott Rocky Mountain Reg. Intermountain Bobcat Salt Lake City, Utah Rick Van Exan Eastern Canada Reg. Toromont Industries Ltd. Concord, ON gary D. Vaughn South Central Reg. OCT Equipment, Inc. Oklahoma City, Okla.
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By Mike Quirk
I have always enjoyed the changing seasons and what they represent in our personal and professional lives. This time of year there are constant reminders to me about getting back to the basics of the things that are really important to us. I’m thinking about the foundational ingredients that are integral to who we are and will become over the course of time, regardless of the rapidly changing culture that we live in. Autumn to me has also meant preparation for the future. Getting ready for what lies ahead for us, as well as those around us. It is a combination of factors that brings things into greater focus. Shorter days represent that the year is winding down. Most of the time it means that the distractions of summer retreat, and a greater sense of responsibility and urgency seem to set in. There are many around us who depend on us, and many more on whom we depend. I am reminded of my goals and objectives. Whether the goal is short term or longer term, I find this time of year especially suited as a time to assess progress. One of my objectives as your AED Chairman for 2013 is to seize every opportunity to engage the next generation of industry leaders to identify and experience the unique benefits of AED. I look back on my 38 years in this business and on the positive impact provided to me through my engagement with this fine association. I was fortunate to have worked for people who recognized the advantages of AED as a capable industry resource without a bias toward any specific brand. I was encouraged to step (or maybe I was pushed) out of my comfort zone and get some exposure to a broader experience base and perspective. Through my involvement in AED I got that and a whole lot more. I spoke to my peers for their input as well. There were abundant examples where AED provides unique differentiation and a few that stand out as real show stoppers. What
we all agree on is that AED must keep an eye on the needs of our businesses today. It is a new generation with new opportunities and challenges. It is imperative that our programs focus on today and the future. One of them is just around the corner: The 2013 Leadership Academy in November. It promises to be an exciting, brand new program featuring the world-renowned Disney Institute. You might ask the question, “What do Walt and Mickey know about the equipment distribution business?” The answer is: “Quite a lot.” They are a world-class professional training institute that understands the world of business and takes the time to familiarize themselves with our industry. They’ve tailored the program to our business in today’s competitive environment. It is going to be an unprecedented AED program for the next generation of dealer principals and potential executive management team leaders. Current owners and leaders from our dealerships, manufacturers, and service firms with executive responsibility will benefit equally as well in this uplifting and very interactive environment. The Leadership Academy embraces its heritage as one of the hallmarks of the AED experience. Working side by side with other current and future leaders from our industry is what AED is all about. Where else can our best and brightest work elbow to elbow with their peers, getting the “Boot Camp” experience of how to run an equipment dealership. In a world where texting and social media have all but taken over, this remains a program that promises the stuff that builds and promotes the potential for lasting and valuable relationships. What a great concept!
Mike Quirk (mquirk@wagnerequipment.com) is vice president of Operations at Wagner Equipment Co., Aurora, Colo.
September 2013 | Construction Equipment Distribution | www.cedmag.com | 5
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Editor’s Note
More Than Ever Before, It’s All About MEI Only the motivated, entrepreneurial and inspired thinkers will be truly relevant going forward – do you have MEI leaders? By kIM pHELAN
I’ve had an iPhone 4 for about 18 months and only about a week ago did I finally upload two generations of available updates – and I use the term “I” loosely for, in fact, it was my colleague Jenny who more or less took matters in hand. I don’t consider myself the technology moron of the universe, but nor do I deceive myself that I rank among the “advanced.” (Truth be told, I gaped like Christmas morning while my kid gave me the 60-second, thumb-zooming tutorial on my phone’s new functionality.) Geeze, I can’t believe how much things are changing – and how fast. Thankfully, I’m not the only one who says so. Thomas Friedman, best-selling author and columnist at the New York Times, was keynoting at the American Public Works Association Congress Aug. 25 in Chicago, my own backyard, so I went to check it out. Turns out, the volume and velocity of change in our world has caught his notice, too. Friedman, who wrote “The World is Flat,” in 2004, as well as “That Used To Be Us: How America Fell Behind in the World It Invented and How We Can Come Back,” says that something big happened, something of Guttenberg (think printing press) proportion, that has completely and forever altered the world. That “something” was the merger of globalization and IT. When he wrote “Flat,” he observed the powerful convergence of three big technologies – the PC, the Internet, and workflow software – the combination of which, for the first, time enabled individuals to author their own content digitally, share it for free anywhere, and collaborate with anyone, with one click. When he sat down to write another
book in 2011, he discovered that in a entrepreneurial in thought and deed mere seven years’ time, the world was than, indeed, any of our forebearers. not the same place it had been in ‘04. I can’t honestly say that I would Think about it: In 2004, believe it or characterize most 18- to 28-year-olds in not, we didn’t have Facebook, Twitter, these terms. Surely there is a disconnect LinkedIn, Skype, “cloud computing,” or between the people we are (and are anything close to the power we hold producing) and the people for whom in our palms today – the smartphone, the hyperconnected world is screaming. or its hip younger sibling, the tablet. Therefore, I find Friedman’s five tips Friedman’s New York Times predefor survival quite timely and true. cessors of the ‘60s, ‘70s and ‘80s used 1.) Think like an immigrant. They to come to the office each morning are “Paranoid Opportunists,” taking wondering what their seven media action to find a better place but taking competitors would choose to write nothing for granted. Stay hungry. about that day. He does the same 2.) Think like an artisan. They thing today, he said; only he comes to made each item one at a time and the office each morning wondering then carved their initials on their work. what his seven billion competitors will Take pride in what you do. be writing about. 3.) Always be in beta mode. Be Essentially, we have gone from bea work in progress, keep reinventing ing a connected (or flat) world, he says, yourself, keep learning and stretching. to becoming a hyperconnected world. Never think of yourself as “finished,” or And no generation has ever known you will be. anything like it. 4.) Remember that PQ + CQ > IQ. Now, my kid and yours can run Your passion quotient and your curiobroadband circles around anyone sity quotient trump the intelligence born prior to, say, 1988, but while all quotient – always. this technology change (and depen 5.) Think like an entrepreneur, dence) has been going on, there have and always give a little extra. also been changes occurring in the 6.) I shall add a final tip of my own: marketplace that are redefining who Do not pass up the very special and what will be relevant both now opportunity AED is offering your and in the future. company’s next gen leader to Let me just say that again: Technology experience the business wisdom and this hyperconnected world are of Disney Institute – it will be deeply changing who will be relevant. Relevant worthwhile to attend the Leadership meaning employable. Relevant meanAcademy this November. (aed-leadering successful, productive and happy ship.com). in their work. Relevant meaning set Thanks for checking it out, and apart; leading instead of following. thanks for reading. To be relevant, says Friedman, we Kim Phelan (kphelan@aednet.org) all – and especially the young – must is the executive editor of Construction be better critical-thinkers, better comEquipment Distribution and director of municators, more motivated, more programs for AED. inspired, more creative, and more September 2013 | Construction Equipment Distribution | www.cedmag.com | 7
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Inside AED
Getting All the Right Gears Turning Together in Washington, D.C. AED’s participation in coalitions maximizes our resources and joins our voice with a much stronger chorus on important issues. In Washington, making friends is critical. Coalitions Coalition, and the LIFO Coalition. Just last month, AED serve a useful purpose, uniting friends around a common announced participation in a new coalition called the Coaligoal to amplify those voices on Capitol Hill. tion for Fair Effective Tax Rates, where it will serve on the “My job as a lobbyist is to get as many little gears as steering committee. possible turning in the same direction,” said AED’s Vice On a number of policies that affect dealers directly, AED President of Government Affairs Christian has been leading the charge. “On issues such as Keystone, the Klein. Coalitions get the gears turning. highway bill and LIFO, we play a disproportionate role,” said AED participates in more than nine coaliKlein. While dealers are concerned about health care reform, tions that are focused on issues ranging Klein says there are hundreds, if not thousands of groups from transportation to water infrastrucinvolved in that debate, so AED plays more of a supporting role. ture to LIFO. As an example of its dealer-centric focus, AED was a Coalitions allow organizations to use founding member of the 124-member LIFO coalition, which their resources wisely. AED’s two lobbyists, Christian Klein was set up in 2006 and is managed by the National AssociaKlein and AED Senior Director of Governtion of Wholesaler-Distributors. In addition to helping guide ment Affairs Daniel Fisher, can’t be everywhere on Capitol coalition activities and sharing the lobbying burden, AED also Hill at once. So, rather than trying to cover all the legislators developed and manages the coalition’s website. “LIFO repeal on their own, efforts are coordinated and leveraged among could subject more than a third of AED members to a massive the coalition members. In addition, coalition partners can retroactive tax burden, so we see the need to engage at a be a valuable source of high level,” Klein said. political intelligence and In addition to formal trade information. They coalitions, there are also Americans for Transportation Mobility (Management Committee) also demonstrate a broad ad hoc coalitions such Coalition for Fair Effective Tax Rates (Steering Committee) constituency for an issue, as the one that exists to Coalition for a Democratic Workplace which is always valuable support bonus depreciaFamily Business Estate Tax Coalition in Washington. tion. AED, along with the LIFO Coalition (Steering Committee) “For organizations to National Association of Small Business Coalition for Affordable Healthcare be effective, you need Manufacturers, has been Sustainable Water Infrastructure Coalition (Steering Committee) to be willing to play well leading the charge on that Transportation Construction Coalition with others,” said Klein. issue since 2001. Water Resources Coalition “It can be difficult for an An interesting wrinkle organization to accomplish on the coalition front is anything on its own. You the fact that allies and need as many voices as possible clamoring for the same result.” opponents can shift from issue to issue. Today’s opponents AED’s Washington team relies on the feedback from are tomorrow’s allies, and vice versa. “One of the biggest the Board of Directors and regular membership surveys to mistakes in Washington is thinking of your opponents as your determine the issues that are a priority. In general, the more enemy,” said Klein. “We might beat the heck out of a labor involved AED is in the coalition, the more financial resources organization on NLRB issues, but we will work with them are needed to participate. AED serves on the management hand-in-glove on the highway bill, Keystone, and other issues.” committees of several coalitions including the Americans for Coalitions indeed keep the gears of policy-making in Transportation Mobility, the Sustainable Water Infrastructure motion and AED priorities moving forward.
AED’s Coalition Activity
Proposed New Members Loyalty Bound, East Syracuse, N.Y.
RPM Machinery, LLC Indianapolis, Ind.
This list is published each month as required by AED bylaws. Comments on the applicants should be directed to AED President Toby Mack at 800-388-0650 ext. 326 or jtm@aednet.org. 8 | www.cedmag.com | Construction Equipment Distribution | September 2013
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Inside AED
mark your
calendar
For information on any upcoming AED events, visit www.aednet.org or call 800-388-0650. Sept. 12-13 - AED Executive Forum Hilton Rosemont near Chicago’s O’Hare Airport Sept. 24 - Webinar: The Serve Process 10-11:30 a.m. CDT | Presented by Don Buttrey Sept. 26 - Webinar: Customer Satisfaction Process 10-11 a.m. CDT | Presented by Rich Jilek Oct. 1-2 - Test Drive: the Business War Game for Distributor Operations Oak Brook, Ill. | Presented by PriSim Business War Games Oct. 1-3 - ICUEE | Louisville, Ky. Oct. 8 - Webinar: Constructive Coaching Take the Time to Build a Better Team 2 p.m. CDT | Presented by Barry Himmel Oct. 10-11 - CFO Conference: Financial Issues for Distribution Executives | Oak Brook, Ill.
Oct. 22 - Webinar: Parts Management – Tele-selling 11 a.m. - Noon CDT | Presented by Ron Slee Oct. 22 - Webinar: Parts Management – Basic Inventory Control | 2-3 p.m. CDT | Presented by Ron Slee Oct. 23 - Webinar: Parts Management – Warehousing 11 a.m. - Noon CDT | Presented by Ron Slee Oct. 23 - Webinar: Parts Management – Pricing 2-3 p.m. CDT | Presented by Ron Slee Oct. 24 - Webinar: Resolving Conflict in the Workplace and Customer Situations 10-11:30 a.m. CDT | Presented by Christine Corelli Nov. 20-22 - Leadership Academy Featuring The Disney Institute | Orlando, Fla. www.aed-leadership.com
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10 | www.cedmag.com | Construction Equipment Distribution | September 2013
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2.0
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Officers
Chairman Chris Pera Eastern HighReach Company, Inc. Horsham, Pa.
Vice Chairman A. Roy Kern Equipment Corporation of America Coraopolis, Pa. President Bob Henderson The AED Foundation Oak Brook, Ill. John Crum Treasurer Wells Fargo Equipment Finance, Inc. Pittsburgh, Pa. Immediate Past Chairman Walter Berry Berry Companies, Inc. Wichita, Kan. AED Board Representative Whit Perryman Vermeer Equipment of Texas Irving, Texas Executive Director Steve Johnson The AED Foundation Oak Brook Ill.
Directors
Gary Bridwell Ditch Witch of Oklahoma Edmond, Okla. Mike Festing-Smith NORTRAX, Inc. Tampa, Fla. Mike Hayes Komatsu America Corporation Rolling Meadows, Ill. Timothy Kramer Kramer Ltd. Regina, SK Dr. Wayne Longbrake Former Dean, Penn. College of Technology Williamsport, Pa. Sonja Metzler Ohio CAT Broadview Heights, Ohio Kenneth Silverman Volvo Construction Equipment Shippensburg, PA Mark teel Caterpillar, Inc. Peoria, Ill. Keith Tippett Kirby-Smith Machinery, Inc. Oklahoma City, Okla.
