April 27, 2025 • 42 mins
Dealership operational excellence has never been more critical than in today's consolidated market. Troy Ottmer, a seasoned dealership executive turned consultant, dives deep into the often-overlooked opportunity of departmental reviews and their power to transform profitability.
The equipment dealer landscape has changed dramatically—where once there were dozens of competitors, consolidation has left many markets with just a handful of dealers. Yet despite this reduced competition, many dealerships struggle to maximize their potential, celebrating modest profits while leaving substantial money on the table. Troy reveals how the average dealership carries a staggering 50-70% dead inventory, directly impacting not just working capital but creating ongoing costs through warehouse space, property taxes, and lost sales opportunities.
One particularly eye-opening discussion centers on the difference between typical parts department performance (8% net income) versus what's actually possible (25% net income). Troy and host Ron Slee explore how lost sales tracking has virtually disappeared from many dealerships, despite being a critical tool for understanding market opportunity. They also dissect the faulty logic behind common "cost plus" pricing strategies for wholesale customers—strategies that often result in actual losses when fixed expenses are properly accounted for.
Beyond inventory management, the conversation tackles the growing talent crisis facing equipment dealers. With projections suggesting that by 2030, half the workforce may lack necessary skills for employment, finding and retaining qualified staff has become an existential challenge. Troy offers practical insights on leveraging technology like e-commerce platforms to address staffing limitations while improving customer experience.
Whether you're a dealer principal, department manager, or OEM representative, this episode provides invaluable perspective on operational excellence in equipment dealerships. Reach out to Troy for operational review services that deliver measurable improvement to your bottom line—because in today's competitive landscape, good enough simply isn't.
Visit us at LearningWithoutScars.org for more training solutions for Equipment Dealerships - Construction, Mining, Agriculture, Cranes, Trucks and Trailers.
We provide comprehensive online learning programs for employees starting with an individualized skills assessment to a personalized employee development program designed for their skill level.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Aloha and welcome to another Candid Conversation.
I've got with me today TroyOtmer, who's had a varied
experience in dealerships invarious leadership executive
positions, as well as being atechnician, and he has left the
corporate safety net and hasgone into the world of
(00:25):
consulting has the skill set tobe able to do that easily.
What we want to talk abouttoday is operational or
departmental reviews and howthat tool can be helpful to
dealers.
With that as the introduction,Troy, good to see you, Welcome,
Hello again.
Speaker 2 (00:45):
Yes, once again, good to be here.
Speaker 1 (00:55):
Without having you be the one to say it.
What I'm going to say is thatwe've had a 10-year delay in
generational or leadership ofdealerships transfer.
More owners are in their 70sthan they're in their 50s.
True, We've also had a realserious consolidation of dealers
(01:15):
, and I'm going to say 50% havechanged between now and the
number of dealers today.
If it was 140 years ago, in1985, it was 50 in 2005.
It's 25 today, correct.
Here, most dealers are lookingat sales revenue as being a
measure of whether they'resuccessful or not.
(01:35):
And if they aren't having salesrevenue equal to or greater
than what they've experienced inthe last 20 years, there's
something wrong, because they'recompeting with half as many
people.
And the illustration I'll useis Canada.
There used to be 10 Caterpillardealers.
Today there's two.
There used to be I think it wassix Komatsu dealers.
Today there's one.
(01:56):
John Deere Industrial there'sone.
I mean, all of this stuff ispretty nasty.
So, as a consultant coming inwith that kind of landscape, how
do you get the owner'sattention?
Speaker 2 (02:13):
It is, you know, and I'm five, six months into the
jumping out of the corporatesafety net, as you called it,
and really establishing.
You know how I want to approachthe business and my approach is
really more aligned with.
Hey, I'm still fresh from adealer perspective.
(02:36):
It's fresh on my mind, whetherit's at the local level or if
it's at the corporate level andoperationally looking at doing,
say, a dealer review.
You know there's a lot ofdifferent things to talk about
and you know, obviously you knowyou've got sales and then if
you're rental oriented, then youhave the rental aspect and
(03:00):
sales could be broken.
I'll go back to that.
Speaker 1 (03:02):
Sales could be used, sales and new sales.
Speaker 2 (03:04):
That's two different animals, two different inventory
subsets, all the differentvariables that go with that.
Then you jump over to parts andservice and you know I know you
and I've had some otherconversations where absorption
is still a key component torunning a dealer group.
It does, as you said in oneconversation, it does come with
(03:25):
restraints that limit otherthings, but it's still a good
KPI to reference.
But there are other thingsreturn on assets, I think in one
of the other podcastconversations we've had and that
actually has trickled into someconversations recently with a
couple of other different dealergroups that I've had some
conversations with.
(03:45):
But for me I'm thinking in thecurrent state of things and you
referenced the last 10 years.
You know in that last 10 yearswe've had this thing I don't
know if you heard of it calledCOVID, right, and that that was
a game changer and that's fiveyears ago now, right.
And you know, and it's, and alot of businesses have done very
(04:07):
well, simply because of theinflationary factors that come
with it, there's been an uptickin supply chain.
So, hey, now you can name theprice you want for it.
Customers don't have a methodto negotiate because there's
supply chain shortage or aperception of supply chain
shortage.
I think there was a little bitof that going around as well,
(04:27):
globally and nationally.
But for me, one of the things asI start having these
conversations and I'm going toapproach it more from a
departmental review standpointand I'll go any direction that
the dealer principal feels theyhave pain points through some
basic Q&A.
(04:48):
But for parts department, forexample, you know looking at
your parts inventory, evaluatingparts terms, obsolescent levels
, review, fill rates, stock outoccurrences, and you and I've
had some detailed conversationson what you should stock and
when you should stock it and whyyou should stock it, and a
(05:08):
whole laundry list.
And you know, similarly, forthe service department, you know
analyzing labor rates, laborsales, what's your effective
labor rate?
Nobody talks about that one awhole lot.
You know what is effectivelabor rate, what, what does?
that really look like right youhave a $300 an hour door rate,
but do you really know what youreffective labor rate is at the
(05:29):
end of the day?
And a variety of differentthings.
Speaker 1 (05:34):
It's kind of fun.
Troy, everything you just wentthrough is absolutely true.
Let's just take that adifferent way for a second.
Everybody's looking atfinancial statements Correct,
that's how they do themeasurement.
Let's ask that the dealer giveme a financial statement every
day Correct?
(05:56):
Now the world has changed.
I'm not looking at last month,I'm looking at yesterday.
Then the next question I wantto ask is okay, I got the report
and you don't like the number.
Terrific, what are you going todo about it?
That's right.
Oh, even more pointed, who haveyou got available?
(06:17):
That's going to be able?
Isn't everybody busy?
Well, yeah, I think so.
Well, who's going to do thisfor you?
And that becomes a problem.
And that's kind of where youstick your hand up and say, yeah
, I think so.
Well, who's going to do thisfor you?
And that becomes a problem.
And that's kind of where youstick your hand up and say, well
, let me do it for you.
Correct, I don't work for you.
I've got free time.
Well, not free time, reasonabletime.
(06:37):
It's really remarkable.
Dealer, surplus debt inventoryyou mentioned in your list.
What's a number that you'recomfortable with that you're
going to?
If you got out in a plane, youand I went for a plane.
We went to a hundred dealers.
What's the least dead inventoryas a percentage of total
(06:58):
inventory that we're going tofind?
Any idea?
Speaker 2 (07:03):
The least if you, let's say, you have somebody
that's on top of their game, youknow you're probably going to
find some rolling average numberof 20 to 25 to 35 to 40%.
But the harsh reality, ron,it's you're not going to find a
lot of those.
It's probably 50 to 60 to 70percent, honestly.
Speaker 1 (07:22):
So let's just take 50 percent and you and I know that
, and the dealer won't besurprised if you create a report
that shows that the report thatthe parts manager created for
you from your system without anymodifications necessary,
because there's reports throughwhich we can do this, yes.
(07:44):
What are they going to do withit?
It should be a simple answer,but it's not Exactly.
Speaker 2 (07:55):
It's similar to what I just did.
I paused for a moment becausethat's the response you
typically get from the dealerprincipal.
They're like, well, how can Ibe making all this money for the
last decade?
Yet I'm not.
How is this possible?
But they don't realize the costthat they're incurring either.
Speaker 1 (08:16):
Well, that's true, but the other how have you been
able to make all this money?
What you're not saying to me ishow much more money you should
have made.
You're happy with what you got,but you have no idea of what
you've left on the side.
It's like this is kind of weird, isn't it?
Speaker 2 (08:33):
Yeah, you left a lot on the table and you walked away
, basically.
Speaker 1 (08:39):
Yeah, and I haven't met very many owners that like
being told that haven't met verymany owners that like being
told that you know.
Speaker 2 (08:49):
Well, one thing you mentioned just a few minutes ago
is who are you going to have todo that?
Most businesses today in thedealer world, whether it's
automotive, commercial truckequipment, light heavy utility,
etc.
They're understaffed to somedegree and they do it under the
premise that, well, we have newtechnologies that help us work
smarter, not harder, and that'strue.
(09:10):
But are we truly utilizing thetechnology and or the people, or
both we have, properly?
And the answer is no.
And I would throw a third thingin there Do we have the right
people?
Speaker 1 (09:28):
to begin with, Well, the other, you know everybody's
concerned about tariffs and letme go over there for a second.
And Trump's saying he's doingtariffs to level the playing
field and he'll bring moremanufacturing jobs back to
America.
And when China entered theWorld Trade Organization, 25% of
the World Trade Organization,25% of the American workforce,
was involved in manufacturing.
Today it's seven.
(09:50):
I was saying China is thedirect cause of that, but
they're a very large cause ofthat.
But what Trump says is I'mgoing to bring those jobs back.
So my problem is okay, you'regoing to bring these jobs back.
Speaker 2 (10:04):
Where are you?
Going to find the people Well,or the skill sets.
Speaker 1 (10:06):
That's what I mean.
Yes, and as I talk to people,almost everybody is saying the
same thing, and I think you aretoo I can't find talented people
anymore.
It's hard, it really is.
So.
Ed Gordon, one of the guys thatwrites for us.
He's on the Chicago Fed board.
(10:30):
He's a PhD in economics, phd inhistory.
He's written 21 bestsellers inthe New York Times and his
statement to me was 50% of theworkforce by 2030 will not have
the skills required to beemployable, so bring that back
into the dealerships.
(10:50):
We need talented people to beable to do it.
We don't have any spare peoplelying around.
A dealer that's smart will saywell, gee, troy's offering to do
it for us.
What the hell?
That's a very cheap way ofgoing at it.
It's cheap the first timethrough, when you prove to them
how you can actually save themmoney real time.
It's not as cheap although it'sfree, if you will, for you to
(11:14):
pick up all the other pieces,which is why, when you and I
talk about reviews, I don't wantto do a parts department review
.
I want to do an inventorydepartment review.
I want to do a warehousedepartment review.
I want to do a countertelephone sales every single one
of them and I'll be able.
I can guarantee, and have donethis for years.
(11:35):
I'll guarantee you'll get 10times what I've cost you back
and if you get more than that,my giveaway.
If it's less than that, it'llbe free.
If it's more than that, I want10% of the additional savings
you get or the additionalprofits you get.
And all of a sudden the guysays well, your price is pretty
good, we'll go with that.
Because they look at me and saywell, if you're going to
guarantee it's not a gun, you'repretty confident you must be
(11:55):
getting it right.
Speaker 2 (11:57):
Right right.
Speaker 1 (11:58):
So you know, somebody like you doesn't come along
very often where you've had thebackground experience and scars
that you've had in the business,starting as a technician.
Now the problem is for thedealers to have the cutzpah, the
strength to understand thatthey're not doing everything
they could do and that you canaffect the change.
And there aren't very many ofyou out there doing this anymore
(12:20):
.
Speaker 2 (12:21):
Well, and thank you for that compliment and I would
say it this way In my formerworld last year, if you were to
come in, ron Slee would havecome into my dealership and
while it was extremelyprofitable, parts turns were up,
inventory obsolescence was down.
We're clicking on 97 of all the, the metrics right, and we're
(12:46):
doing the right thing.
Guarantee there are things.
Just through the, the normalnuances of business and the flow
, you could probably pick outsome things of doing a micro
review, which is what you justdescribed.
As you walk through thewarehouse and you pick up on
something that, hey, why are youdoing it that way, you know, or
what's the reason?
(13:07):
And there may be a legit reason, may not.
But I think all dealerprincipals, all consultants, you
know, as we, you know, and weall came out of the dealer world
, you and I and others like us,and you know we bring different
perspectives to the table.
And you know, here we are 20some odd years later, you and I,
(13:29):
you're still teaching me a fewthings and then I may teach you
a thing or two along the way aswell.
And you know, and that's partof this evolution and that's
what I want to give back, Ithink, doing, for example, the
parts department.
Yes, that's easy to say, I'mgoing to do a review of the
parts department.
We're going to do this longchecklist but rather break it
(13:52):
down into the micro review of awarehouse the parts counter,
front and back, because thosetwo very different animals right
Front and back parts counter,and then if you have outside
sales, right front and backparts counter, and then if you
have outside sales, then youneed to look at that as well,
and you know.
And then from a partsmanagement team, what if?
(14:12):
What if you have someone that'sin?
What if you got a procurementdepartment?
That's a whole nother level ofthe parts department.
That's influencing, influencingthe productivity and efficiency
of a parts department, whichwould become part of the review,
you know.
And one thing we just left outnot a lot of people talk about
how well is your supplier oryour OEM doing?
(14:33):
Are they part of your successor your failure?
And so there's a lot that goesinto this and we, you know we
could have multiple podcastsjust about the parts department
as a whole, but I think, in anutshell, you know, breaking it
down and into, you know it'seach particular segment really
makes more sense, and that'sbeen my recent approach, as I've
(14:56):
continued to establish who I am, both as a consultant and as a
former dealer guy.
You know how I can better serve.
Speaker 1 (15:04):
You know I'm finding my footing and I'm okay saying
that, oh sure, well, you've onlybeen at it for five months and
it takes a while to get.
I think it took me almost twoyears when I started to figure
out how to make money at this.
You know, right.
But every single side of this,if you, when I talk to dealers
(15:31):
about something like this andI'm going to make it personal
for a second not to take it awayfrom you, sure, but I'll sit
down and have a couple ofcocktails after work and just
chat with and I've done thatwith a lot of guys and Tom Trapp
, who was chairman of a familyBobcat dealership, very
successful in Cincinnati.
(15:52):
We're sitting having drinks andI say, well, what's your net
income?
He says I don't know.
I said, how come?
You don't know?
He said I do when I'm lookingat the financial report, oh,
that's last month, what's itgoing to be this year?
I don't know the owners, and Ilove them to death.
(16:13):
They're more peddlers, theywant to sell equipment or
they're financial guys.
They want to make money andthere's not a lot of operational
people.
I'll give you a couple ofexamples.
When I started with Caterpillar, the chairman was Bill Blackie,
who's almost renowned in theindustry, and that's let me call
it 1970.
(16:33):
It's a little earlier, but callit 1970.
So here we are, 55 years later.
My not so humble opinionthere's only been one other
chairman that's worth his weightin gold, and that was Don
Fights, correct?
I would agree, yeah, andthey've had very talented men
very well.
I would agree, yeah, andthey've had very talented men
very well.
Umpley, I think, has a PhD ineconomics or something.
(16:55):
They're smart people.
It's not brains that isrequired in this world, it's
dirty fingernails.
Yes, you've got to have donethe work.
Yes, if you don't do the work,you're not going to understand
the little funny things that goon.
If you don't know how to dealwith customers, you don't know
(17:16):
how to handle objections, youdon't know what they want.
You're dead meat and you don'tget that out of a textbook,
right?
Speaker 2 (17:25):
That's where your scars are so important, coming
out of the dealers two or threeof them are so important coming
out of the dealers two or threeof them Correct and to your
point is where I do my best workand I'm very good at analytics
and sitting behind a computer,like we are now, looking at
spreadsheets, writing differentqueries and analyzing data.
That's an acquired skill set.
(17:48):
Where I'm good more naturallyis put me in the dealership
Right, even at the executivelevel.
I'd like to spend more time inthe field with the dealers that
I work for or represented ormanage the locations, because,
being available at the partscounter watching, assisting,
(18:10):
coaching, guiding I can cover alot of ground while doing that
and I can enhance the skill setof different people and get them
to understand the why behindthis.
Hey, why aren't you recordinglost sales?
You know no one.
In current times, I'm findingit very hard to identify dealers
that capture lost sales anymore.
Speaker 1 (18:34):
So freeze frame there for a second, because I think
this is typical of the wholething.
Why is that an issue withdealer management systems?
Why does not every supplier ofa dealer management system for
anybody in capital goods thathas a parts business?
Why are they leaving out lostsales?
Well, I have to rely onsomebody putting in.
That's not true.
(18:55):
Start everything and put it inas an order Correct and you can
only get it out of that orderqueue if you give it a lost sale
or a sale Correct.