Groundwork
Questions Dealers Should Ask Themselves About Rental
The AED CFO/Rental Conference is a must for dealers wrestling with rental. Given marketplace uncertainty, rental seems destined to be the preferred method of acquiring equipment, for as long as most dealers are willing to forecast. It is time to learn how to manage it for profit and cash flow. As an executive, you must have a basic knowledge of the financial issues related to rental transactions to make informed decisions. With rental rates and equipment costs moving in different directions, it is difficult to maintain profitable dollar utilization. Then, there are tax issues that complicate the rental business, not to mention the potential negative cash flow resulting from unexpected tax bills. Realizing the importance of rental to AED members, we are offering a two-day seminar, the AED CFO/Rental Conference, on Oct. 10-11 in Oak Brook, Ill. This program is designed for C-level executives who need to better understand how to make rental work to produce profits, cash flow and shareholder value. Wondering if you can benefit from this conference? Ask yourself: n Have you benchmarked your rental silo against other dealers in the rental business and public rental companies? n Is your rental business adding to shareholder value? n Do you fully understand the current IRS issues regarding: passive income, LKE, and dual-use/inventory depreciation? If you answered no to any of these questions, then you need to attend this conference. Steve Pierson, owner, Selden Fox, and Ron Hodgeman, tax partner, WTP Exchange, take
Steve Pierson
Ron Hodgeman
Phil Mause
Kevin O’Brien
on federal tax questions and explore what dual-use machinery means for dealers. Jim Margner, president, Tax Advisory Services, examines major state and local tax issues. Case studies help you work out your own tax scenarios. Even small financial errors can have a significant effect on cash flows. Also on the agenda is Market Analyst Eli Lustgarten of Longbow Research, who will provide a forecast for the construction equipment industry, including rental. Phil Mause from Rouse Analytics debuts at the conference with a presentation titled, “Rental Metrics Benchmarking: Compare Your Rates to the Competition.” Shriram Rajagopal of e-Emphasys will provide a hands-on look at how technology can help dealers manage the rental business, while Kevin O’Brien from EPG shows dealers how extended warranty works to manage rental cost. Register today for the AED CFO/Rental Conference.
The AED CFO/Rental Conference DoubleTree by Hilton Hotel Chicago - Oak Brook Oct. 10-11, 2013 | Oak Brook, Ill. $895 Members; $1,295 Nonmembers Register today at www.aedu.org/715 For more information, call or e-mail Pat Novak, 630-468-5135, pnovak@aednet.org
12 | www.cedmag.com | Construction Equipment Distribution | September 2013
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Industry Beat
Highway Program “Year Zero” Could Cost Equipment Industry $2.3 Billion, Threaten 3,700 Dealership Jobs The crisis facing the federal highway program will send shockwaves through the construction equipment industry. That was the message Associated Equipment Distributors (AED) Vice Chairman Tim Watters had for attendees of a July 26 press conference organized by Senate Environment & Public Works Committee Chairman Barbara Boxer (D-Calif.) to draw attention to the highway funding crisis. Federal surface transportation programs are facing an unprecedented crisis. According to data recently released by the Congressional Budget Office (CBO), in FY 2015 the Highway Trust Fund (HTF) will be unable to support any highway or transit spending, jeopardizing more than $50 billion in annual investment. The potential loss of almost $36 billion in core annual highway investment alone would take an enormous toll on the equipment industry. AED estimates the HTF “year zero” scenario will cost the
equipment industry $2.3 billion in lost market activity and threaten more than 3,700 dealership jobs. “For me, those numbers aren’t abstract, they’re terrifying,” said Watters, who is president and CEO of Hoffman Equipment in Piscataway, N.J. “Those are my Tim Watters employees, my coworkers, my colleagues, and my friends, and they could very well find themselves out of work if Congress doesn’t get its act together and solve this problem.” Watters said AED would stand with Chairman Boxer as she works with her House and Senate colleagues to put the HTF back on solid fiscal footing. AED’s projection of the state-by-state equipment market and jobs impact of looming highway funding cuts is available at www.aednet.org.
Whayne Supply Company Celebrates 100 Years in 2013 Whayne Supply Company, one of the nation’s oldest and largest Caterpillar dealerships, is celebrating its 100th anniversary in 2013, with centennial commemorations spanning throughout the year. The company will highlight key moments in its history, host events for employees and customers, and conduct a series of community service projects. The celebrations and community service events will take place in the company’s hometown of Louisville and each of its branch cities in Kentucky and southern Indiana. The events will serve as a way to recognize and thank the customers and employees who have helped make Whayne Supply Company successful over the past century. Whayne Supply Company was founded in 1913 by Roy C. Whayne Sr., who ran his one-man operation selling light engines, pumps, wheelbarrows and bicycles. Whayne began its long-term association with Caterpillar in 1925 and has steadily grown to serve new markets and customers. The company is now owned by Monty Boyd, who became president in 2005 after serving in various roles at
Whayne Machinery kicked off its 100 Year celebrations at an open house event held in Louisville, Ky.
Whayne for 25 years. Under his leadership, Whayne has grown to employ more than 1,300 people and operates 15 facilities in 12 cities across Kentucky and southern Indiana. “We are privileged to have outstanding, loyal customers and this year we want to take the opportunity to thank them for their continued confidence,” said Boyd. “As we look to our next 100 years, our commitment will continue. Our company has always delivered quality products, superior support services, and the highest ethical standards. That’s a model we plan to continue into our next 100 years,” he said.
Oregon Legislature Approves VMT Tax Oregon’s state legislature recently passed legislation creating a voluntary program to collect user fees based on the distance driven by motorists in place of a pergallon gas tax. The bill (S.B. 810), expected to be signed by Democratic Gov. Kitzhaber, allows up to 5,000 drivers to pay 1.5 cents per mile driven and receive a refund for the gas tax paid at the pump when they refuel. The revenue
from the program would go toward the State Highway Fund to help offset declining gas tax collections that have resulted from improved fuel efficiency, more hybrid and electric cars, and declining purchasing power because of inflation. AED has long urged lawmakers to find alternative revenue streams to ensure the solvency of the federal highway program.
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AED Steers New Fair Effective Tax Rate Coalition
Industry Beat
Kobelco Hosts Headquarters Ribbon-Cutting Event
KOBELCO Construction Machinery USA recently held a ribbon-cutting ceremony at their new North American Headquarters in Houston, Texas. The brand relaunched earlier this year as an independent product line. Nearly all of the company’s 40+ dealers were in attendance along with staff members from all over the world, local and national media, and several local government officials.
Continuing its position as one of the leading voices on construction industry tax issues, AED announced it would serve as a steering member of the newly formed Coalition for Fair Effective Tax Rates (CFETR). CFETR will ask lawmakers and the Obama administration to use lowering effective tax rates as a leading metric – and a key measure of success – as tax reform develops on Capitol Hill. The coalition also wants to impress upon lawmakers and key stakeholders that high effective tax rates have negative consequences for American businesses and the overall economy. The alliance of business organizations includes large corporations and small mom-and-pop shops paying individual tax rates. All agree with leading policy experts that the current system is broken and comprehensive reform is needed. CFETR will take no position on any specific preference or provision. Instead, it plans to concentrate on the benefits of viewing tax reform through the lens of effective tax rates with the goal of creating a fair, neutral playing field across all industries and business sectors.
In the News Gibson Machinery, Oakwood Village, Ohio, was recently nominated and selected to be part of GE Capital and Slate’s 2013 Roadshow for Growth – a six-month, 20-city tour addressing the issues of middle market businesses, a sector that generates $9 trillion in annual revenue and accounts for nearly 34 percent of total U.S. employLee Gibson ment. Traveling in a branded bus, Roadshow for Growth visited middle market businesses in Cleveland, Detroit, Charlotte, Dallas, Atlanta, and Los Angeles, Larysa Gibson among other cities. Gibson Machinery was honored to be one of the few businesses chosen to be interviewed and filmed as a stop on this tour. In the video titled “Selling Construction Equipment – and Breaking the Glass Ceiling,” Lee Gibson, Larysa Gibson, and Meredith Gibson share their insights on Gibson Machinery’s success during the
economic downturn. Larysa Gibson also explains how she meets the challenges of being a female owner in a heavily male-dominated industry. Colorado Equipment recently acquired Tom Growney Equipment. The combined operations of Colorado Equipment, Colorado Machinery and Wyoming Equipment will be renamed “4 Rivers Equipment.” The company has 14 locations in Colorado, New Mexico, west Texas and Wyoming. Faris Machinery is planning a new 7,500 square-foot facility at its current location at 2269 Commercial Blvd. in Colorado Springs, Colo. The new facility will be triple the size of the current location. In the past two years, Faris has acquired Foster Equipment (concrete equipment) and Boyle Equipment (environmental equipment). Wacker Neuson is offering a special five-year extended warranty for all 10 of its excavator models purchased between July 1, 2013 and Sept. 30, 2013. This limited-time warranty includes a fiveyear/5,000 hour extended powertrain and hydraulics warranty.
Crane Institute Certification (CIC) announced the availability of certification programs for operators of articulating boom cranes and digger derricks. Atlas Copco was selected as a member of the FTSE4Good index, which includes world-leading companies that score well on environmental, social and governance practices, and was named a “Leader.” Runnion Equipment now offers Elliott Equipment Company’s line of HiReach aerial work platforms at their location in Caledonia, Wis. The HiReach line features fully hydraulic boom extension systems without cables or chains to provide smooth, precise rides. Tiffany Sewell-Howard, chief executive officer of Charles Machine Works, Perry, Okla., has been elected as a director of the CE Sector Board of the Association of Equipment Manufacturers (AEM). Tiffany Sewell-Howard
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Industry Beat
LBX Co. announced that Eric Sauvage will succeed Robert Harvell as president and chief executive officer, following Harvell’s retirement at the end of the year. Eric Sauvage Harvell will remain as a senior advisor and board member. Sauvage joined LBX in 2008 as vice president and CFO and most recently was appointed executive Robert Harvell vice president and CFO, with responsibilities for Engineering/Product Development and Strategic Planning.
Wabush, NL. Cummins Eastern Canada LP headquartered in Pointe-Claire, QC, employs approximately 500 employees across 14 corporate branches, operating over 95 mobile service trucks.
Brandt Tractor has acquired Wallace Equipment, the John Deere Construction and Forestry Dealer for Atlantic Canada, which includes New Brunswick, Nova Scotia, and Prince Edward Island. This acquisition marks Brandt’s first presence in Atlantic Canada. Wallace Equipment operates five branches located in Fredericton, Moncton, Bathurst, Halifax, and Sydney.
Miller Electric Mfg. Co. recently launched the WE BUILD campaign, which recognizes the hard-working men and women of welding. Visitors to MillerWelds.com can participate in the
Cummins Eastern Canada LP is pleased to announce that service, sales, parts and repairs for generators and Cummins engines are now available to its automotive and mining customers in the Fermont and Wabush areas, with the location of a new branch in
Correction In our July issue, CED intended to print a photo of Brax Wright, CEO of ASCO (Lubbock, Texas), in a news story about the company’s acquisition of Hi-Way Equipment Co.; instead, we ran a photo of his brother, Steve Wright, president, and printed Brax’s name. We apologize for the error.
IronPlanet, an online marketplace for used heavy equipment, released a new iPad app for its field inspectors. The app improves the quality of the company’s equipment inspection reports by providing step-by-step instructions for gathering key data based on the type of equipment being inspected. Paladin Attachments recently hired David Garmenn to lead its new strategic initiative focusing on aftermarket parts and attachment specific maintenance kits.
BUILD & WIN promotion, whereby they can share their own projects every month for a chance to win monthly prizes and a grand prize trip to New York City. Shareholders of CNH Global N.V approved the merger between Fiat Industrial S.p.A. and CNH Global N.V. on July 23, 2013, into a newly established company to be named CNH Industrial N.V. SDLG, a China-based Volvo Construction Equipment brand, announced that it will enter the North American market in the second half of 2013. Initially, two wheelo loader models will be available, the 2.4 cubic-yard LG938L and the 4 cubic yard LG959. Komptech USA, Inc. is pleased to announce its newest dealer, Powerscreen Texas. Powerscreen Texas Inc. was established in July of 1978 in La Grange Texas and is centrally located between Houston and Austin.