Yeah, it's real simple.
How come nobody's done that?
Speaker 2 (19:07):
Very simple nobody's done that.
Very simple.
It's a piece of informationthat is critically important to
managing what you're orderingand the why.
And look, you want to increaseyour wallet share of what you're
getting of your customer.
You sell them a tractor, yousell them a truck, but if you
don't have the lost saleinformation one piece of the
(19:29):
puzzle you can't effectivelytake care of that customer
because if you don't have it,they're going to go get it.
You don't document it, youwon't have it next time.
You can't fix the problemwithout that capturing of that
debt.
Speaker 1 (19:41):
So you just open up another subject and think of it
this way what is the parts andservice consumption of a machine
operating in the field at 1,000hours a year?
We know the data.
We have that from themanufacturers.
It's accurate, it's there.
Why don't we use something likethat?
That's right.
(20:01):
Yeah, and so, if I know, mypotential for this customer is
$100,000 this year and I've onlysold 20,000, what the heck's my
salesman doing?
That's right.
He doesn't know that because wedon't give him that information
.
Why don't we?
Why don't we have that in ourdamn systems?
Again, I'm pointing at thesystem suppliers now, not the
(20:21):
dealers, but the dealers aren'tasking for it, quite frankly,
because they don't know what toask for.
Speaker 2 (20:28):
Well, one response on lost sales I received recently.
It's not the first time I'veheard this.
Well, we track it by the numberof emergency orders we put in
and I'm like do you realize howgrossly inadequate that is to
ascertain what you're missing inthe marketplace, to ascertain
(20:52):
what you're missing in themarketplace.
Speaker 1 (20:53):
What that's a reflection of is how poor their
inventory service level is.
It's gone up.
I can be really successful atthat one.
I've got a large amount ofemergency orders.
That proves I've got all kindsof lost sales.
Yeah, because you're blowing30% of your revenue because you
don't have the partner.
Speaker 2 (21:14):
That's right, and with the advent of daily stock
orders, that has been around for20, 30 years or whatever.
Speaker 1 (21:21):
Stop with that one.
Okay, what's really fun most ofthe dealers you're going to go
to have more than one majorsupplier.
Correct, correct, yes.
So basically, if it's notCaterpillar or Deere, they're
somewhere around 60 to 70, maybe50 to 70 percent of their
business comes from one brand,but that means I got 30 to 40
(21:42):
percent coming from somebodyelse.
And now that mix of thingsbecomes even more problematic.
Speaker 2 (21:50):
Right, Well, and the 30 to 40% may be representative
of 10 different OEMs.
Exactly so it scales incomplexity and it's almost like
a snowball going downhill,gaining mass right, yep.
Speaker 1 (22:06):
So as a consultant coming in, you have all kinds of
opportunities because you know,just take that 30 to 50% dead
parts inventory.
You know, just look at interestrates.
I'm going to pay 5%.
It's not interest rates.
How much is it costing you asquare foot If 50% of your
inventory shouldn't be there?
50% of the warehouse isn'trequired.
Speaker 2 (22:27):
Well, that, and so your property tax on the
building, aka warehouse propertytax on parts on the shelf.
Speaker 1 (22:33):
Oh, and all obvious to somebody who's more an
executive level further up thefood chain, looking down, and
(22:58):
they're making 32% gross profiton parts and they got 14%
expenses.
So they end up with 8%, orwhatever the number is, of net
income and they say, well,that's darn good, well, it is.
What should it be?
Should be 25% net income.
(23:18):
Well, how the hell are yougoing to do that?
Now we can start to talk.
Finally, I got a rise out ofthe guy.
I said well, wait a second, Idon't believe you.
Okay, no, but seriously, troy,I troy, I'm gonna look and say,
well, if I can prove to you thatthat's true, will I get the job
?
It's kind of like havingobjections in a sales call
(23:41):
because I say, almost on thefirst one, if I can overcome
that objection, troy, you'regoing to give me the order.
And the answer is no, well, Igot to work a little harder.
The answer is, yeah, well, Ijust saved a whole bunch of
steps, didn't I?
Speaker 2 (23:54):
Well, and to your point, I would translate that
into, as I'm teaching myself inthis new role I'm in, I have to
ask for the sale.
Speaker 1 (24:03):
Big time often.
Speaker 2 (24:05):
Often, and it's not that.
I didn't do that as a dealer,executive or general manager or
any of the positions.
I'm used to doing that, butagain, this is a little new, so
I'm no, look you're doing well.
Speaker 1 (24:21):
You're still alive, you're still making money, you
still got a family.
Nobody's mad at you.
Yeah, this is cool.
Yeah, but fundamentally, thepeople that are going to buy
your services have to understandthat there's a problem, or
change that, that there's anopportunity.
Speaker 2 (24:42):
Well, and one of the recent just you know
conversations again looking atwho are you doing business with
right and you and I kind of havethe same thought here is we
don't just look at the P&L andmake our decisions, that we want
to look at transactional data.
I think that tells more storythan anything the CRM or a P&L
(25:03):
will tell you is what are weselling?
What's the why behind it?
Youodity codes, critical codeit's a dear term and the
critical code nature, but everyOEM has their version of that.
But who's buying what?
And, more importantly, let'sbreak it down into two subsets.
You got traditional customer,your retail and dealers forget.
(25:28):
They do a lot of wholesalebusiness as well.
Speaker 1 (25:31):
They don't really realize that it may be wholesale
, I don't A hundred percent.
And one of the things that Iused to do and every mechanic
that comes in, are you anemployee of that company or are
you a subcontractor?
Are you an employee of thatcompany or are you a
subcontractor?
(25:51):
And I used to do some stuffthat was pretty dirty, pool type
of thing.
But I'd get somebody orderingparts and they needed a fair
amount of help at the counter orwherever the hell they were
getting the help.
After I serviced the customerand they'd left the dealership,
I called the customer.
I said you know, george wasjust in here and he spent about
(26:15):
a half an hour trying to figureout what he needed.
What are you having him do?
What do you want him to do?
Like I'll help you figure outwhether he's okay or not, like I
helped him, but what are youexpecting him to give you?
And now the guy's got it.
You know there's a couple ofthings that come in mind there.
(26:35):
Why, oh my God, what you know,does he know what he's doing?
Well, I think, of course,that's my intent.
You know it's called puckerpower, correct?
Speaker 2 (26:41):
Right?
Well, you're sending a subtlemessage by making that
connection the way you did, andI've done that.
I wouldn't call it dirty poolby any means.
I think it's just being aresponsible business owner or
business manager and supplierand supplier and fulfilling that
(27:02):
relationship.
But circling back to thewholesale side of what goes
across the front counter, howmany dealers are offering deep
discounts that are eitherapproved and, more importantly,
not approved, right?
So, hey, the only way we'regoing to sell this account.
They don't buy any labor, theyhave their own technicians.
So how do we get into thisaccount?
(27:22):
Well, I'm not saying it's rightor wrong, but you may have to
go to an account.
Now you're selling at cost plus10, for example, and so if
you're not paying attention towhat, what those parts are, how
they're, how they're flowing inand out, you know, and then your
margin is slipping.
(27:42):
So let's say, your neteffective margin at the end of
the day, all in is, is 36percent.
That was quoted to me recently.
I think, wow, that's prettysolid.
Right, and I said so does thatinclude?
everything.
Well, no, we split out thewholesale.
I said, well, what qualifies aswholesale?
(28:03):
And then they laid it out to meit's customers that we sell at
a reduced rate.
And I said, well, what's thecriteria and who decides what
that threshold is?
And it was silence, yep.
And then I said so, when youtake your 36% and you bring the
(28:23):
wholesale together, what is yournet effective margin?
And they said I don't know.
And I'm like well, why are youseparating those two?
It's good that you have themseparated.
That's great, but you still needto look at the big picture on
the P&L, and it was for somereason it was calculated
differently.
Speaker 1 (28:42):
Yeah, and you know, going export to me in the
definition is anything that'soutside my territory.
Yes, and a number of years agosome of the manufacturers
basically stood on dealers thatwere shipping outside their
territory.
It's a crazy game, but you know.
(29:04):
Go back to discounts.
Did you know how I do this?
If I got a part that's sellingprices $100 and I purchased it
for 70 bucks, I'm making $30gross profit.
And then, if I go by standards,the parts department has a 10%
expense.
So I got $10 of expense against$30 of gross profit.
I make $20 of net income andthen, you know, we say cost plus
(29:28):
10.
So my cost is going to be 77.
I just gave away $23 from mynormal selling price.