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Effective Equipment Securement in Your Service Area
There’s a life-and-death reason for cribbing and blocking equipment prior to beginning service tasks. By Eric Stiles
Two technicians were performing maintenance on a piece of industrial equipment inside the dealership service area. The repair required one of the technicians to replace parts underneath the machine. To create space for the work, its base was lifted up using a hydraulic jack. As the machine was lifted, one technician went to retrieve wood posts and jack stands to secure the machine. The other technician – in an effort to save a few minutes – slid under the machine instead of waiting for the materials to properly crib and block the machine. While he was under the base, the machine shifted, the jack failed and the load fell directly onto him. Seconds later, the other technician returned with the cribbing equipment, only to find his coworker trapped. The victim was pronounced dead at the scene. This tragic and preventable death adversely impacted both employee morale as well as the dealership’s reputation, because, as you might imagine, the accident received extensive news coverage. The financial impact was not inconsequential either – death benefits totaling $300,000 were paid out to the immediate family. Cribbing and blocking of equipment during service tasks is a serious safety process, and should be planned in advance. Each piece of equipment presents its own challenges, and the operator manuals should be consulted for specific instructions and recommendations – prior to any repair – to prevent the machine from shifting or the
cribbing to fail. Let’s look at several best practices you should consider to help prevent crushing injuries. Development and Training on Securement Procedures Dealers should have a clearly outlined strategy and procedures for equipment lifting, cribbing and blocking. These procedures should be documented and followed without exception. Most importantly, they should also be discussed in detail with any new technicians and also included in your ongoing safety training program. Other considerations include: n Always know the weight of the machine to be secured and select adequate tools and equipment to handle the load. n Chock any wheels and disconnect any power sources to immobilize the machine n Follow the “Four Points of Contact” rule – maintaining four surface contact points with the machine base to level the center of gravity. This will allow the base to have the most stability and help eliminate the risk of an unbalanced load, which can shift unexpectedly. n Consult the equipment manual to determine proper lift points and suggested methods for cribbing and blocking. Most equipment is outfitted with factory installed locking devices or pins for lifting attachments. These typically come in sets, so be sure all locking devices are used in order to
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Play It safe
th
d
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help avoid support failure. n Always look for methods to increase the contact surface area between the lift point and jack, which will increase stability. n When unfamiliar equipment is brought in for service, have your more experienced technicians determine the appropriate cribbing and blocking methods. Use this as a learning opportunity for other technicians to increase their skill sets. • Field service technicians face even greater challenges implementing safe cribbing and blocking practices in uncontrolled environments. Procedures should be defined for these situations as well. Right Equipment for the Job There are a variety of devices at your disposal for proper lifting, cribbing and blocking of equipment. What should be used is determined by the anticipated load and other challenges presented by that particular machine. Again, consult the operator manual for guidance. You should also: n Inspect the condition of all jacks and stands before use. Ensure there are no fluid leaks or deformed parts. Any jacks displaying damage should be taken out of service and replaced. Also, be sure the jack load rating exceeds the expected weight that is being lifted. n When using wood blocks, always use hardwood (oak, hickory, etc.) for contact surfaces. Check the blocks prior to use for any cracking, damage, or uneven surfaces. This will prevent the load from shifting and possible failure of your securement. n Last, block or pin any articulation points to immobilize movement in a raised position. When cribbing and blocking protocols are not followed, the results can lead to traumatic injuries and fatalities. Spend time evaluating equipment your dealership expects to repair. Define the safest methods to immobilize all equipment and follow those
steps every single time. Shortcuts may save time but won’t save lives. n This document is made available by Sentry Insurance a Mutual Company and its subsidiaries and affiliates (collectively “SIAMCO”) with the understanding that SIAMCO is not engaged in the practice of law, nor is it rendering legal advice. The information contained in this document is of a general nature and is not intended to address the circumstances of any particular individual or entity, nor the best practices applicable to any particular individual or entity. Legal obligations may vary by state and locality, and best practices are unique to specific items and situations. No one should act on the information contained in this document without advice from a local professional with relevant expertise.
Eric Stiles is Sentry’s lead Account Executive responsible for maintaining the AED/Sentry relationship. He can be reached at eric.stiles@ sentry.com. As the endorsed P&C carrier for AED, Sentry Insurance offers superior coverage options and services to meet your dealership needs.
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Money
Credit Aplenty Sources say the lending market is stronger now, but a posture of partnering combined with evidence of a well-managed business are still the materials for cycle-proof credit approvals. By Tina Grady Barbaccia
Getting equipment financing can be like getting a job: It’s about who you know. This doesn’t mean qualified applicants can’t get credit, but it does mean know your banker, and make sure your banker knows your business. A relationship needs to be established on both sides. Credit lending may seem to have tightened its rules with the housing crash and meltdown on Wall Street, but what has really tightened during the financial crisis is lender relationships Larry Shute with customers, says Larry Shute, president of construction equipment finance for South Bend, Ind.-based 1st Source Bank. “Some people are going to perceive that you have tightened up,” he said.
“I do not believe rules are easing, nor do I believe they are tightening. As lenders become more sophisticated based on experience and knowledge, the questions they ask may appear as a ‘tightening,’ but frankly, it is based solely on better understanding a customer’s business and strategy…not just doing a transaction.” Asking more questions about an operation and how the money will be used is not tightening credit, Shute says. “It’s tightening the relationship with your customers – not saying you are getting tougher on credit. We’re not trying to be a big lender or grow for the sake of growing. We’re doing business with the same type of customers we always have and just trying to understand their business and future as much as we possibly can. “We’re a relationship lender,” he added, “so understanding our
customer’s operation and strategic plan makes us an added-value partner.” Credit-worthy customers are not having any problems finding capital. When the lending/leasing arena expands – for example, when big-box banks get aggressive, commercial finance companies appear again, and finance brokers are active again – it is a good indicator that business is brisk, Shute says. “Investors continue to look for ways to increase their return rather than just let capital sit and earn virtually nothing,” he added. Troubleshooting Turmoil If a lender understands its clients’ business well, it allows the lender to problem-solve – sometimes even before an issue arises. “I want them [customers] to know as much about our bank as we do about them,” Shute noted. “It’s not just walking in and (continued on page 22)
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“Having a lender that understands this industry is important – to me and my customers.”
EqUipmENT FiNaNCE inventory and fleet rental finance programs Retail finance programs Loans and leases for capital asset acquisition manufacturer subsidy programs
The right equipment finance programs are critical to helping you sell equipment. So talk to an equipment finance company that has experience in and a commitment to the construction industry — one that has the stability and flexibility to support you through all economic cycles. Not only do we know the difference between a dozer and a grader, but we understand that making the purchase process quick and easy for your customers is essential. Whether you sell equipment in the U.S., Canada, or both, we can help. To learn more about what the Wells Fargo Equipment Finance team can do for you, start a conversation with us today by calling Sidney Sexson at 480-784-9667. wellsfargo.com/construction
© 2013 Wells Fargo Equipment Finance, Inc. All rights reserved. All applications are subject to credit approval. Canadian coverage provided by Wells Fargo Equipment Finance Company, a company that is not regulated as a financial institution, a bank holding company or an insurance holding company in Canada. MC-5533
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Money
(“Credit Aplenty” continued from page 20)
saying, ‘I have a checkbook. Give me a deal.’” It’s about much more than making a single transaction. “We are in there for multiple transactions based on business relationships,” he said. “When there are problems, and people do have them, if I have been out talking to customers, there are no surprises. I can work with the customers and help come up with a resolution.” Lenders, for the most part, are doing a good job of knowing their customers and for what the money is being used, says John Crum, national construction sales manager/senior vice president of equipment finance for Wells Fargo Equipment Finance. “There is a basic set of criteria John Crum to which all lenders adhere,” he said. “With certainty, we believe we should know our customers well and should have a dialogue to understand what they do, who they are and the general state of their business.” As a secured lender, Shute says his financial institution is looking for a favorable collateral position, but ultimately it’s about doing business with people. “Everyone can manage a business when times are good,” he said. “Most companies had exposure to or have had to take some losses. If you loan money, you’ll lose some from time to time. But it’s when management doesn’t have the skills to manage the business during a downturn that causes problems with being able to qualify for source funding.” Even lenders have problems, Shute points out, so “we aren’t going to sit in a glass house and start throwing stones.” However, the survivors of the recession have strengthened their balance sheets, making it “more palatable for lenders to see them through. [The survivors] have saved money for a rainy day instead of making money and pulling it out.” Crum adds that dealers and
contractors should continue to watch their mix of obligations and operate in better financial times similarly to how they operate in a downturn. “Pay attention to the expenses in your business in both good times and bad,” he said. “Do the things that you did in the recession. Make sure you are managing every expense. Just because we are out of the recession doesn’t mean you can be more lax. You can still continue to try to grow your business, but make good sound judgments.” Shute attributes a strong balance sheet to relationships within the business itself and to dealers that have the right people in the right positions. This is part of the relationship building – how a company has built a team – which Shute says he works to understand when considering credit applications. Is the lending landscape in good shape today? Overall, “we are sitting in a positive position,” Shute pointed out. “It’s not like growth is off the face of the earth, but things are fairly stable right now with a comfortable amount of growth.” However, he says, no one seems to have any long-term good feeling about where the economy will be in the future. Shute attributes the caution and uncertainty about the economy to politics. “I believe part of the uncertainty is because of the political status we are in right now,” he said. “I think everyone would agree that D.C. is broke financially and in the way it operates. I also believe this is a major component of people’s uncertainty about the future.” Uncertainty Remains But With Plenty of Credit Despite the uncertainty, there is still adequate lending on the commercial side, Shute says. In fact, his division is doing the same business (if not more than) it was doing four to five years ago when the market was going south. Wells Fargo’s Crum notes that “for the most part, the credit landscape is really good.” Shute also points out that there is “plenty of available credit now – and more credit availability
than in the past.” He also notes that the number of participants – in terms of those willing to lend money – has increased from 2010 to now.” William G. Sutton, CAE, Equipment Lending and Financing Association (ELFA) president and CEO, says that the latest data (as of July) suggest that the equipment finance sector is on the verge of a breakout performance. Sutton notes that while recent key indicators show an overall improvement in lending to the small business sector, the May numbers “provide concrete evidence of growing demand for productive assets by a cross section of the business community.” At the same time, Sutton says, the “historic lows in delinquencies and charge-offs” mean American businesses are better able to meet their financial obligations. This creates a “favorable environment for additional capital investment and job creation. We hope that these trends will continue…” Robert Rinaldi, senior vice president of CSI Leasing, says it is encouraging that all the metrics are going in the right direction. “Many lessors have seen these ups in new business volume (NBV) followed by subsequent down months, evidenced in the ‘saw-tooth’ pattern of the NBV chart” Rinaldi said. “But, and this is a good news ‘but,’ if you run a six-month rolling average on the NBV data over the past six years to smooth out the ‘saw-tooth,’ a clearer picture of definitive growth appears.” Recovery Modest But Continuous Leading indicators suggest that yearover-year growth will remain relatively strong, but will slow somewhat, relative to the rapid growth experienced in 2011. M. Kevin McGee, Ph.D., professor of economics at the University of Wisconsin Oshkosh in Oshkosh, Wis., says U.S. credit markets are, for the most part, back to normal, “after several years of extremely tight credit.” Banks are generally feeling fairly solvent – which was decidedly not the case four years ago – and are willing to offer credit to creditworthy businesses.
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Money
“We’ve had continuous, if not terribly robust, economic growth for a couple of years now and a continuously falling unemployment rate,” said McGee, who specializes in tax policy, investment Kevin McGee under uncertainty and statistical theory and risk. “Consumer optimism is up so consumers are spending.” McGee notes that housing prices have pretty much stopped falling, and in some areas, actually rising. (For the latest information on housing prices, go to http://tinyurl. com/S-P-housing-prices.) “All of that means the level of uncertainty is back down to normal,” he explained. “Still, banks have hopefully learned a lesson from the freewheeling days of the housing boom. This will have some effect on lending for home construction.”
Although the construction industry and the housing market are vertical markets, the credit situation can’t fairly be compared. The housing credit situation is an anomaly. “You can’t compare commercial lending in equipment to the housing market and the meltdown on Wall Street,” said Shute at 1st Source Bank. Mortgage lenders are now “being ultra-careful” with what they do. “Like many others, I’ve rewritten my mortgage to get a lower rate so I know the [hoops] you have to go through even if you’re a good credit risk,” Shute said. This means not just providing documentation to a lender, he adds, but the bank then verifying it. “They have gone over-the-top cautious.” Equipment Market Has ‘Long Runway Ahead’ Jim Case, CEO of Ritchie Bros. Financial Services, predicts the equipment market has a “nice long runway ahead
of it with businesses continuing to replace their fleets.” Case confirms both Crum’s and Schute’s assertions that plenty of credit is available. Credit approval is close to the percentage as it was preJim Case recession and delinquencies are at a low, Case says. “Through the recessionary times, many lenders were more selective (without changing the lending rules) as to the type of credit they would extend,” he explained. “It’s that prudent credit mentality that has enabled lenders to run their books in a way that allowed them to be profitable, and that profitability has now allowed them to expand their credit. If you run an equipment finance portfolio at a loss, it will be difficult to attract new capital.” (continued on page 55)
We’re More Committed Than Ever Before. Our commitment to the construction equipment industry hasn’t changed. Our team of industry experts creates customized solutions to meet your specific needs because we understand the unique challenges you face every day. We’re ready to invest in your future. So, give us a call, or better yet, let us come see you.
Come listen to Jim Huntzinger, the executive vice president and chief investment officer for BOK Financial, speak at the 2013 AED/Infor Executive Forum. To learn more, visit www.aednet.org/forum.
Lending | Syndication 480.666.8993 | www.bokfinancial.com /committed
©2013 BOK Financial Equipment Finance, Inc. is a subsidiary of BOK Financial Corporation. Member FDIC. Equal Housing Lender
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The Dealer’s Guide to ICUEE ICUEE OVERVIEW FLOOR PLAN
OVERVIEW FLOOR PLANwho Dive in to the ‘Demo Expo,’ and make your wayICUEE over to exhibitors are interested in talking to AED dealers at the International Construction & Utility Equipment Exposition in Louisville, Ky., Oct. 1-3. ICUEE 2013 is on track to be one of the best ever: Strong exhibitor demand is pushing exhibit space to capacity; attendee registrations continue to outpace the last two shows; and a new education lineup is attracting near-record ticket sales. ICUEE 2013, the International Construction and Utility Equipment Exposition, will be held Oct 1-3, 2013 at the Kentucky Exposition Center in Louisville, Ky. “We certainly hope these positive ICUEE trends reflect a more sustained construction industry recovery. AEM and many other industry groups are working hard to get beyond government gridlock, for our legislators to make much needed investment in our country’s utility and other infrastructure,” stated Dennis Slater, president of Association of Equipment Manufacturers (AEM), owner and producer of ICUEE. Talk to Experts, Test Drive Equipment ICUEE, known as The Demo Expo, connects utilities and construction contractors with experts from leading manufacturers and service providers to discuss and compare the
= Main Entrances = Tram Stops = Security Check Points = Registration = Show Shuttles
latest product innovations and to operate the equipment in job-like conditions. = Main Entrances Attendees will find more than 25 acres of indoor and = Tram Stops outdoor exhibits and product demonstrations. = Security Check Points Expanded, upgraded education programming will give = Registration attendees a more comprehensive understanding of key Shuttles industry= Show areas and segments. A record 10 industry organizations are co-locating events and education sessions at ICUEE 2013. And 16 industry groups – including AED – have signed on as official “supporting organizations.” View details and register at www.icuee.com.n 24 | www.cedmag.com | Construction Equipment Distribution | September 2013
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Equipment that pays off! Explore dealership opportunities
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DeRipper by 4D Excavator • BOOTH N3101
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www.4Dexcavator.com Contact Anders Kajander (702) 202-2648 • anders@4dexcavator.com The DeRipper is the earthmoving machine that is more efficient than regular breakers on almost all materials! If you want to become a successful DeRipper dealer and want to sell these high quality and time saving products, please contact us today for further details. Please visit our website and visit us at the show.
Extreme Utility Vehicles by ARGO • BOOTH N3202
www.argoutv.com Contact Bernhard Wagenknecht 519-886-1831 • bwagen@argoutv.com More often than not, the only way to the jobsite is through the mud, the brush, over rocks, fallen trees, snow and ice. The amphibious, all-terrain, all-wheel-drive ARGO and Centaur are the vehicles to get your work crew and their equipment to that remote work site. If there is open water to cross, the ARGO floats up to 700 pounds and can pull another 600 in the amphibious trailer.
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UML/SSL VT Mulching Attachment by FAE USA Inc. BOOTHS 2358 & N2004
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Amphibious ATV by Hydratrek, Inc. • BOOTH N1047
www.hydratrek.com Contact Craig Simonton 901-237-2256 craig@hydratrek.com Hydratrek, Inc. manufactures and distributes the most rugged and capable amphibious ATV on the market. Select distribution territories are available.
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KMT1-11 Mechanic Truck by Knapheide Manufacturing Co. BOOTH L199
www.knapheide.com Contact Bruce Bunting 217-316-2521 • bbunting@knapheide.com Knapheide produces a complete line-up of rugged and reliable Mechanic Trucks. See these and our other great products at ICUEE.
34-Foot Hydraulic Crane on Work Truck by Maintainer Corporation of Iowa, Inc. • BOOTH N1002
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www.maintainer.com Contact Tom Wibben 712-541-0225 • twibben@maintainer.com Maintainer now sports the largest crane in the service truck industry with a 34-foot hydraulic crane, rated at 10,000 pounds max capacity. The cranes can be mounted in tall and short tower configurations on Maintainer’s premium custom truck bodies, which offer the highest quality and longest-lasting performance for the harshest work environments.
50155S Truck Mounted Crane by Manitex • BOOTH N2019
www.manitex.com Contact Randy Robertson 512-633-7414 • rrobertson@manitex.com The 50155S Truck Mounted Crane has a 50-ton capacity. Whether you’re in oil production or building bridges, billboards or power transmission lines, Manitex delivers.
EnPak Mechanic Series by Miller Electric Mfg. Co BOOTH 3847
www.MillerWelds.com Contact Travis Purgett 920-379-4378 • Travis.Purgett@millerwelds.com EnPak® Mechanic Series is a productivity-boosting combination of an air compressor, 20 GPM Eaton hydraulic pump and 6,000-watt generator powered by a fuelefficient, Tier 4 Final compliant diesel engine integrated with the truck’s fuel supply and battery. The result is significant savings on fuel costs and truck maintenance while improving jobsite conditions and extending asset life.
Terramac RT9 Off-Road Utility Vehicle • BOOTH N2030
www.terramac.com Contact Mike Crimaldi 630-365-4800 • mike@terramac.com The Terramac® RT9 is the ultimate off-road utility vehicle with its ability to maneuver over difficult terrain, even when fully loaded (18,000 pounds), while maintaining a low ground pressure of only 4.9 psi. Customers can select the carrier’s mounting equipment from flat or dump beds to digger derricks, mulchers, hydro seeders, spray booms, cranes or aerials – the possibilities are virtually endless.
Carrier and Boom All-in-One by UTV International BOOTHS N1020 & N1030
www.utvint.com Tim Crack 514-345-0990 • tim@utvint.com The Achiever RT-08 Digger Derrick is our third-generation boom. It has a 48-foot sheave height, is capable of lifting 24,000 pounds and can install 90-foot utility poles. Worldwide we are the only company that designs and produces both the carrier and the boom as one completely integrated unit resulting in a lighter, stronger unit with four radially-mounted outriggers built into the subframe and a hydraulic system specifically engineered with the high flows required for drilling in mind. September 2013 | Construction Equipment Distribution | www.cedmag.com | 27
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Contractor Connection
If You Are Helping Me, I Will Buy From You NUCA Chairman Florentino Gregorio, president of Anchor Construction, wants dealers to help contractors bridge the technology gap, help train on T-4. By Joanne Costin
Chances are you have a customer like Florentino Gregorio, who is president of Washington, D.C.-based Anchor Construction. His fleet is comprised of approximately 50 machines. He occasionally buys from you, but prefers not to show loyalty to any single dealer. His staff performs most of their own maintenance. He’s outgoing, well connected, and very, very, busy. Your challenge as a dealer is to grow the relationship and ultimately the business. But how do you do it? Our conversation with Gregorio reveals what might be on the minds of many other contractors these days. While business has improved somewhat, pricing remains competitive. It has been a challenge to manage fleets, people and resources. At the
same time, technology, while offering solutions, is coming at them faster than they can handle it. Twenty-eight-year-old Anchor Construction provides contracting services to the Maryland, D.C. and Virginia markets. Gregorio started out doing brick and concrete work during college while earning a civil engineering degree from the University of Maryland. As time went on, he expanded his services to include water and sewer construction, as well as installing conduit for local utility Pepco. Anchor’s clients include construction companies like Clark Construction, Hensel Phelps, WC Smith, Harvey Cleary, Hamel Builders and well as government agencies including the city of Baltimore, Baltimore County, the U.S. Navy, and both
the Virginia and D.C. Departments of Transportation. As his business grew, Anchor’s fleet also expanded. The company’s 20-plus crews operate about 50 machines, including approximately seven or eight machines on rental-purchase contracts. It’s an acquisition method that is working right now for Gregorio. “It gives us options,” he said. “If the equipment is good and the need continues, we will change from a rental to an actual purchase,” said Gregorio. Equipment Acquisition Anchor runs a mixed fleet of primarily Cat and Deere earthmoving machines, but also some Komatsu miniexcavators, a Terex Crane, Bobcats, a (continued on page 32)
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Contractor Connection
(“If You Are Helping Me, I Will Buy From You” continued from page 30)
few Hitachi machines and a Takeuchi mini-excavator. Once a need is identified, purchasing decisions are based on the features and benefits of the brands, as well as availability and price. They also don’t rule out purchasing low-hour used machines. He has no desire to become tied to a single dealer or brand. “I don’t want to be all Cat or John Deere,” he said. “I don’t want to fall in a category. I like to spread it around a little bit.” In recent years, the company has favored rubber-tracked mini-excavators over its traditional workhorse machine, the backhoe loader. “The mini-excavators cost less money and are a little easier to run than a rubber-tire backhoe,” Gregorio explained. The availability of skilled operators has become a challenge in recent months. “I had a job today where I couldn’t finish because the operator wasn’t skilled enough to complete the job,” he said. The company has trained at least half of the operators on its staff. Others are union-trained. “We need to do a better job of informing people that they can make a good living and get good wages in a lot of different facets of the industry,” Gregorio added. He believes that technology could play a part in attracting young people to the industry, yet outside the industry it’s not widely known how technical the industry has become. During the recession, Gregorio had to figure out what they could do without, both from an equipment and people standpoint. “I look at it as a learning opportunity,” he said. “It’s a time to learn and a time to put some things in place to save money and stay competitive.” Attention to the bottom line continues even though business has picked up. He keeps a close eye on revenue and costs using HCSS Heavy Job to manage what is going on in the field. Gregorio reports that private investment in commercial construction has been keeping contractors busy. While the market is improved, it’s still tight –and with low margins. He
wonders if contractors are becoming tired of just scraping by, working to keep the doors opened. Some of his firm’s completed projects include the River Oaks Sanitary Sewer Extension and Improvement Project in Fairfax County, Va.; and 4,000 feet of new water service and over 4,800 feet of new sewer service in the South Capital near the stadium.
Meeting the Challenges At Anchor, the majority of the maintenance work is conducted in-house, but staffing reductions during the recession and the need for new diagnostics equipment have challenged the construction business. “My mechanics need more training on the new technologies,” said Gregorio. Diagnostic equipment required for the Tier-4 Final machines is another problem. He would like dealers to help with training his mechanics. “I know they might not want to share that expertise, because it means less work for them, but everything comes around,” said Gregorio. “If you are helping me, I will buy from you.” “I have more technology [on machines] than I can use right now,” he admitted. And while he recognizes the value of technology, without the right people and training in place, he knows they won’t be able to fully reap the benefits of it. “With pricing where it’s at, it is difficult to make the investments in everything you need,” he added. “Training is lacking,” said Gregorio. “Dealers could do a better job of explaining new technology. It is not common knowledge.” He would appreciate it if dealers were proactive in holding classes or events to educate customers. “But they have to keep it simple,” he added. “Dealers need well trained representatives to price things and tell people about the [machine] technology and explain it in a simple way. “The people that write these programs, they think everybody else has the same knowledge. People using it are afraid of it. They haven’t dealt with something that sophisticated. They have to get over being scared to use it.” He recommends hands-on training, where participants would work directly with the machine or program, rather than a traditional classroom setting. “They U.S. Construction Spending on Utilities need hands-on opportunities,” said Gregorio. June 2012 vs. June 2013, Seasonally Adjusted (Millions of Dollars) He plans a trip to Las Vegas in March 2014 to attend CONEXPO-CON/AGG. He is hoping to June 2012 June 2013 + or learn more about the new technologies that Private Construction are available. Power $72,879 $76,642 +5.2 Public Construction The NUCA Agenda As chairman of the National Utility ContracPower $10,518 $11,523 +9.6 tor’s Association, Gregorio is focused on Sewer and waste disposal $20,971 $19,880 -5.2 increasing involvement among his peers, as Water Supply $12,724 $12,705 -.01 well as dealers and suppliers. His first involveSource: U.S. Department of Commerce ment with the organization came in 2004 when he attended a meeting. He found value Power is a bright spot in the utility market this year, compared to last. Public in meeting other contractors, training and construction spending on sewer and water continues to be strained by keeping up with legislative and safety issues. government budget issues. 32 | www.cedmag.com | Construction Equipment Distribution | September 2013
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Contractor Connection
Now, eight years later, he’s the chairman. “I tell people to stay involved and get other people to be involved. If you aren’t, you are going to miss out and the industry will miss out, as well,” said Gregorio. “One of the problems with utility construction, is everything is underground,” he explained. “The only time you get attention is when things break. That is a problem, for the funding. We have to constantly be all over the House and Senate so we don’t get shortchanged on the money.” Water infrastructure funding is a key legislative issue for NUCA, as well as AED. NUCA members are fighting President Obama’s FY2014 budget request that State Revolving Funds for clean water and drinking water be cut by approximately $500 million dollars. These cuts would devastate states relying on SRF funds to bid and, in many cases, continue funding water infrastructure projects. NUCA is also fighting to protect municipal bonds, which have come under attack during tax reform discussions. Over the last 10 years, 90 percent of infrastructure muni-bonds financing went to schools, hospitals, water and sewer facilities, public power utilities, roads and mass transit. NUCA supports the Executive in Need of Scrutiny (REINS) Act (H.R. 367), which would require rules written by regulatory agencies with an economic impact of more than $100 million to undergo review and approval by the House and Senate before taking effect. According to House Small
Business Committee Chairman Sam Graves (R-Mo.), major rules published in the past four years have added nearly $70 billion in new regulatory costs. The bill passed the House on Aug. 2. – at the time of this writing its fate is uncertain. Based on our aging water infrastructure, utilities should be a healthy and growing market. In a recently released study, the EPA reported that the U.S. needs to invest $384.2 billion over the next 20 years for thousands of miles of pipe, as well as thousands of treatment plants, storage tanks, and other key assets to ensure clean drinking water. Of course, the wild card is whether there will be money in the federal budget, given the current deficit woes. According to a study by AED and NUCA, each dollar spent on underground water infrastructure construction creates 12 cents in equipment market activity (sale, leasing, and product support). Gregorio is hopeful that working together, contractors, dealers and suppliers can support each other for their common goals. He’s ready to do his part. Are you? n Joanne Costin is a freelance writer and marketing consultant focusing on the construction industry. She can be reached at (847) 358-1413 or jcostin@costincustom.com.
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September 2013 | Construction Equipment Distribution | www.cedmag.com | 33
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Product Support
Solving Our Great Big Workforce Problem Action that has the power to uproot, turn around, and re-generate America’s youth, education, culture, and your business. By Ron Slee
This is the start of a three-part series of articles covering some personnel issues and challenges faced by the parts and service business in the equipment dealership today. We will be talking about employees in the service department, the technicians and technical support personnel, the parts office and selling support personnel, product support selling personnel, and finally the management and supervisory personnel. The ability to acquire talented and skilled personnel has never been more important in business than it is today. It is people that make the difference in companies – and how employers work with and develop these employees has become very significant and extremely critical. Let’s look at the world around us first. Over my work life the focus has been consistently on a “four year university degree.” Now, I don’t have anything against education and learning wherever it is available; however, in this drive for the ever-prized college degree we have left out a very important segment of the workforce: people who have technical skills and aptitude.