When I make $20 net income, doesthat mean I'm losing $3 every
time I make one of thosetransactions?
Yes, it does.
However, the principal, orsomebody who's advocating that
position, says well, I'm getting$10 more than I would have got
(29:50):
otherwise.
It's a false premise, is whatit is that's used all the time.
And then, you know, take simplethings, troy, where our system
suppliers aren't helping us.
How come a technician doesn'torder the parts on a computer by
himself in the field?
Speaker 2 (30:10):
Well, when they worked in my dealership they did
I know.
Speaker 1 (30:14):
But get in a plane.
And how many do you find thatdo it that way?
Very few.
And why is that true?
You know you go through all ofthis stuff.
That's why those reviews are sovaluable.
And you know you're going tocall 100 guys and you might get
three that'll buy it.
It's okay, you got to call them.
I tease people about 7Up.
(30:35):
The guy that created that diedat 6Up.
He didn't realize how close hewas.
Speaker 2 (30:40):
Well, right and Ron, what I've been doing is again
establishing.
You know who I am and while I'mnew on the market, so I'm an
unknown quantity in some areas,right, but some people that do
know me in the OEM side, youknow I'm talking to different
OEMs, I'm talking to dealergroups and establishing that,
(31:03):
and I feel I'm right on schedulewith five months in.
Speaker 1 (31:09):
Oh no, this isn't a reflection on anything other
than what?
What does what should thedealer be getting in the
marketplace?
Who are the people example, whoare the people consulting in
this industry other than youthat are trying to help?
There's not a lot.
There haven't been when Istarted.
Now the advantage you've got isyou're domestic.
(31:29):
I was doing it internationallyand that's a bone crusher.
So virtual meetings are goingto be very helpful in that
respect.
But you know, sometimes if youlook at a sports team or if you
look at an orchestra or a bandwhatever the heck we want to
call it, but if they're good,you see it, you hear it.
You walk into a dealership.
(31:51):
You don't know whether they'regood or bad.
You haven't done business withthem.
You walk in this looks nice.
No, it's dirty out there.
There's paper all over theplace.
Look at this, it's dirty.
And hell in here.
Don't go under the bathroom.
You know it's a customerservice world, right, and we're
in a different place now.
Speaker 2 (32:09):
Well, I know you're not from Texas and I don't know
if you've ever heard of Buc-ee'sback in the 80s and they are
known for these mega gasstations and they're not truck
stops.
They don't allow trucks in,only consumers.
And people go there becauseit's a novelty.
(32:31):
But one reason people go thereon purpose is the cleanliness of
their restrooms, thecleanliness of their facilities.
It is prim and proper all thetime.
Rooms, the cleanliness of theirfacilities.
It is prim and proper all thetime.
Now smaller fuel stations in thetravel routes in this area and
now they're in some other states, but it's the same thing at the
(32:52):
dealership.
A customer rolls up to adealership and it's dirty, it's
cluttered, it's run down, thelights don't work.
It really doesn't instillconfidence and that is also part
of the dealer review.
And maybe those are hardconversations because they're
about to go out of business andyou wonder will you get paid?
Maybe.
But you know it's how you turnsome of those things around and
(33:15):
a lot of times it's just gettingin front of the right people
and understanding what theirday-to-day is.
And oftentimes you do find alot of good talent that's just
untapped, yep.
Speaker 1 (33:30):
And you're going to find that more often than not,
as you're reflecting on it Right, the other thing that comes
down is not only is there asmall number of people that are
doing the consulting side,there's a smaller number of
people inside the dealershipthat have the smarts to be able
to know how to implement changeor what change to make, and
(33:52):
there's a whole bunch of thatstuff out there.
Dealer business systems havebeen stuck.
I called it paper to glass, ifyou remember, when we brought
computers in, they took a paperform and they put it on a
computer and did it faster, butit didn't change the method.
Well, making software changesin a large dealer management
(34:13):
system isn't the easiest thingin the world to do.
As a result of that, not verymany of them have done anything.
So the number of dealers thatallow me to take a parts sales
position and have it be done onthe internet or have customers
place the orders themselves,right, there's.
Speaker 2 (34:31):
There's so many opportunities now with
technology, kurt Troy, as youwell know, Well, and and that
that's one of the things withsome of the recent conversations
is what, what type of digitalor e-commerce platforms do you
have and are you able tointeract with your customer
through that platform?
Right, if you're short on staffand I can guarantee you most
(34:54):
every dealer group is probablyshort parts counter staff I'll
walk in and I see 10 people atthe counter and I see one person
helping them.
I'll walk in and I see 10people at the counter and I see
one person helping them.
Oh, by the way, that sameperson's answering the phone
while they're helping othercustomers, and you know, and
(35:15):
then you know.
So an effective e-commerceplatform really is beneficial,
and I know Cat has theirs andJohn Deere has theirs.
Komatsu, you know, and othersare coming into that area as
well the connectivity tocustomers.
But we, you know I'm notcertain it's being rolled out
effectively, and I know me andyou and others like us, we can't
be everywhere and help everydealer all at once.
But you know, and where I livein the greater Houston metro
(35:38):
market, I can reach a lot ofdifferent dealer groups, whether
they're big, tier one, oems, ortier two, or independent used
companies or rental companies.
Had an interesting conversationwith a publicly traded national
rental account the other dayand it just kind of came out of
left field and they were askingsome interesting questions and
(36:02):
you know so it's ever.
I think there's a definite needand you know, at some point when
I get so busy I probably haveto say no.
But you know I'm open to allconversations, including doing
dealer reviews, that that wouldbe remote in nature, like we're
doing right here, remote innature like we're doing right
(36:24):
here.
Um, you know, and and thedynamic of that's a little
different where I probablywouldn't be as effective as if I
could visit the dealership um,my preference is to do to, to
visit in person and to get afeel, because I think I could
give you a better work productif I'm there in person as well
as in the final review, right?
Speaker 1 (36:44):
I agree with you.
The other thing that happenswhen you get there is many times
the employees have suggestionsthat the owner won't listen to,
but they will listen to you withthe same thing and it bothers
the employees.
And I tell the employee I'vegot to come back and tell you
(37:09):
what he said.
He being the owner, I'm notassuming it's a male and the
other side of things.
When we go through it and theowner says, well, gee, that's a
really good idea, I say, well,it's not mine.
Oh yeah, who is it?
It's George, the guy that'sbeen here 35 years that nobody
seems to listen to.
Because there are people likethat all over the place, aren't
(37:31):
there, right?
Speaker 2 (37:35):
Correct, there is.
Speaker 1 (37:36):
This is a strange world, and it's not just the
equipment world, it's every damncar dealers, boat dealers,
engine dealers, washing machine,whatever.
We're all the same, you know,hang in there, well.
And yeah, I don't know whattrack you're on or everything,
but I'm not worried about whatyou're doing.
You just need to get somepeople saying yes and then away
(38:00):
you go.
Speaker 2 (38:01):
Yep, people say yes and then uh away, you go, yep,
any well, and and I, I receiveda sir, no, go ahead.
Oh well, I the other day I hada inquiry on the marine side,
you know, and we didn't, wehaven't mentioned marine in any
of our conversations, but that'sanother dealer group.
Um, and and I'm not a subjectmatter expert on all things
(38:22):
marine, I have a in the yearspast with John Deere.
They were active in the marineindustry.
So, and from that standpoint,yeah, I'm knowledgeable, but I'm
a bit dated and I would have tobe up to date.
But you know, when it comes toparts inventory management,
dealer reviews, processmanagement for parts service
sales, you know a lot of these,these, let's call it, for lack
(38:46):
of a better term, a checklistthere's things that apply across
the board.
You know automotive, light duty, commercial, etc.
But you know, I like what I'mdoing and I feel really good
about the approach andestablishing.
You know how I view the worldand what I'm doing.
(39:07):
I feel really good about theapproach and establishing how I
view the world and what I canoffer, and I've had some good
interests and by no means am Idisappointed or have my
expectations been deflatedbecause I use this a lot.
I feel I'm right on schedulewhere I should be for five
months.
Speaker 1 (39:21):
No, you're fine, we'll circle this up and break
it down.
We talked about pretty genericstuff, but also into shorter
blocks.
I'd like to have a chat withyou next time through, if this
fits your schedule, on themaintenance that's required for
(39:41):
capital goods.
Okay, and why it is that OEMdealers have less than 5% of
that available market.
And we know the answers withoutgoing very far, but I'd like to
have a broader, deeperdiscussion on that so more
people would understand thatmaintenance is a critical
(40:02):
element in any direction, in anyrepair and maintenance business
well, and that's a good goodtopic for, definitely for next
time.