The notion that a four-year degree is essential for real success is being challenged by a growing number of economists, policy analysts and academics. They say more Americans should choose other options such as technical training or two-year schools, which have been embraced in Europe for decades. Our source for new employees is typically the education system, which is charged with the development of our youth. Recently, the education system, K-12, has been challenged with student-to-teacher ratio increases and school board spending levels. Meanwhile, in the Texas legislature, there are efforts underway to pass a law requiring all students at public colleges and universities to take the CLA (Collegiate Learning Assessment) during their freshman and senior years. The legislature’s documents stated that, holding every institution accountable for how much students learn under their tutelage, the CLA would ultimately serve as an alternative credential to the bachelor’s degree. “This would help students, parents, and legislators to take a more
open-eyed view of the current state of higher education,” Texas lawmakers wrote. It might also help more parents and educators to come to the conclusion that specific technical learning is an important alternative to the sacred cow thinking that everyone needs a college degree. Then we arrive at another challenge – the generational challenge. You know what I mean. The younger people today; they don’t work like we did. They want to make a lot of money and not have much to do. That generational challenge. Many are talking about the lost generation. That is the current group of people in their late teens to their early 20s. The dilemma with the education they have received is that it has not delivered to students any appreciable skills that the market wants or needs. Martin Scaglione, president and chief operating officer of Work Force Development for ACT, the Iowabased, not-for-profit best known for its college entrance exam, suggested nothing short of a new definition for educational success. He advocates (continued on page 36)
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UNIVERSAL BINGHAM
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(“Solving Our Great Big Workforce Problem” continued from page 34)
“certification as the new education currency – documentation of skills as opposed to mastering curriculum.” As a former university educator, I couldn’t agree more. We are focused too heavily on mastering curriculum at all levels of learning prior to post-graduate degrees. It would be a wonderful change if we started maintaining an inventory of skills – certified skills. The Alternative We Need Let’s turn our attention, then, to the technical schools and vocational training. Vocational education has been so disparaged that its few advocates have resorted to giving it a new name: “career and technical education” (CTE). Academic courses that prepare students for getting into universities, by contrast, are seen as the key to higher wages and global prowess. America has a unique disdain for vocational education. Nevertheless, the federal government has supported vocational training since 1917, and today money comes from the Perkins Act, which is reauthorized every six years. But many Americans hate the idea of schoolchildren setting out on career paths – such predetermination, they think, threatens the ethos of opportunity. As wages have risen for those with college degrees, skepticism of CTE has grown too. By 2005 only one-fifth of high school students specialized in an industry, compared with one-third in 1982. The number of 17-year-olds aspiring to four-year college, meanwhile, reached 69 percent in 2003, double the level of 1981. But the fact remains that not every student will graduate from university. This may make politicians uncomfortable, but it is not catastrophic. The Council of Economic Advisers projects fastergrowing demand for those with a two-year, technical-college degree, or specific training, than for those with a full university degree. (The Economist)
A Working Example I want to explore a different direction for our industry. One that is tried and proven and comes from Germany. Our friends in Germany know – as we should – that some students are bored by traditional studies. Some don’t have the aptitude for college; some would rather work with their hands; and some are unhappy at home and just need to get away. They realize that everyone won’t benefit from college, but they can still be successful and contribute to society. Americans often see such students as victims. Germans see these students as potential assets who might one day shine if they’re matched with the right vocation. And it has a system in place – a partnership of employers and unions with government – to do the matching and provide the necessary training. You have heard me say that the battle of the coming decades will be for talented personnel. There is going to be a serious shortage of skills required by businesses and specifically our industry. In Germany, there is a partnership between schools, business and, yes, even government. “Germany’s apprenticeship programs and its renown as the standard bearer of quality manufacturing are helping companies rejuvenate their workforce with foreigners eager to escape economic malaise,” according to Bloomberg online. Germany’s unique educational approach is rooted in a guild system dating back centuries. Trainees receive a modest salary during their education and most get a job offer once they complete their apprenticeships. The country’s vocational training system combines practical training with classroom sessions and has companies pitching in, offering more than half a million high school graduates annually hands-on education in hundreds of professions, as well as a respected alternative to a university degree. We have some schools in America leading the way with advanced degrees in Industrial Distribution, as well as
partnerships between equipment dealers/distributors and manufacturers of construction equipment and local post-secondary colleges, such as those established through The AED Foundation. But much more needs to be done. Germany has high standards in the education of craftspeople. Historically, very few people attended college. In the 1950s, for example, 80 percent had only Volksschule (primary school); education for just six or seven years. Only 5 percent of age-appropriate teens entered college in those days, and still fewer graduated. In the 1960s, 6 percent of young people entered college. In 1961, there were still 8,000 cities in which no youngsters received secondary education. However, all this does not mean that Germany was a country of uneducated people. In fact, many of those who did not receive secondary education were highly skilled craftspeople and members of the upper middle class. Even though more people attend college today, a craftsperson is still highly valued in German society. Germany has developed and maintained a series of technical and vocational schools that should be the envy of the world. Now What? So where does that leave us today? Most dealers in the U.S. need more technicians. Most dealers turn away work requested by customers because of a lack of capacity. Most service managers will say you can’t find skilled journeymen technicians, and they are right. The skilled journeymen technicians are all working. The primary need of our customers today is that the service department needs to be more responsive to their needs. This means we can’t get to them fast enough. It is not price that is the main criteria for a customer in selecting a source for repairs and maintenance – it is responsiveness. One last thing to note: Our market capture rates for repairs and
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Product Support
maintenance are not very high. For maintenance work the estimate is that at best we get 5 percent of the available market. For repairs we do slightly better but only on the basis that we get the work that no one else is trained to do. Grow Your Own If we want to grow our workforce of technicians we will need to develop them ourselves. This where we have an opportunity; we need to start developing our own technicians in the same manner we did when I first entered the industry. In those days, we had aggressive programs to attract potential employees and put them into specifically designed training programs. We operated three different programs. 1. An apprentice program 2. A mentorship program 3. A program that partnered with technical schools Today I want to add a fourth program. A program whereby we give selected employees sabbaticals to go and further their skills with targeted education programs. This is similar to what many companies do when sending executives to “experienced MBA” programs or larger corporations sending people back to school for a year or two for continuing education. Technicians at the dealership generate between $400,000 and $600,000 revenue dollars per year. That is the total revenue of each technician in parts and service. Yet, from the attention given to the service department by management you wouldn’t know it. The gross profit generated by each technician is in excess of 95 percent of all other employees in the dealership. Who knew? An apprentice program costs money and that is the main reason dealers give me as to why they do not operate one. I can’t give you an amount of money it costs to develop a technician coming to you out of high school. But think of the money lost to
your business by not having sufficient capacity to satisfy the needs of your customers. If I suggest you have a 25 percent market capture rate for service and that you can double it with the right number and skills of your technicians, you can do your own calculation of the monies lost. You can also determine what the number of technicians is that you have to develop. If you double the service volume I will assume you will need to double the number of technicians. So there are the numbers. Now it is time to develop a plan. First of all, you will need to assign someone the responsibility to develop a training program for technical employees – an apprentice program. You need to contact Steve Johnson at The AED Foundation, as well as your local technical schools and your state government. I have helped dealerships in several states become assigned as part of the state education system. This allowed the state to pay a portion of the apprentices’ wages, as well as pay the salary for the trainer. There are many opportunities available here, but it will require someone at the dealership assigned to employee development full time. Come Alongside Them Mentoring is another tool that I have found to be very effective. In the service department, we used to assign an apprentice, between class assignments, to work full time with two of our journeymen technicians. They did odd jobs for the journeyman, which leveraged their skills and helped them learn on the job. This allowed the apprentice to be absorbed by the culture and the department. It was extremely successful. We also partnered with the local technical schools and junior colleges. We provided equipment and components for their use. We provided training materials from our OEM. We provided instructors at times to teach the classes. This also allowed us to have a clear view of the talented
people in the room and offer employment to them. Again, Steve at The AED Foundation lives and breathes this stuff and is a great resource to help you begin. I am fully aware that all these activities cost money in one form or another. In some cases it will cost a lot of money. But I will suggest to you that the more it costs the greater the opportunity you have as a business to improve your customer satisfaction. With increased customer satisfaction you will increase your sales and profits. When you identify your talented people, let’s create exceptional opportunities for them in a special way! Here’s a creative idea: Make arrangements with other dealers within your brand networks, and do a kind of employee swap – send them your up-and-coming employees and take some of theirs into your dealership. Cross-training like that will expose the employee to other styles and cultures that will broaden their perspectives, and you will reap the rewards for years to come. This is the beginning of aggressively growing your parts and service business profitably. This is the start of a program that will allow you to grow your market capture rates. This will improve customer satisfaction and slow the defection of your customers, who do not have their needs for responsiveness met by you today. This is something that is long overdue. The time is now. n 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. Follow Ron on Twitter: @RonSlee; and read his blog at learningwithoutscars.com.
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Profit Improvement Report
Taking It To The Street It’s tempting to pass along supplier discounts to gain a pricing advantage in the market – here’s why you must resist the discount reflex. By Dr. Albert D. Bates
The economy still seems to be taking the proverbial two steps forward and one step backward on a daily basis. In such an environment, important opportunities to purchase merchandise opportunistically are widespread. Such opportunities should result in a strong improvement in profitability for distributors. However, in too many cases enhanced buying leads to stagnant or even declining profit. The problem is that distributors simply can’t seem to overcome the urge to take lower supplier prices directly “to the street.” That is, they reflexively pass through lower prices to their customers. This report examines the nature of the take-it-tothe-street issue. It will do so from two important perspectives: n Price Reduction Rationales – A discussion of the two different thought processes that cause firms to pass along price reductions in a seemingly automatic fashion n Profit Implications – An analysis of the economic impact of supplier price reductions, both good and bad. Price Reduction Rationales There are two major reasons that firms pass along price reductions routinely. One of the reasons is strategic, the other operational. Strategic – The strategic rationale is that price competition is endemic in distribution. A supplier price reduction provides the opportunity for firms to demonstrate their price aggressiveness to their customers.
Since the supplier price reduction is often short lived, some distributors view the price reduction as an opportunity to be “on sale.” That is, they can develop a price position that will provide a competitive advantage over competition. This rather blissfully ignores the fact that every other distributor has also had the same opportunity to purchase at lower prices. Operational – The operational factor is that firms are still addicted to standardized mark-ups despite the rather substantial increase in pricing sophistication over the last 10 years or so. If an item generated a 21.5 percent gross margin before the supplier price reduction, then it should generate about the same gross margin after the price reduction. Gross margin targets vary by product velocity, of course. They also usually vary by customer type. However, once the margin is locked in, it tends to remain somewhat sacrosanct as product costs change. The crux of the problem is that firms have to put prices on thousands of SKUs, the cost of which may rise and fall several times during the year. Few firms have the luxury of leisurely contemplating each individual pricing change. Unfortunately, the advent of new technology has not changed the culture of standardized mark-ups. Again, the sheer magnitude of the pricing decisions to be made gets in the way. Such technology has made static-margin pricing decisions faster, but not better. Whether the decision to pass along price reductions (continued on page 40)
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Profit Improvement Report
(“Taking It To The Street” continued from page 38)
is strategic or operational, it still has the same impact on profit. Namely, it decimates it. Unfortunately, too many managers continue to believe that passing along price decreases associated with opportunistic buying “doesn’t cost us anything.”
Exhibit 1 The Impact of a 2.0% Reduction in Cost of Goods Sold For the Typical AED Member
Income Statement--$ Net Sales Cost of Goods Sold Gross Margin Fixed Expenses Variable Expenses Total Expenses Profit Before Taxes
Current Results $35,000,000 27,475,000 7,525,000 5,495,000 1,400,000 6,895,000 $630,000
Change in Profit
The Profit Income Statement--% Implications Net Sales An understanding of the Cost of Goods Sold economics of passing Gross Margin through price reductions Fixed Expenses Variable Expenses is provided by the CODB Total Expenses report conducted by Profit Before Taxes AED. Exhibit 1 examines Change in Profit--% the result for the typical AED member based upon that report. As can be seen in the first column of numbers, this typical firm generates $35,000,000 in sales, operates on a gross margin of 21.5 percent of sales and produces a bottom line profit of 1.8 percent of sales or $630,000. In short, profit performance is adequate, but somewhat unexciting. In looking at changes in pricing, it is necessary to break expenses out into their fixed and variable components. Fixed expenses are overhead items, or the cost of getting ready to sell. They only change when management takes an action. In contrast, variable expenses are items that increase or decrease at the same rate as sales increases or decreases. The most obvious example is sales commissions. Other variable items include interest on accounts receivable, bad debts and a few additional, incidental items. In most distribution businesses, fixed expenses account for about 80 percent of total operating expenses. In Exhibit 1, fixed expenses are assumed to be a constant $5,495,000 across modest increases or decreases in sales. Variable expenses are assumed to be 4 percent of revenue. The last two columns of numbers in Exhibit 1 present the potential results, both good and bad, associated with an opportunistic purchasing opportunity. To demonstrate the impact clearly, it is best to examine the total firm. The same results would be produced for a segment of the business. It is assumed that the firm is now able to buy everything that it sells at a price that is 2 percent lower than
100.0 78.5 21.5 15.7 4.0 19.7 1.8
No Price Changes $35,000,000 26,925,500 8,074,500 5,495,000 1,400,000 6,895,000 $1,179,500
2.0% Price Reduction 34,300,000 26,925,500 7,374,500 5,495,000 1,372,000 6,867,000 $507,500
$549,500
-$122,500
100.0 76.9 23.1 15.7 4.0 19.7 3.4
100.0 78.5 21.5 16.0 4.0 20.0 1.5
87.2
-19.4
before. As a result, the cost of goods sold had been reduced by 2 percent for the entire firm. This is true in both of the last two columns. The first column of potential results has been labeled No Price Changes. It really should be labeled Do This and Don’t Even Think About Doing Anything Else. In this column the firm is using the supplier price reduction as an opportunity to enhance both its gross margin and its profit. All of the reduction in cost of goods has been driven to both the gross margin line and the bottom line. The resulting increase in profit is dramatic. Profit has increased from the $630,000 original figure to $1,179,500, an increase of 87.2 percent. The final column of numbers reflects the same opportunistic buying situation. However, prices outbound have been cut by 2 percent to mirror the 2 percent price reduction from suppliers. Again, this could occur either for strategic or operational reasons. But it makes no difference – profit takes a significant hit. While the gross margin percentage remains the same, the gross margin is being generated on sales, which have been lowered by the amount of the price reduction. Some expense reduction is attainable because of lower variable expenses, but fixed expenses hold constant. The overall result is that profit decreases by 19.4 percent, falling to $507,500. Whatever the good intentions of the reduction, profit suffers. Buying and pricing must be separate decisions.
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Profit Improvement Report
Moving Forward Pricing will probably always be the most difficult decision process for distributors. From a marketing perspective, no firm wants to be underpriced. From an operational perspective, there are lots of pricing decisions to be made. Despite these issues, there is a substantial gross margin and profit opportunity to be seized by avoiding an automatic response to opportunistic buying situations. Such situations must be used as profit generators. n
A Price Cut That Would Maintain Profit
It is possible to estimate how much firms can cut their prices and keep profits exactly where they are at present. Unfortunately, an estimate is all that can be provided without some extensive financial manipulations. The formula for holding profits steady is:
Current Cost of Goods Percentage x Size of the Supplier’s Price Reduction = 78.5% x 2% = 1.6% To a certain extent, this represents something that maybe nobody should know. It creates a real temptation to cut prices “just a little bit” when opportunistic buying situations arise. Firms should not try to simply hold the line on profit. They should use supplier price reductions as a vehicle to improve profit.
Dr. Albert D. Bates is founder and president of Profit Planning Group. His latest book, Triple Your Profit!, is available at Amazon and Barnes & Noble. It includes Excel templates for understanding the profit structure of the firm and developing meaningful financial plans. ©2013 Profit Planning
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Money
Little Did You Know:
Supreme Court Has Been Minding Your Business Decisions impacting companies have broader implications for all employers, including equipment distributors. By Laura Vlieg
Unless you’re a lawyer or have an obsession with old people in black robes (if it’s the latter, I recommend you seek help), you have probably only heard about Supreme Court of the United States’ (SCOTUS or “the Court”) decisions on same-sex marriage and affirmative action. However, the recent Court term is noted by legal commentators and scholars for its landmark rulings on legal issues that impact business. In particular, in areas of class actions and employment law, Chief Justice John Roberts’ Court had a significant impact. Though they’re hardly as glamorous as civil rights or social issues, these judgments are certainly worth taking a moment to consider when making business decisions. Group Suits The Court’s decisions related to class actions could leave a long-standing imprint on the legal system. Besides being a classic legal thriller starring
Gene Hackman, a class action is a type of lawsuit in which a group of people with identical claims file suit together. Class actions benefit plaintiffs, particularly those with relatively small claims, by allowing them to band together to sue. The proliferation of class actions has long been a concern of businesses of all sizes. Both American Express v. Italian Colors Restaurant (American Express) and Comcast v. Behrend were considered pro-big business decisions and dealt with class action antitrust claims. In American Express, a group of small businesses sought to file a classaction antitrust lawsuit, claiming that American Express exercised monopolistic practices by imposing excessive fees (30 percent higher than its competitors) on companies accepting its credit cards. The Court sided with American Express, telling the small businesses that they were bound by an arbitration clause in their agreements
with American Express requiring the companies to file suit individually, even if it would be prohibitively expensive. The outcome in American Express amplifies the ability of bigger companies to avoid class actions through an arbitration clause, essentially immunizing liability whenever the litigation costs exceed the potential recovery for an individual plaintiff (which is often). In this case, the decision could be beneficial to equipment distributors. Any contract including a clause saying that parties will arbitrate disputes rather than file suit in court can be written to ensure litigation is conducted individually rather than as a class. While a properly constructed arbitration clause can protect an equipment dealer from class actions brought by its customers, bear in mind that it can also defend manufacturers from class actions by those selling their products. The Court has made it clear that parties will be held to arbitration agreements, highlighting
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Legal
how critical it is to understand contract terms before signing. One of the first steps in every class action suit is the court’s certification of the “class.” If the class is not certified, the suit cannot go forward, and each plaintiff will have to sue the defendant(s) individually. In Comcast v. Behrend, the issue was whether the class was properly certified by the lower court. In this case, a group of customers attempted to bring suit against the cable provider Comcast. The plaintiffs claimed that they were being overcharged in violation of antitrust law. The Court did not rule on the merits of the case, finding instead that the customers did not qualify as a class. According to the Court, the plaintiffs did not provide enough evidence that damages could be established on a class-wide basis. In other words, it would be too difficult and time consuming for the Court to decide whether the plaintiffs were harmed equally and whether there was a way to figure out how the money would be divided among the plaintiffs if they won the case. The Comcast decision makes it more difficult for a group of plaintiffs to qualify as a class, effectively shielding the companies most likely to be targets of class actions, such as equipment distributors in product liability cases. After Comcast, to qualify as a class, a group of plaintiffs would need to prove, after a rigorous analysis, that the formula it proposes to calculate damages is sufficiently linked to common interests of the class before the Court would even listen to an argument about liability. Overall, the Court’s decisions to make it more difficult to form a class and file a class action suit should be good news for companies that are frequently the target of frivolous legal claims. What Happens in HR Doesn’t Necessarily Stay in HR Cases involving employees (both
current and former) have increased significantly in recent years. Whether it’s discrimination or unlawful retaliation, employment-related cases can be costly – in financial terms and for your company’s reputation. While the full impact on business is yet unknown, the Court’s decision in United States v. Windsor – the mediahyped case overturning the Defense of Marriage Act (DOMA) – will definitely be felt by employees and employers alike. Businesses with more than 50 employees in states that recognize same-sex marriage are now required to apply the provisions of both the Family Medical Leave Act and COBRA to employees with same-sex spouses. The Supreme Court also addressed the issue of employee harassment. In Vance v. Ball State (“Vance”), the Court narrowed the scope of instances in which an employer is liable for the harassment of one employee by another. The employer is liable either when it is negligent in controlling working conditions (regardless of who is doing the harassing), or when the offending act was committed by the worker’s supervisor. The real impact of Vance is that the Court limits the definition of “supervisor” to describe only an individual who is able to take adverse employment action against the harassed employee, such as firing, demoting, transferring, or disciplining. In all instances where the employee is allegedly harassed by anyone other than a supervisor, (s)he will have to prove that the employer was negligent in controlling work conditions. So by narrowing the definition of supervisor, the Vance ruling significantly lessens the likelihood of successful harassment suits against a company for the actions of its employees. The Court also restricted the ability of employees to bring claims for discriminatory retaliation. University of Texas Southwestern Medical Center v. Nassar addresses retaliation claims under Title VII of the Civil Rights Act of 1964.
Title VII, which aims to end unlawful discrimination based on race, color, sex, religion, national origin, age and/or disability in the workplace, empowers workers to sue for “retaliation” if the employee believes an adverse action is the result of a prior complaint about such discrimination. The Court found that even if an employee can prove there is improper motivation for an adverse employment action, the employee must prove that the retaliation was the sole motivating factor. This outcome shields employers from costly litigation by making it more difficult for employees to prove retaliation in the workplace. While the landmark DOMA decision could prove to be an added cost for companies, in the overall employment law area employers definitely came out ahead. The Court significantly narrowed the ability of plaintiffs to bring what are often costly claims against employers. What’s the Verdict? The work does not end with the Supreme Court’s decisions. Every court across the country is required to follow those decisions. After this year, particularly with regard to class actions and employment law issues, lower courts will have their work cut out for them in figuring out just when a class may be certified, when a harassed employee may successfully make a claim against the employer, or when arbitration clauses will or will not be upheld. While the Supreme Court receives plenty of attention from scholars and the media, a savvy executive, regardless of industry, should be aware of what’s happening at the nation’s top court. If you don’t pay attention, you could end up paying a high hourly rate to your local lawyer – not that the trial bar will be complaining! n Laura Vlieg is a legal intern at Obadal, Filler, MacLeod & Klein, P.L.C. and a thirdyear law student at William & Mary Law School.
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A Closer Look
Versatile Argo ETVs Go Where Others Can’t Maker of extreme utility vehicles focuses on establishing a dedicated commercial rental dealer network. By Joanne Costin
While amphibious vehicles aren’t a traditional product category for construction equipment dealers, use in a growing number of applications and markets make Argo extreme terrain vehicles (ETVs) worth a closer look. You can find a growing number of Argo ETVs working in oil and gas applications, remote wind farms and solar energy sites, remote cable and telecommunications applications, as well as fire and rescue operations. While Argo ETVs were first marketed as a recreational vehicle for hunters, the company has adapted their models to meet the requirements of commercial applications. An Argo ETV vehicle allows access to the worksite
regardless how remote, resulting in more work days and improved productivity of high-value crews and equipment. Argo is currently in the process of launching a dedicated commercial rental dealer network in the U.S. and Canada, according to Bernhard Wagenknecht, vice president of sales and marketing. “The new type of dealers we are looking for are companies that are already going after our target markets,” said Wagenknecht. Three new commercial dealers in the U.S. have added Argo ETVs to their rental fleet. In total, the company has more than 150 dealers serving the personal,
ARGO ETV Models Load Capacity in No. of People Pounds (land/water) (land/water) 6x6 Frontier 580 700/500 4/2 6x6 Frontier 650 HD 700/500 4/2 8x8 Frontier 650 1000/900 6/4 8x8 700 HD 1150/1000 6/4 8x8 750 HDi 1000/850 6/4 8x8 750 HDi SE 1000/850 6/4 8x8 XTI/XTD 1500/1000 2-4/2-4 8x8 Centaur 1500 2 not amphibious
Towing Capacity 1200 1400 1400 1800 1800 1800 2000 2200
light commercial, and public sectors, primarily across the U.S. and Canada. Founded in 1962, Argo is a subsidiary of Ontario Drive and Gear (OGD), based in New Hamburg, Ontario. Until 1967, the company was focused solely on producing gears and transmissions for off-road vehicles. That’s when one of their customers that manufactured amphibious all terrain vehicles went bankrupt. ODG purchased the design and decided to enter the ATV business with the Argo brand. “Very early on in the ‘70s we were in the oil fields in Alberta,” said Wagenknecht. “We sold more than 500 vehicles in Canada alone.” A growing oil and gas market has Argo very optimistic about expansion into the U.S. They plan to use the same targeted commercial approach that worked well for the company in Canada. Argo is looking to gain entry into the rental fleets of dealers, where Wagenknecht believes its extreme terrain vehicles will be viewed as a safer, more versatile, ecofriendly, and cost-effective alternative to all-terrain vehicles. To introduce the product to dealers and end-users, the company has a fleet of demonstration equipment available throughout the U.S. Wagenknecht believes Argo ETVs
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A Closer Look
represent a good opportunity for dealers. “The product is absolutely proven for over 45 years,” he said. Argo is also listed on the GSA Schedule and is an awarded vendor of the National Joint Powers Alliance (NJPA) Contract. These contracts make it easier for governmental agencies to procure equipment and subsequently for dealers to sell to government agencies.