Speaker 2 (40:13):
but just a short statement on that is even though
a lot of dealers say, yes, wedo maintenance, we do all those
things right, we, we advertiseit, I don't think that they are
maximizing the opportunity.
And if they are, are theyputting the right people on
those tasks?
And again, our nextconversation will certainly go
(40:34):
deeper on that, but definitelysomething to talk about.
Speaker 1 (40:39):
This one has been different as well, troy, so
thank you for your patience withme as we bounced all over the
damn place, but this is going tobe fun, so any closing words
that you want to throw at us.
Speaker 2 (40:53):
No, I would say, as always, thank you for your time
and your continued guidance, andit's been a pleasure working
with you over the last 26 plusyears.
I know I say that in everypodcast we talk about, but it
truly is.
You know, you continue to keepme sharp and on my toes and I
like those sidebar conversations.
(41:14):
They get a little spicy attimes, which is good.
Speaker 1 (41:17):
Flattery will get you everywhere.
Partner.
Speaker 2 (41:19):
I will, but no other than that, thank you for your
time and look forward to ournext conversation.
Speaker 1 (41:27):
Okay, and thank everybody who's been listening
to us and hope you've enjoyedthis.
We'll have another CanadaConversation with Troy very soon
.
Thank you for being with us,mahalo.
We'll see you next time.
Aloha and welcome to another Candid Conversation.
I've got with me today TroyOtmer, who's had a varied
experience in dealerships invarious leadership executive
positions, as well as being atechnician, and he has left the
corporate safety net and hasgone into the world of
(00:25):
consulting has the skill set tobe able to do that easily.
What we want to talk abouttoday is operational or
departmental reviews and howthat tool can be helpful to
dealers.
With that as the introduction,Troy, good to see you, Welcome,
Hello again.
Speaker 2 (00:45):
Yes, once again, good to be here.
Speaker 1 (00:55):
Without having you be the one to say it.
What I'm going to say is thatwe've had a 10-year delay in
generational or leadership ofdealerships transfer.
More owners are in their 70sthan they're in their 50s.
True, We've also had a realserious consolidation of dealers
(01:15):
, and I'm going to say 50% havechanged between now and the
number of dealers today.
If it was 140 years ago, in1985, it was 50 in 2005.
It's 25 today, correct.
Here, most dealers are lookingat sales revenue as being a
measure of whether they'resuccessful or not.
(01:35):
And if they aren't having salesrevenue equal to or greater
than what they've experienced inthe last 20 years, there's
something wrong, because they'recompeting with half as many
people.
And the illustration I'll useis Canada.
There used to be 10 Caterpillardealers.
Today there's two.
There used to be I think it wassix Komatsu dealers.
Today there's one.
(01:56):
John Deere Industrial there'sone.
I mean, all of this stuff ispretty nasty.
So, as a consultant coming inwith that kind of landscape, how
do you get the owner'sattention?
Speaker 2 (02:13):
It is, you know, and I'm five, six months into the
jumping out of the corporatesafety net, as you called it,
and really establishing.
You know how I want to approachthe business and my approach is
really more aligned with.
Hey, I'm still fresh from adealer perspective.
(02:36):
It's fresh on my mind, whetherit's at the local level or if
it's at the corporate level andoperationally looking at doing,
say, a dealer review.
You know there's a lot ofdifferent things to talk about
and you know, obviously you knowyou've got sales and then if
you're rental oriented, then youhave the rental aspect and
(03:00):
sales could be broken.
I'll go back to that.
Speaker 1 (03:02):
Sales could be used, sales and new sales.
Speaker 2 (03:04):
That's two different animals, two different inventory
subsets, all the differentvariables that go with that.
Then you jump over to parts andservice and you know I know you
and I've had some otherconversations where absorption
is still a key component torunning a dealer group.
It does, as you said in oneconversation, it does come with
(03:25):
restraints that limit otherthings, but it's still a good
KPI to reference.
But there are other thingsreturn on assets, I think in one
of the other podcastconversations we've had and that
actually has trickled into someconversations recently with a
couple of other different dealergroups that I've had some
conversations with.
(03:45):
But for me I'm thinking in thecurrent state of things and you
referenced the last 10 years.
You know in that last 10 yearswe've had this thing I don't
know if you heard of it calledCOVID, right, and that that was
a game changer and that's fiveyears ago now, right.
And you know, and it's, and alot of businesses have done very
(04:07):
well, simply because of theinflationary factors that come
with it, there's been an uptickin supply chain.
So, hey, now you can name theprice you want for it.
Customers don't have a methodto negotiate because there's
supply chain shortage or aperception of supply chain
shortage.
I think there was a little bitof that going around as well,
(04:27):
globally and nationally.
But for me, one of the things asI start having these
conversations and I'm going toapproach it more from a
departmental review standpointand I'll go any direction that
the dealer principal feels theyhave pain points through some
basic Q&A.
(04:48):
But for parts department, forexample, you know looking at
your parts inventory, evaluatingparts terms, obsolescent levels
, review, fill rates, stock outoccurrences, and you and I've
had some detailed conversationson what you should stock and
when you should stock it and whyyou should stock it, and a
(05:08):
whole laundry list.
And you know, similarly, forthe service department, you know
analyzing labor rates, laborsales, what's your effective
labor rate?
Nobody talks about that one awhole lot.
You know what is effectivelabor rate, what, what does?
that really look like right youhave a $300 an hour door rate,
but do you really know what youreffective labor rate is at the
(05:29):
end of the day?
And a variety of differentthings.
Speaker 1 (05:34):
It's kind of fun.
Troy, everything you just wentthrough is absolutely true.
Let's just take that adifferent way for a second.
Everybody's looking atfinancial statements Correct,
that's how they do themeasurement.
Let's ask that the dealer giveme a financial statement every
day Correct?
(05:56):
Now the world has changed.
I'm not looking at last month,I'm looking at yesterday.
Then the next question I wantto ask is okay, I got the report
and you don't like the number.
Terrific, what are you going todo about it?
That's right.
Oh, even more pointed, who haveyou got available?
(06:17):
That's going to be able?
Isn't everybody busy?
Well, yeah, I think so.
Well, who's going to do thisfor you?
And that becomes a problem.
And that's kind of where youstick your hand up and say, yeah
, I think so.
Well, who's going to do thisfor you?
And that becomes a problem.
And that's kind of where youstick your hand up and say, well
, let me do it for you.
Correct, I don't work for you.
I've got free time.
Well, not free time, reasonabletime.
(06:37):
It's really remarkable.
Dealer, surplus debt inventoryyou mentioned in your list.
What's a number that you'recomfortable with that you're
going to?
If you got out in a plane, youand I went for a plane.
We went to a hundred dealers.
What's the least dead inventoryas a percentage of total
(06:58):
inventory that we're going tofind?
Any idea?
Speaker 2 (07:03):
The least if you, let's say, you have somebody
that's on top of their game, youknow you're probably going to
find some rolling average numberof 20 to 25 to 35 to 40%.
But the harsh reality, ron,it's you're not going to find a
lot of those.
It's probably 50 to 60 to 70percent, honestly.
Speaker 1 (07:22):
So let's just take 50 percent and you and I know that
, and the dealer won't besurprised if you create a report
that shows that the report thatthe parts manager created for
you from your system without anymodifications necessary,
because there's reports throughwhich we can do this, yes.
(07:44):
What are they going to do withit?
It should be a simple answer,but it's not Exactly.
Speaker 2 (07:55):
It's similar to what I just did.
I paused for a moment becausethat's the response you
typically get from the dealerprincipal.
They're like, well, how can Ibe making all this money for the
last decade?
Yet I'm not.
How is this possible?
But they don't realize the costthat they're incurring either.
Speaker 1 (08:16):
Well, that's true, but the other how have you been
able to make all this money?
What you're not saying to me ishow much more money you should
have made.
You're happy with what you got,but you have no idea of what
you've left on the side.
It's like this is kind of weird, isn't it?
Speaker 2 (08:33):
Yeah, you left a lot on the table and you walked away
, basically.
Speaker 1 (08:39):
Yeah, and I haven't met very many owners that like
being told that haven't met verymany owners that like being
told that you know.
Speaker 2 (08:49):
Well, one thing you mentioned just a few minutes ago
is who are you going to have todo that?
Most businesses today in thedealer world, whether it's
automotive, commercial truckequipment, light heavy utility,
etc.
They're understaffed to somedegree and they do it under the
premise that, well, we have newtechnologies that help us work
smarter, not harder, and that'strue.