roll over than UTVs due to their low be doing with the equipment,” said center of gravity. Equipment is stored Laporte. “We make sure that the in the bottom of the back for stability customer gets exactly what he needs.” unlike most UTVs that carry equip If the Argo is needed primarily to ment on top. move people, then a Frontier or HDi According to Wagenknecht, a paper model will often suffice; if heavy analysis of UTVs and ETVs might cargo is to be moved, then a heavyshow similar pulling power and load duty XTI or Centaur model will be capacity on level ground, but off road, recommended. Optional flatbed, he says, the Argo product will outperbox, crane and auger platforms give form UTVs. An add-on trailer allows customers more ways and more What’s So Special? the machine to carry six crewmembers reasons to take the ETVs into the field. Argo ETVs compete indirectly with while towing up to 1,400 pounds of “As soon as you get into the more utility-terrain side-by-side vehicles equipment, instruments and supplies. aggressive, commercial type of work,” from Polaris, Deere, Kubota, and In the heart of northern Ontario’s said Laporte, “then that’s where the Kawasaki, to name a few. In addition, rugged mining country, Timmins new XTI and Centaur come in.” Argo ETVs can replace some tasks for Rent All started renting Argo ETVs Richard Wharmby, owner and heavy tracked vehicles at much lower 12 years ago. Al Laporte, owner and rental coordinator at Expedition Rentcost. But the biggest general manager als in Edmonton, Alberta, has 20-plus differentiator is the of Timmins, serves Argos in his rental fleet. In his territory, machines’ ability to on the commercial environmental companies use Argos traverse water. development team for to safely reach monitoring sites, and “We go where ODG. By responding oil and gas companies even use Argos the other machines to customer requests to transport community stakeholders can’t,” said Wagen• Flatbed body in the field, Laporte for onsite scoping expeditions as part knecht. This includes • Cargo box has been instrumental of local relationship management. deep snow, as well • Dump body in the development of “Out in the bush, when you hit a as soft and difficult • Welder new complementary stream, it’s easier to cross that stream soils including muck, • Generator products from Argo. in an Argo than it is to take a quad swamp, muskeg (or • Power auger Optional cargo decks and then bring your helicopter in to bog). Argo vehicles • Foggers and interchangeable lift the quad over the stream,” he said. traverse side slopes, • Sprayers attachments turn “This is a much cheaper alternative for • Fire pumps grades and obstacles the Argo ETV into those companies. When you are out in that are inaccessible to • Core sampler a versatile mobile the middle of nowhere, that helicopter • Snow plow other vehicles. platform for completexpense is high.” • Jib crane With a ground ing heavy-duty tasks According to Wagenknecht, Argo • Winch pressure as low as in support of construc- ETVs also benefit from lower mainte• Rescue stretcher 1.06 psi when addtion and maintenance nance costs compared to UTVs. The • Trailer on rubber tracks of utilities, exploration, Argo’s enclosed hull design keeps • ROPS are employed, Argo mining and fire and mechanical components protected ETVs will cross fragile rescue operations. from the elements, thus reducing terrain with little or downtime and scheduled maintenance. no lasting impact on vegetation and Get What You Need “It’s an accumulation of benefits substrates. A sealed body ensures Argo ETVs are designed for versatility. that convinces customers to buy,“ that all engine and mechanical fluids “You could outfit the vehicle to do 10 added Wagenknecht. are well contained to prevent soil different things,” said Wagenknecht. The cost of Argo’s 8x8s range from contamination. Argo’s exceptional A large number of attachments and approximately $16,000 at the low terrain capabilities and high altitude options ensure high utilization in the end to $75,000 at the high end for performance extend the range of sites rental fleet. With Argo’s standardized a heavy-duty Argo equipped with and seasons where vehicles can opermounting system, most attachment a heavy-duty crane and cargo box ate productively. installations take 30 minutes or less. solution. Argo 6x6 entry models are Safety is always a concern for busi “When we do get a phone call for available at $10,995. Dealers interested nesses carrying personnel over rough a rental, we spend some time with in learning more about Argo should terrain. According to Wagenknecht, the customer asking him what he’s contact Mark Hollister 813-508-3500, Argo ETVs are four times less likely to looking for and what he’s going to mhollister@argoetv.com. n
Versatile Options for Argo ETVs
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On the Numbers
LKE Gets a Black Eye, and Eyed for Cutting Grassroots effort from our industry can help lawmakers see the business necessity of like kind exchange. By Garry bartecki
There is never a dull moment with these tax issues we have had on the table for the last year, and we just added a big one to the list: Working on Capitol Hill to keep Congress from eliminating LKE as part of tax reform. Just when we thought we had a positive victory for LKE, the media gave us a setback. A reporter for Forbes criticized an IRS ruling to allow taxpayers using LKE to use sales proceeds to pay down a line of credit used to finance rental units. Now, we all know in most cases a dealer or rental company would be out-of-trust if they did not pay off a sold unit on floorplan or a line of credit, or rental units funded by an installment note that are sold. You either pay down the obligation with available cash or the sales proceeds, and we all know equipment dealers do not carry sufficient balances to make such payments and still remain in business. Many dealers have told me that if they had to leave the sales proceeds with the QI they would not be able to use LKE. The IRS correctly allowed this offset when required. The reporter suggested there was a massive miscarriage of justice created by allowing the offset and that business equipment owners using this method are depriving the government of substantial tax revenue. The Forbes article comes at a time when Congress is potentially close to putting together comprehensive tax reform, so now they all hear about the IRS going soft on LKE and, lo and behold, guess what tax law is proposed for the chopping block: LKE!
Needless to say, AED dealers and OEMs need to contact their congressmen to make them aware that eliminating LKE would hurt your ability to finance your business, reduce cash balances, as well as cause cutbacks on equipment purchases and, in general, decrease the value of the business. Congressmen also have to understand that LKE only provides a deferral and not a permanent tax deduction. In our case, the deferral is most likely recovered over a five-year period, with the deferral increasing and decreasing with the seasonality of the business. You get a deferral but at the same time reduce the tax basis of the replacement property, which equates to giving up tax deductions in the same amount as the deferral. At best, a dealer is deferring a cash payment for taxes at an assumed rate of 35 percent of the net deferral. The point to drive home here is the fact that in the year of the deferral your depreciation deduction is reduced for that year and another four years until the deferral is 100 percent reversed. If you sell the rental unit before the five-year tax depreciation period is up, the balance of any deferral is reversed as part of the tax gain on the sale of the unit. Again, we only have a deferral and not a permanent benefit. Debt related to the rental unit also comes into play regarding LKE. If you pay off debt on the unit being sold you must have at least that amount attached to the replacement unit being purchased. In the construction
equipment world that is normally the case. Even when a line of credit is used you can pay down the line with the proceeds and draw on the line when the replacement property is purchased – normally for an amount that adds to the debt outstanding. Regarding the ruling in question, the taxpayer used one line to fund both equipment and operations, which led to the disallowance of LKE, initially. A separate line of credit for equipment may have avoided the issue in the first place. The different Bonus Depreciation rules also play a part in this story. Bonus exaggerated the deferral because in those years when 100 percent Bonus is allowed, taxpayers get a 100 percent deduction in Year 1; and when the unit is sold, the 100 percent tax gain on the sale is deferred for another five years if LKE is used. My argument here is that Congress used Bonus to accelerate investment in equipment, which it did. Eliminating LKE at this time is sure to have the opposite effect and reduce equipment purchases because higher tax burdens reduce a dealer’s ability to finance equipment. Also, returning to “standard” tax depreciation policies reduce the tax benefit going forward. Please get the grassroots message out there to Congress. We need to get this train slowed down before it is too late. Garry bartecki (gbartecki@ aednet.org) is AED’s vice president of Finance.
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No Time for Downtime
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7/24/13 1:51 PM
Recruitment & Retention
Are You the Kind of Company That Attracts Rockstars? There are certain things they look for, and knowing they’ll be the only over-achiever in the dealership is not one of them. By Jerry Randecker & Chris Sitter
We’re not sure how long the word rockstar has been used to describe employees who are considered to be the best. Today, the term is so widely accepted that a Google search of “rockstar employees” yields pages of recruiter listings with either rockstar in their company name or announcing that they only recruit “rockstars.” At JSA, we hear the term often, and so this article is devoted to some suggestions for improving your own ability to attract top performers – the rockstars – to your company. Prove to high quality candidates that you only hire the best. The best way to attract a rockstar is to be one yourself. Equally important is to show that he or she will not be the first team member with a desire and track record to be the best. If you are saying to yourself, “I don’t have a team like that,” then the old adage “you’ve got to start somewhere” applies. Can I Grow Here? It goes without saying that A-players want to work with, challenge and be challenged by other A-players. If you find a candidate who is satisfied to be the No. 1 player, you probably aren’t talking to a rockstar. A top performer is confident in their capabilities but also wants to be surrounded by others who will challenge them and help them grow. Demonstrate to the candidate(s) that you know your business and customers very well. When was the last time you surveyed your top customers to ask (A) Why they do business with you and (B) Why your products and services are better than the competition. It is a real
confidence builder for a candidate to hear, in the interview, that you recently spoke to 10+ customers to ask these specific questions. Rockstars want to know that the current company leaders have a clear understanding of their customers’ expectations and reasons for doing business with them. Be clear about the current opportunity, and be equally clear about the potential for career growth in your company. If you can offer no potential career growth then you are faced with hiring the rockstar as only a mercenary. In this situation, his or her services will often come at a higher price than if they can see a path for career growth. You also need to be concerned that they will more likely entertain other opportunities outside of your company that either offer a better career path or more money. Be careful to not over-promise the growth potential for the future. Rockstars are seeking opportunities to work with leaders who are optimistic. Over-estimating the size of potential growth is acceptable; over-promising is never acceptable. Credibility will be enhanced if you can provide examples of how others in your company have enjoyed increases in responsibility directly tied to success in their previous position. Present them with a challenge. Top performers seek opportunities to work on challenging problems. A “caretaker” role is not what motivates them at the beginning of each day. Highlight new challenges that you plan to tackle and make sure they know you are looking for managers who are willing to tackle the big problems head-on. How do you find a rockstar? In an
ideal world, the rockstars are looking for you. Your company’s reputation with customers, current employees and industry associates can be a large determining factor on how hard you have to look to find rockstars who want to work with you. As mentioned earlier, you can always attract top talent by paying top dollar, but the preferred method is to offer a work environment that is challenging, rewarding and progressive. Whether you call them top performers, key management or rockstars is not important. What is important is that you give some thought to what you can do within your department or company to find, attract and retain rockstars. Have each member of your senior management team remain on the lookout for high quality talent that can be attracted into your company to enhance your overall management strength. And periodically review the potential of your up-and-coming leaders who demonstrate the ability to improve your team harmony. They also may be on the verge of becoming rockstars, so you want to be sure to keep them in your band rather than stray to your competition. Whether you’re looking to add rockstars to your team or hold on to those you’ve got, try implementing these ideas to help achieve your goals. Jordan-Sitter Associates is an executive search firm focused primarily on the heavy equipment industry. Jerry Randecker and Chris Sitter can be reached at jerry@jordansitter.com, chris@jordansitter.com, or 210-651-5561.
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Aftermarket
Who’s Who in the Competition Zoo? Six ways to reverse the downward spiral of lost parts business
By Ron Slee
It appears that almost everything we sell is available for sale by someone else, too. So, how do we compete? And how should we compete? I believe it is a series of things that we must do – there is no silver bullet. But we must do things differently in order to impact on market capture rates and obtain a higher portion of the available parts business. Yes, the following list is daunting, and there is a lot of work to be done, but it won’t happen unless we start. Market Coverage is one of the most critical in the list. How can we expect to obtain more business if we don’t pay more attention to the customers in our trading area? With the thousands of customers using equipment and the hundreds of technicians repairing and maintaining it, how can we get to know all these people with the limited number of product support sales personnel in place? I believe it is impossible. At least have someone cover – in the field – all of the customers that represent the top 25 percent of your parts business and 25 percent of your service business. Let’s stop the ongoing loss of customers on an annual basis, which, for many dealers, means that 90 percent of the business is coming from 10 percent of the customers. Product Knowledge is a seriously missing link in our arsenal of sales tools. How can we expect to obtain the business when we don’t really know what it is that we are selling and what advantages we have over the competition? The hard-working conscientious people you have working in your parts business need to know all about everything that you are selling. We are confronted with
bearing houses, sealing and packing unforgiving standard. We are expected specialists, undercarriage and ground to have the part, yet the competition engaging specialty competitors, hose is not. We have shorter replenishment and fitting businesses – sometimes cycles from our suppliers now, but representing a product much the “JIT” (just in time) inventory at times same as yours, like hardware and hurts us. We have many more tools for batteries. Yet sometimes the customer managing inventory on the business finds better product expertise at these systems, we have much better skills in competitors than they get from us. the parts personnel than ever before, How did we let this happen? and we measure the customer service Market Opportunity is based on performance regularly and critically. the machine ownership lists we should Never lose sight of the fact that time have for each and every customer: and again customers tell us in surveys what they own, the model and serial that the most significant element in the numbers, machine functions, hours parts business is availability. worked per year, and applications. In Expediting is the final bullet that fact, we should be asking for model we have in our gun, and to me it is the and serial number on each parts most important. The only part that inquiry or sale all the time now. The matters to the customer is the one equipment has changed very dramatiyou don’t have in stock. I have been cally over the past 10 to 15 years, and “nagging” about this point for years. unless we have the model and serial The No. 1 rule in the parts business is number we cannot be assured we “find every part that every customer is will supply the right part. With this looking for and let them know where information, we will know which it is available – and do that every day customers represent the largest before you go home for the day. You growth opportunity for us. will be amazed how easy it is to do and Pricing is also critical for our success. how much of a difference it will make A distributor I worked with long ago to your customers. described his pricing philosophy as All this work will bring you terrific follows: “I find out how much I am results, but not if you put it off. The going to pay for the part and then look time is now. around and find out what the market charges for it – I set my price somewhere Ron Slee (ron@rjslee.com) is the founder of R.J. Slee & Associates, Rancho Mirage, in between.” Personally, I don’t believe Calif., celebrating more than 30 years in we should leave the decision of price point to so simplistic a method. We need business in the United States, a consulting firm that specializes in dealership operations. to be dealing with competitive pricing Ron also operates Quest Learning Centers, approaches, lost leaders, specials, and many other sophisticated pricing mecha- a company that provides training services nisms such that our price point is specific specializing in product support, and Insight (M&R) Institute, a company that operates and extremely competitive. But don’t and facilitates “Dealer Twenty” Groups. Folforget, you need to make money too. low Ron on Twitter: @RonSlee; and read his Inventory Management is an area on which customers hold us to an blog at learningwithoutscars.com. September 2013 | Construction Equipment Distribution | www.cedmag.com | 51
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AED proudly presents The 2013 Leadership Academy
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View from the Hill
Removing the Roadblocks to Rebuilding U.S. Infrastructure With a 50-50 bipartisan sponsorship, new bill would establish partnerships between the public and private sectors. By Congressman John Delaney (D-Md.)