(09:10):
But are we truly utilizing thetechnology and or the people, or
both we have, properly?
And the answer is no.
And I would throw a third thingin there Do we have the right
people?
Speaker 1 (09:28):
to begin with, Well, the other, you know everybody's
concerned about tariffs and letme go over there for a second.
And Trump's saying he's doingtariffs to level the playing
field and he'll bring moremanufacturing jobs back to
America.
And when China entered theWorld Trade Organization, 25% of
the World Trade Organization,25% of the American workforce,
was involved in manufacturing.
Today it's seven.
(09:50):
I was saying China is thedirect cause of that, but
they're a very large cause ofthat.
But what Trump says is I'mgoing to bring those jobs back.
So my problem is okay, you'regoing to bring these jobs back.
Speaker 2 (10:04):
Where are you?
Going to find the people Well,or the skill sets.
Speaker 1 (10:06):
That's what I mean.
Yes, and as I talk to people,almost everybody is saying the
same thing, and I think you aretoo I can't find talented people
anymore.
It's hard, it really is.
So.
Ed Gordon, one of the guys thatwrites for us.
He's on the Chicago Fed board.
(10:30):
He's a PhD in economics, phd inhistory.
He's written 21 bestsellers inthe New York Times and his
statement to me was 50% of theworkforce by 2030 will not have
the skills required to beemployable, so bring that back
into the dealerships.
(10:50):
We need talented people to beable to do it.
We don't have any spare peoplelying around.
A dealer that's smart will saywell, gee, troy's offering to do
it for us.
What the hell?
That's a very cheap way ofgoing at it.
It's cheap the first timethrough, when you prove to them
how you can actually save themmoney real time.
It's not as cheap although it'sfree, if you will, for you to
(11:14):
pick up all the other pieces,which is why, when you and I
talk about reviews, I don't wantto do a parts department review
.
I want to do an inventorydepartment review.
I want to do a warehousedepartment review.
I want to do a countertelephone sales every single one
of them and I'll be able.
I can guarantee, and have donethis for years.
(11:35):
I'll guarantee you'll get 10times what I've cost you back
and if you get more than that,my giveaway.
If it's less than that, it'llbe free.
If it's more than that, I want10% of the additional savings
you get or the additionalprofits you get.
And all of a sudden the guysays well, your price is pretty
good, we'll go with that.
Because they look at me and saywell, if you're going to
guarantee it's not a gun, you'repretty confident you must be
(11:55):
getting it right.
Speaker 2 (11:57):
Right right.
Speaker 1 (11:58):
So you know, somebody like you doesn't come along
very often where you've had thebackground experience and scars
that you've had in the business,starting as a technician.
Now the problem is for thedealers to have the cutzpah, the
strength to understand thatthey're not doing everything
they could do and that you canaffect the change.
And there aren't very many ofyou out there doing this anymore
(12:20):
.
Speaker 2 (12:21):
Well, and thank you for that compliment and I would
say it this way In my formerworld last year, if you were to
come in, ron Slee would havecome into my dealership and
while it was extremelyprofitable, parts turns were up,
inventory obsolescence was down.
We're clicking on 97 of all the, the metrics right, and we're
(12:46):
doing the right thing.
Guarantee there are things.
Just through the, the normalnuances of business and the flow
, you could probably pick outsome things of doing a micro
review, which is what you justdescribed.
As you walk through thewarehouse and you pick up on
something that, hey, why are youdoing it that way, you know, or
what's the reason?
(13:07):
And there may be a legit reason, may not.
But I think all dealerprincipals, all consultants, you
know, as we, you know, and weall came out of the dealer world
, you and I and others like us,and you know we bring different
perspectives to the table.
And you know, here we are 20some odd years later, you and I,
(13:29):
you're still teaching me a fewthings and then I may teach you
a thing or two along the way aswell.
And you know, and that's partof this evolution and that's
what I want to give back, Ithink, doing, for example, the
parts department.
Yes, that's easy to say, I'mgoing to do a review of the
parts department.
We're going to do this longchecklist but rather break it
(13:52):
down into the micro review of awarehouse the parts counter,
front and back, because thosetwo very different animals right
Front and back parts counter,and then if you have outside
sales, right front and backparts counter, and then if you
have outside sales, then youneed to look at that as well,
and you know.
And then from a partsmanagement team, what if?
(14:12):
What if you have someone that'sin?
What if you got a procurementdepartment?
That's a whole nother level ofthe parts department.
That's influencing, influencingthe productivity and efficiency
of a parts department, whichwould become part of the review,
you know.
And one thing we just left outnot a lot of people talk about
how well is your supplier oryour OEM doing?
(14:33):
Are they part of your successor your failure?
And so there's a lot that goesinto this and we, you know we
could have multiple podcastsjust about the parts department
as a whole, but I think, in anutshell, you know, breaking it
down and into, you know it'seach particular segment really
makes more sense, and that'sbeen my recent approach, as I've
(14:56):
continued to establish who I am, both as a consultant and as a
former dealer guy.
You know how I can better serve.
Speaker 1 (15:04):
You know I'm finding my footing and I'm okay saying
that, oh sure, well, you've onlybeen at it for five months and
it takes a while to get.
I think it took me almost twoyears when I started to figure
out how to make money at this.
You know, right.
But every single side of this,if you, when I talk to dealers
(15:31):
about something like this andI'm going to make it personal
for a second not to take it awayfrom you, sure, but I'll sit
down and have a couple ofcocktails after work and just
chat with and I've done thatwith a lot of guys and Tom Trapp
, who was chairman of a familyBobcat dealership, very
successful in Cincinnati.
(15:52):
We're sitting having drinks andI say, well, what's your net
income?
He says I don't know.
I said, how come?
You don't know?
He said I do when I'm lookingat the financial report, oh,
that's last month, what's itgoing to be this year?
I don't know the owners, and Ilove them to death.
(16:13):
They're more peddlers, theywant to sell equipment or
they're financial guys.
They want to make money andthere's not a lot of operational
people.
I'll give you a couple ofexamples.
When I started with Caterpillar, the chairman was Bill Blackie,
who's almost renowned in theindustry, and that's let me call
it 1970.
(16:33):
It's a little earlier, but callit 1970.
So here we are, 55 years later.
My not so humble opinionthere's only been one other
chairman that's worth his weightin gold, and that was Don
Fights, correct?
I would agree, yeah, andthey've had very talented men
very well.
I would agree, yeah, andthey've had very talented men
very well.
Umpley, I think, has a PhD ineconomics or something.
(16:55):
They're smart people.
It's not brains that isrequired in this world, it's
dirty fingernails.
Yes, you've got to have donethe work.
Yes, if you don't do the work,you're not going to understand
the little funny things that goon.
If you don't know how to dealwith customers, you don't know
(17:16):
how to handle objections, youdon't know what they want.
You're dead meat and you don'tget that out of a textbook,
right?
Speaker 2 (17:25):
That's where your scars are so important, coming
out of the dealers two or threeof them are so important coming
out of the dealers two or threeof them Correct and to your
point is where I do my best workand I'm very good at analytics
and sitting behind a computer,like we are now, looking at
spreadsheets, writing differentqueries and analyzing data.
That's an acquired skill set.
(17:48):
Where I'm good more naturallyis put me in the dealership
Right, even at the executivelevel.
I'd like to spend more time inthe field with the dealers that
I work for or represented ormanage the locations, because,
being available at the partscounter watching, assisting,
(18:10):
coaching, guiding I can cover alot of ground while doing that
and I can enhance the skill setof different people and get them
to understand the why behindthis.
Hey, why aren't you recordinglost sales?
You know no one.
In current times, I'm findingit very hard to identify dealers
that capture lost sales anymore.
Speaker 1 (18:34):
So freeze frame there for a second, because I think
this is typical of the wholething.
Why is that an issue withdealer management systems?
Why does not every supplier ofa dealer management system for
anybody in capital goods thathas a parts business?
Why are they leaving out lostsales?
Well, I have to rely onsomebody putting in.
That's not true.
(18:55):
Start everything and put it inas an order Correct and you can
only get it out of that orderqueue if you give it a lost sale
or a sale Correct.
Yeah, it's real simple.
How come nobody's done that?
Speaker 2 (19:07):
Very simple nobody's done that.
Very simple.
It's a piece of informationthat is critically important to
managing what you're orderingand the why.
And look, you want to increaseyour wallet share of what you're
getting of your customer.
You sell them a tractor, yousell them a truck, but if you
don't have the lost saleinformation one piece of the
(19:29):
puzzle you can't effectivelytake care of that customer
because if you don't have it,they're going to go get it.