Editor’s Note: While AED has long argued that highway user fees should be increased as part of broader tax and budget policy, it has become clear in an era of increasing fuel-efficiency and even non-gasoline-fueled vehicles, that new ideas are essential. We applaud Rep. Delaney for the bipartisan-supported concept he has brought to the table. -KP America’s aging infrastructure badly needs investment. Our airports are struggling to meet global demands, our schools are crumbling, and our roads and bridges remain in disrepair. The country’s infrastructure shortfall is a drag on our economy and our quality of life. Our aging 20th century infrastructure won’t propel us forward in the 21st century. Such inefficiencies already cost U.S. businesses and families billions of dollars annually, and things are only getting worse. In March, the American Society of Civil Engineers (ASCE) issued the nation’s infrastructure a D+ rating, and estimated that the U.S. needs at least $3.6 trillion in investments by 2020 to remain globally competitive. It’s somewhat counterintuitive, but America’s deep infrastructure hole presents us with a unique opportunity. Despite the abysmal score, the ASCE report found that investments in infrastructure have the potential to invigorate the economy: A trilliondollar investment over the next decade would create millions of jobs and boost GDP by $3.1 trillion. Of course, those in the transportation industry know all too well about these issues, and all too often the
importance of investing in our infrastructure has been put on the congressional backburner. Any measure that makes doing business easier, more efficient, and more lucrative should be a top priority. With this in mind, I’ve proposed a creative solution that enables us to make infrastructure investments without adding to our budget problems. My bill, The Partnership to Build America Act (H.R. 2084), offers an innovative approach to funding the improvements we need to stay competitive. Perhaps most important, this proposal does not increase our national debt or put taxpayers at risk. My plan differs from previous infrastructure proposals in two important ways: First, my bill allows states and cities – not the federal government – to determine their own infrastructure needs. Second, my plan does not involve any direct federal appropriations, instead attracting private capital through the creation of a public-private partnership. As a result, taxpayers are entirely off the hook. Here’s how it works: U.S. corporations with profits abroad would be encouraged to purchase $50 billion of Infrastructure Bonds, which are 50-year bonds that pay 1 percent interest and are not guaranteed by the U.S. government. The money generated from the sale of these bonds would allow the American Infrastructure Fund to provide financing for up to $750 billion in infrastructure projects. In exchange for purchasing these otherwise unattractive bonds, my plan allows these U.S. corporations to repatriate some of their overseas earnings
tax-free. Thus, the bill has the added bonus of incentivizing corporations to bring business back home. In short, my plan creates a marketbased partnership between the government and the private sector, and it does so in an arena where such a relationship makes perfect sense. Because a strong national infrastructure is critical to the effective functioning of both the public sector and private industry, the potential – and need – for cooperation is clear. This spirit of collaboration is reflected in the bipartisan coalition of 38 representatives –19 Republicans and 19 Democrats – who have co-sponsored my bill. That’s why the American Society of Civil Engineers, the same organization that stressed the urgent need for investment in transportation, energy, water, and education projects, has endorsed the plan. Gridlock is a problem on our overburdened roads – and too often a problem in Washington, as well. But the Partnership to Build America Act is about problem solving, job creation, and fiscal responsibility. That’s something we can all agree upon. I look forward to working with Associated Equipment Distributors’ members to rebuild our crumbling infrastructure and laying the foundation for economic growth for generations to come. Congressman John Delaney is in his first term representing Maryland’s 6th congressional district. He is a member of the House Financial Services Committee, and is the only former CEO of a publicly traded company in Congress.
September 2013 | Construction Equipment Distribution | www.cedmag.com | 53
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New & Improved
BOMAG’s BW100AD-4 Light Tandem Roller Features Smart Steering Wheel Powered by a Tier-4 Interim compliant, 32.6-horsepower, watercooled Kubota diesel engine, the BOMAG BW100AD-4 tandem vibratory roller features enhanced operator’s station with smart steering wheel. The machine’s Smart Drive steering wheel has a smaller diameter, providing maximum operator comfort and a clear view of all indicator controls. A laterally sliding seat offers an excellent view of the drums. Delivering up to 8,350 pounds of centrifugal force per drum and a maximum frequency of 4,200 vibrations per minute, the BW100AD-4 has a standard crab walk allowing the roller’s rear drum to be offset by 1.6 inches in either direction for maneuverability around site obstructions. With several standard safety features on the BW100AD-4, including ROPS with safety belts, back-up alarm, and emergency stop button, the roller’s engine cover and dashboard are lockable to protect against vandalism. The BW100AD-4 can be used on a variety of commercial and municipal applications, including asphalt and base compaction, road shoulder work, parking lots, and asphalt patch repair. For more information visit www.bomag.com/us.
Allied-Gator Introduces New Blade Design for MT Mobile Shear Allied-Gator offers a new blade design exclusively for the MT mobile shear with the introduction of the patentpending Serrated Gator Blade. The new technology is offered as an option available to any current Allied-Gator MT customer regardless of tool size. Allied-Gator says no product modifications are needed to the MT. The serrations of the MT’s new blades are designed to pass through material like a saw blade rather than forcing the shear to chop through a large mass of material like an axe. The new blade design does not rely solely on sharp shear blade edges to achieve the cut. The blades generate a tearing action instead of a ‘snipping effect.’ This allows the MT shear to grip and tear scrap materials, which is a far more efficient cutting method than the traditional ‘scissoring effect’ utilized by all other mobile shear blades. As the MT’s dual moving shear jaws close on structural steel, each serration systematically yields and tears scrap material along the blades’ cutting path, reducing the overall wear and tear to the tool. According to the company, the technology is also effective in processing materials, like stainless steel and thin sheeting. The Allied-Gator Serrated Gator Blades are available for all 11 sizes of the MT Series Multi-Tool line. For more information visit www.alliedgator.com.
Infor BI 10x Decision-Making Tool for Enriched Business Intelligence Infor, a provider of business application software, announced its new Infor Business Intelligence (BI) 10x tool designed to modernize data processing and enrich decision-making. The solution also delivers advanced analytics and planning capabilities, self-service dashboards, and social collaboration. At its core, Infor BI 10x is fused with innovative core technologies, such as Infor ION and Infor Ming.le According to the company, Infor Bl 10x builds upon market standards for interoperability through flexible integration with third-party applications and databases. Infor provides a self-service user experience for creating dashboards that are offered on mobile devices or within a web browser. Dashboard widgets provide in-memory intelligence to automatically connect related content with each other so the user can quickly see how performance in one area affects other results. Enhancements – such as advanced analytics and a new application engine – aid statistical analysis to allow users to forecast trends and choose a course of action. For more information visit www.infor.com
54 | www.cedmag.com | Construction Equipment Distribution | September 2013
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Money
(“Credit Aplenty” continued from page 23)
When capital became scarce, lenders had to become more selective. “The market may have construed that as tightening,” Case said. However, he adds, the quality of the customers that were getting financed was actually increasing during the downturn because of the decrease in available capital.” Now that the economy has seen a recovery (it’s arguable when, if ever, it will fully recover to its previous state), Case says his group of lenders “might be slightly more adventuresome” with some types of credit in certain sectors because those sectors are performing well. Construction recovery is starting to come back in some areas through housing starts, which is resulting in increased infrastructure, he says. The increased infrastructure is resulting in increased equipment being purchased to satisfy contracts. “Any of those pockets where housing starts have increased is causing a ripple effect…. we are seeing increased equipment purchases, increased demand for lumber, which is hauled by truck and rail and causing increases in the
construction sector,” Case said. The U.S. recovery has seemed more remarkable because the nation’s economy dipped so dramatically. “We’re seeing a nice uplift with the rebound,” Case added. The Canadian market remains a bit less of a volatile market. Recovery isn’t as dramatic but the country has had less of a downturn. However, we’re not out of the woods yet. “I still think it will be another few years before the U.S. starts firing with all eight cylinders,” Case said. Construction spending is trending in the right direction, with residential and power related projects being the primary drivers, according to a Wells Fargo analysis this spring. “End users, generally speaking, are experiencing better results – the amount of work and the quality of work continues to increase/improve; the number of bidders on projects continues to become more normalized, which has improved margins to a certain degree. The industry is expected to continue gradually improving, with moderate growth expected for 2013,” according to the analysis. However, Case says he fears that
when the market “heats up and becomes more competitive,” people move away from the core of credit disciplines that would drive a wellperforming portfolio. “It’s important for both dealers and users that the equipment financing market remains strong, because finance is still a major catalyst in most equipment sales,” Case said. “Without a robust and healthy equipment financing market, that means fewer sales. That results in fewer trade-ins, which means less used equipment is sold.” 1st Bank’s Shute says despite the bumps in the road, the best is still to come. “We see positive trends that will continue. Not astronomical upward movement, but modest, cautious movement. The tough part is to try and sustain the momentum instead of waiting for the other shoe to drop.” n Tina Grady Barbaccia is a writer/ editor who has been covering the transportation/ construction industry for the past 10 years. She can be reached at tinabarbaccia@gmail.com.
Advertisers’ Index
Apex Supply Chain Technologies. . . . . . . . . . . . . . . . . . . . . . 48 ARGO - Extreme Terrain Vehicles. . . . . . . . . . . . . . . . . . . . . . 46 B4 Consulting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Bell Trucks of America. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 BOKF Equipment Finance Inc.. . . . . . . . . . . . . . . . . . . . . . . . 23 Coneqtec Universal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Direct Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 17 e-Emphasys Technologies, Inc.. . . . . . . . . . . . . . . . . . . . 28-29 EPG Insurance, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 HKX, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Infor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Knapheide Manufacturing Company, The. . . . . . . . . . . . . . . 39 Leading Edge Attachments. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Manitex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IFC Manitou North America. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 PFW Systems Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 PriSim Business War Games, Inc.. . . . . . . . . . . . . . . . . . . . . . 13 Ritchie Bros. Auctioneers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SANY Heavy Industry Co., LTD . . . . . . . . . . . . . . . . . . . . . . . . 9 Sentry Insurance Company. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Vacuworx Global, LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Verizon Networkfleet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Wacker Neuson Corporation. . . . . . . . . . . . . . . . . . . . . . . . . 25 Wells Fargo Equipment Finance. . . . . . . . . . . . . . . . . . . . . . . 21 Werk-Brau Company, Inc.. . . . . . . . . . . . . . . . . . . . . . . . . . IBC XAPT Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . OBC
As the official magazine of Associated Equipment Distributors, this publication carries authoritative notices and articles in regard to the activities of the association. In all other respects, the association cannot be responsible for the contents thereof or the opinions of contributors. Copyright © 2013 by Associated Equipment Distributors. Construction Equipment Distribution (ISSN0010-6755) is published monthly as the official journal of Associated Equipment Distributors. Subscription rate — $39 per year for members; $79 per year for nonmembers. Office of publication: 600 W. 22nd St., Suite 220, Oak Brook, Ill. Phone: 630-574-0650. Periodicals postage at Hinsdale, Ill. 60521 and other post offices. Additional entry, Pontiac, Ill. POSTMASTER: Send address changes to Construction Equipment Distribution, 600 W. 22nd St., Suite 220, Oak Brook, Ill. 60523
September 2013 | Construction Equipment Distribution | www.cedmag.com | 55
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Dealer Data
June Construction Settles Back 1 Percent Nonresidential lost momentum, and housing experienced a pause from recent upward trend. Year-To-Date Construction Starts Unadjusted Totals, In Millions $
Monthly Construction Starts Seasonally Adjusted Annual Rates, In Millions $ Nonresidential Building Residential Building Nonbuilding Construction TOTAL Construction
June 2013
May 2013
% Change
$151,319
$154,297
-2
199,868
207,796
-4
138,864
132,328
+4
$489,451
$494,421
-1
Source: McGraw-Hill Construction, www.construction.com
Nonresidential Building Residential Building Nonbuilding Construction TOTAL Construction
6 Mo. 2013
6 Mo. 2012
% Change
$70,854
$77,543
-9
99,457
77,437
+28
63,491
83,912
-24
$233,802
$238,892
-3
Source: McGraw-Hill Construction, www.construction.com
Monthly Sales Volume by Original Equipment Cost with Recovery %
This graph illustrates sales of used rental fleet by the major North American rental equipment companies for the last 24 months. Each month’s equipment sale volumes are expressed as a percentage of the total original equipment cost (“OEC”) sold in the highest volume month, with December ’12 representing 100%, (e.g. total OEC sold in January ’13 was approximately 60% of total OEC sold in December ’12). Actual sale $ volume is illustrated as the blue component of each bar in the graph. The recovery (i.e. sales $ as a percentage of OEC sold) is indicated within the bar for each month (e.g. January’13 sales $ recovery was 47.7% of total OEC sold).
Source: Rouse Asset Services. Contact Gary McArdle at gmcardle@rouseservices.com, (310) 363-7520
The Dirty Dozen - UCC filings on 12 earthmoving units. Equipment Description Articulated Dump Trucks Crawler Dozers
JUN 12
JUL 12
AUG 12
58
48
108
50
57
69
86
32
24
40
57
85
714
269
240
255
246
368
306
375
339
184
291
269
303
3,445
Crawler Loaders Excavators - Crawler, Hydraulic Excavators - Wheeled, Hydraulic
SEP 12
OCT 12
NOV 12
DEC 12
JAN 13
FEB 13
MAR 13
APR 13
MAY 13
Grand Total
1
4
3
2
1
6
10
7
9
3
6
11
63
568
471
555
476
691
550
741
624
408
529
659
701
6,973
31
19
36
23
22
31
47
31
10
22
20
20
312
Mini Excavators
635
554
621
555
681
615
717
824
435
615
749
908
7,909
Motor Graders
108
95
78
59
99
115
133
89
44
54
95
99
1,068
13
4
8
3
7
4
7
5
6
2
2
11
72
Skid-Steer Loaders
868
826
811
833
1,121
1,479
1,676
1,393
752
994
957
Tractor Loader Backhoes
326
295
351
351
423
366
384
335
246
231
361
Scrapers - Conventional
1,049 12,759 351
4,020
Wheel Loaders < 80 HP
43
38
38
48
69
72
96
78
49
61
44
63
699
Wheel Loaders > 80 HP
348
362
435
366
536
625
623
608
330
336
489
454
5,512
4,895 4,365 2,497
3,178
Grand Total
3,268 2,956 3,299
3,012 4,075 4,238
3,708 4,055 43,546
Supplied by Equipment Data Associates, Charlotte, N.C.
56 | www.cedmag.com | Construction Equipment Distribution | September 2013
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