You don't document it, youwon't have it next time.
You can't fix the problemwithout that capturing of that
debt.
Speaker 1 (19:41):
So you just open up another subject and think of it
this way what is the parts andservice consumption of a machine
operating in the field at 1,000hours a year?
We know the data.
We have that from themanufacturers.
It's accurate, it's there.
Why don't we use something likethat?
That's right.
(20:01):
Yeah, and so, if I know, mypotential for this customer is
$100,000 this year and I've onlysold 20,000, what the heck's my
salesman doing?
That's right.
He doesn't know that because wedon't give him that information
.
Why don't we?
Why don't we have that in ourdamn systems?
Again, I'm pointing at thesystem suppliers now, not the
(20:21):
dealers, but the dealers aren'tasking for it, quite frankly,
because they don't know what toask for.
Speaker 2 (20:28):
Well, one response on lost sales I received recently.
It's not the first time I'veheard this.
Well, we track it by the numberof emergency orders we put in
and I'm like do you realize howgrossly inadequate that is to
ascertain what you're missing inthe marketplace, to ascertain
(20:52):
what you're missing in themarketplace.
Speaker 1 (20:53):
What that's a reflection of is how poor their
inventory service level is.
It's gone up.
I can be really successful atthat one.
I've got a large amount ofemergency orders.
That proves I've got all kindsof lost sales.
Yeah, because you're blowing30% of your revenue because you
don't have the partner.
Speaker 2 (21:14):
That's right, and with the advent of daily stock
orders, that has been around for20, 30 years or whatever.
Speaker 1 (21:21):
Stop with that one.
Okay, what's really fun most ofthe dealers you're going to go
to have more than one majorsupplier.
Correct, correct, yes.
So basically, if it's notCaterpillar or Deere, they're
somewhere around 60 to 70, maybe50 to 70 percent of their
business comes from one brand,but that means I got 30 to 40
(21:42):
percent coming from somebodyelse.
And now that mix of thingsbecomes even more problematic.
Speaker 2 (21:50):
Right, Well, and the 30 to 40% may be representative
of 10 different OEMs.
Exactly so it scales incomplexity and it's almost like
a snowball going downhill,gaining mass right, yep.
Speaker 1 (22:06):
So as a consultant coming in, you have all kinds of
opportunities because you know,just take that 30 to 50% dead
parts inventory.
You know, just look at interestrates.
I'm going to pay 5%.
It's not interest rates.
How much is it costing you asquare foot If 50% of your
inventory shouldn't be there?
50% of the warehouse isn'trequired.
Speaker 2 (22:27):
Well, that, and so your property tax on the
building, aka warehouse propertytax on parts on the shelf.
Speaker 1 (22:33):
Oh, and all obvious to somebody who's more an
executive level further up thefood chain, looking down, and
(22:58):
they're making 32% gross profiton parts and they got 14%
expenses.
So they end up with 8%, orwhatever the number is, of net
income and they say, well,that's darn good, well, it is.
What should it be?
Should be 25% net income.
(23:18):
Well, how the hell are yougoing to do that?
Now we can start to talk.
Finally, I got a rise out ofthe guy.
I said well, wait a second, Idon't believe you.
Okay, no, but seriously, troy,I troy, I'm gonna look and say,
well, if I can prove to you thatthat's true, will I get the job
?
It's kind of like havingobjections in a sales call
(23:41):
because I say, almost on thefirst one, if I can overcome
that objection, troy, you'regoing to give me the order.
And the answer is no, well, Igot to work a little harder.
The answer is, yeah, well, Ijust saved a whole bunch of
steps, didn't I?
Speaker 2 (23:54):
Well, and to your point, I would translate that
into, as I'm teaching myself inthis new role I'm in, I have to
ask for the sale.
Speaker 1 (24:03):
Big time often.
Speaker 2 (24:05):
Often, and it's not that.
I didn't do that as a dealer,executive or general manager or
any of the positions.
I'm used to doing that, butagain, this is a little new, so
I'm no, look you're doing well.
Speaker 1 (24:21):
You're still alive, you're still making money, you
still got a family.
Nobody's mad at you.
Yeah, this is cool.
Yeah, but fundamentally, thepeople that are going to buy
your services have to understandthat there's a problem, or
change that, that there's anopportunity.
Speaker 2 (24:42):
Well, and one of the recent just you know
conversations again looking atwho are you doing business with
right and you and I kind of havethe same thought here is we
don't just look at the P&L andmake our decisions, that we want
to look at transactional data.
I think that tells more storythan anything the CRM or a P&L
(25:03):
will tell you is what are weselling?
What's the why behind it?
Youodity codes, critical codeit's a dear term and the
critical code nature, but everyOEM has their version of that.
But who's buying what?
And, more importantly, let'sbreak it down into two subsets.
You got traditional customer,your retail and dealers forget.
(25:28):
They do a lot of wholesalebusiness as well.
Speaker 1 (25:31):
They don't really realize that it may be wholesale
, I don't A hundred percent.
And one of the things that Iused to do and every mechanic
that comes in, are you anemployee of that company or are
you a subcontractor?
Are you an employee of thatcompany or are you a
subcontractor?
(25:51):
And I used to do some stuffthat was pretty dirty, pool type
of thing.
But I'd get somebody orderingparts and they needed a fair
amount of help at the counter orwherever the hell they were
getting the help.
After I serviced the customerand they'd left the dealership,
I called the customer.
I said you know, george wasjust in here and he spent about
(26:15):
a half an hour trying to figureout what he needed.
What are you having him do?
What do you want him to do?
Like I'll help you figure outwhether he's okay or not, like I
helped him, but what are youexpecting him to give you?
And now the guy's got it.
You know there's a couple ofthings that come in mind there.
(26:35):
Why, oh my God, what you know,does he know what he's doing?
Well, I think, of course,that's my intent.
You know it's called puckerpower, correct?
Speaker 2 (26:41):
Right?
Well, you're sending a subtlemessage by making that
connection the way you did, andI've done that.
I wouldn't call it dirty poolby any means.
I think it's just being aresponsible business owner or
business manager and supplierand supplier and fulfilling that
(27:02):
relationship.
But circling back to thewholesale side of what goes
across the front counter, howmany dealers are offering deep
discounts that are eitherapproved and, more importantly,
not approved, right?
So, hey, the only way we'regoing to sell this account.
They don't buy any labor, theyhave their own technicians.
So how do we get into thisaccount?
(27:22):
Well, I'm not saying it's rightor wrong, but you may have to
go to an account.
Now you're selling at cost plus10, for example, and so if
you're not paying attention towhat, what those parts are, how
they're, how they're flowing inand out, you know, and then your
margin is slipping.
(27:42):
So let's say, your neteffective margin at the end of
the day, all in is, is 36percent.
That was quoted to me recently.
I think, wow, that's prettysolid.
Right, and I said so does thatinclude?
everything.
Well, no, we split out thewholesale.
I said, well, what qualifies aswholesale?
(28:03):
And then they laid it out to meit's customers that we sell at
a reduced rate.
And I said, well, what's thecriteria and who decides what
that threshold is?
And it was silence, yep.
And then I said so, when youtake your 36% and you bring the
(28:23):
wholesale together, what is yournet effective margin?
And they said I don't know.
And I'm like well, why are youseparating those two?
It's good that you have themseparated.
That's great, but you still needto look at the big picture on
the P&L, and it was for somereason it was calculated
differently.
Speaker 1 (28:42):
Yeah, and you know, going export to me in the
definition is anything that'soutside my territory.
Yes, and a number of years agosome of the manufacturers
basically stood on dealers thatwere shipping outside their
territory.
It's a crazy game, but you know.
(29:04):
Go back to discounts.
Did you know how I do this?
If I got a part that's sellingprices $100 and I purchased it
for 70 bucks, I'm making $30gross profit.
And then, if I go by standards,the parts department has a 10%
expense.
So I got $10 of expense against$30 of gross profit.
I make $20 of net income andthen, you know, we say cost plus
(29:28):
10.
So my cost is going to be 77.
I just gave away $23 from mynormal selling price.
When I make $20 net income, doesthat mean I'm losing $3 every
time I make one of thosetransactions?
Yes, it does.
However, the principal, orsomebody who's advocating that
position, says well, I'm getting$10 more than I would have got
(29:50):
otherwise.
It's a false premise, is whatit is that's used all the time.
And then, you know, take simplethings, troy, where our system
suppliers aren't helping us.
How come a technician doesn'torder the parts on a computer by
himself in the field?
Speaker 2 (30:10):
Well, when they worked in my dealership they did
I know.
Speaker 1 (30:14):
But get in a plane.
And how many do you find thatdo it that way?
Very few.
And why is that true?
You know you go through all ofthis stuff.
That's why those reviews are sovaluable.
And you know you're going tocall 100 guys and you might get
three that'll buy it.
It's okay, you got to call them.
I tease people about 7Up.
(30:35):
The guy that created that diedat 6Up.
He didn't realize how close hewas.
Speaker 2 (30:40):
Well, right and Ron, what I've been doing is again
establishing.
You know who I am and while I'mnew on the market, so I'm an
unknown quantity in some areas,right, but some people that do
know me in the OEM side, youknow I'm talking to different
OEMs, I'm talking to dealergroups and establishing that,
(31:03):
and I feel I'm right on schedulewith five months in.
Speaker 1 (31:09):
Oh no, this isn't a reflection on anything other
than what?
What does what should thedealer be getting in the
marketplace?
Who are the people example, whoare the people consulting in
this industry other than youthat are trying to help?
There's not a lot.
There haven't been when Istarted.
Now the advantage you've got isyou're domestic.
(31:29):
I was doing it internationallyand that's a bone crusher.
So virtual meetings are goingto be very helpful in that
respect.
But you know, sometimes if youlook at a sports team or if you
look at an orchestra or a bandwhatever the heck we want to
call it, but if they're good,you see it, you hear it.
You walk into a dealership.
(31:51):
You don't know whether they'regood or bad.
You haven't done business withthem.
You walk in this looks nice.
No, it's dirty out there.
There's paper all over theplace.
Look at this, it's dirty.
And hell in here.
Don't go under the bathroom.
You know it's a customerservice world, right, and we're
in a different place now.
Speaker 2 (32:09):
Well, I know you're not from Texas and I don't know
if you've ever heard of Buc-ee'sback in the 80s and they are
known for these mega gasstations and they're not truck
stops.
They don't allow trucks in,only consumers.
And people go there becauseit's a novelty.
(32:31):
But one reason people go thereon purpose is the cleanliness of
their restrooms, thecleanliness of their facilities.
It is prim and proper all thetime.
Rooms, the cleanliness of theirfacilities.
It is prim and proper all thetime.
Now smaller fuel stations in thetravel routes in this area and
now they're in some other states, but it's the same thing at the
(32:52):
dealership.
A customer rolls up to adealership and it's dirty, it's
cluttered, it's run down, thelights don't work.
It really doesn't instillconfidence and that is also part
of the dealer review.
And maybe those are hardconversations because they're
about to go out of business andyou wonder will you get paid?
Maybe.
But you know it's how you turnsome of those things around and
(33:15):
a lot of times it's just gettingin front of the right people
and understanding what theirday-to-day is.
And oftentimes you do find alot of good talent that's just
untapped, yep.
Speaker 1 (33:30):
And you're going to find that more often than not,
as you're reflecting on it Right, the other thing that comes
down is not only is there asmall number of people that are
doing the consulting side,there's a smaller number of
people inside the dealershipthat have the smarts to be able
to know how to implement changeor what change to make, and
(33:52):
there's a whole bunch of thatstuff out there.
Dealer business systems havebeen stuck.
I called it paper to glass, ifyou remember, when we brought
computers in, they took a paperform and they put it on a
computer and did it faster, butit didn't change the method.
Well, making software changesin a large dealer management
(34:13):
system isn't the easiest thingin the world to do.
As a result of that, not verymany of them have done anything.
So the number of dealers thatallow me to take a parts sales
position and have it be done onthe internet or have customers
place the orders themselves,right, there's.
Speaker 2 (34:31):
There's so many opportunities now with
technology, kurt Troy, as youwell know, Well, and and that
that's one of the things withsome of the recent conversations
is what, what type of digitalor e-commerce platforms do you
have and are you able tointeract with your customer
through that platform?
Right, if you're short on staffand I can guarantee you most
(34:54):
every dealer group is probablyshort parts counter staff I'll
walk in and I see 10 people atthe counter and I see one person
helping them.
I'll walk in and I see 10people at the counter and I see
one person helping them.
Oh, by the way, that sameperson's answering the phone
while they're helping othercustomers, and you know, and
(35:15):
then you know.
So an effective e-commerceplatform really is beneficial,
and I know Cat has theirs andJohn Deere has theirs.
Komatsu, you know, and othersare coming into that area as
well the connectivity tocustomers.
But we, you know I'm notcertain it's being rolled out
effectively, and I know me andyou and others like us, we can't
be everywhere and help everydealer all at once.
But you know, and where I livein the greater Houston metro
(35:38):
market, I can reach a lot ofdifferent dealer groups, whether
they're big, tier one, oems, ortier two, or independent used
companies or rental companies.
Had an interesting conversationwith a publicly traded national
rental account the other dayand it just kind of came out of
left field and they were askingsome interesting questions and
(36:02):
you know so it's ever.
I think there's a definite needand you know, at some point when
I get so busy I probably haveto say no.
But you know I'm open to allconversations, including doing
dealer reviews, that that wouldbe remote in nature, like we're
doing right here, remote innature like we're doing right
(36:24):
here.
Um, you know, and and thedynamic of that's a little
different where I probablywouldn't be as effective as if I
could visit the dealership um,my preference is to do to, to
visit in person and to get afeel, because I think I could
give you a better work productif I'm there in person as well
as in the final review, right?
Speaker 1 (36:44):
I agree with you.
The other thing that happenswhen you get there is many times
the employees have suggestionsthat the owner won't listen to,
but they will listen to you withthe same thing and it bothers
the employees.
And I tell the employee I'vegot to come back and tell you
(37:09):
what he said.
He being the owner, I'm notassuming it's a male and the
other side of things.
When we go through it and theowner says, well, gee, that's a
really good idea, I say, well,it's not mine.
Oh yeah, who is it?
It's George, the guy that'sbeen here 35 years that nobody
seems to listen to.
Because there are people likethat all over the place, aren't
(37:31):
there, right?
Speaker 2 (37:35):
Correct, there is.
Speaker 1 (37:36):
This is a strange world, and it's not just the
equipment world, it's every damncar dealers, boat dealers,
engine dealers, washing machine,whatever.
We're all the same, you know,hang in there, well.
And yeah, I don't know whattrack you're on or everything,
but I'm not worried about whatyou're doing.
You just need to get somepeople saying yes and then away
(38:00):
you go.
Speaker 2 (38:01):
Yep, people say yes and then uh away, you go, yep,
any well, and and I, I receiveda sir, no, go ahead.
Oh well, I the other day I hada inquiry on the marine side,
you know, and we didn't, wehaven't mentioned marine in any
of our conversations, but that'sanother dealer group.
Um, and and I'm not a subjectmatter expert on all things
(38:22):
marine, I have a in the yearspast with John Deere.
They were active in the marineindustry.
So, and from that standpoint,yeah, I'm knowledgeable, but I'm
a bit dated and I would have tobe up to date.
But you know, when it comes toparts inventory management,
dealer reviews, processmanagement for parts service
sales, you know a lot of these,these, let's call it, for lack
(38:46):
of a better term, a checklistthere's things that apply across
the board.
You know automotive, light duty, commercial, etc.
But you know, I like what I'mdoing and I feel really good
about the approach andestablishing.
You know how I view the worldand what I'm doing.
(39:07):
I feel really good about theapproach and establishing how I
view the world and what I canoffer, and I've had some good
interests and by no means am Idisappointed or have my
expectations been deflatedbecause I use this a lot.
I feel I'm right on schedulewhere I should be for five
months.
Speaker 1 (39:21):
No, you're fine, we'll circle this up and break
it down.
We talked about pretty genericstuff, but also into shorter
blocks.
I'd like to have a chat withyou next time through, if this
fits your schedule, on themaintenance that's required for
(39:41):
capital goods.
Okay, and why it is that OEMdealers have less than 5% of
that available market.
And we know the answers withoutgoing very far, but I'd like to
have a broader, deeperdiscussion on that so more
people would understand thatmaintenance is a critical
(40:02):
element in any direction, in anyrepair and maintenance business
well, and that's a good goodtopic for, definitely for next
time.
Speaker 2 (40:13):
but just a short statement on that is even though
a lot of dealers say, yes, wedo maintenance, we do all those
things right, we, we advertiseit, I don't think that they are
maximizing the opportunity.
And if they are, are theyputting the right people on
those tasks?
And again, our nextconversation will certainly go
(40:34):
deeper on that, but definitelysomething to talk about.
Speaker 1 (40:39):
This one has been different as well, troy, so
thank you for your patience withme as we bounced all over the
damn place, but this is going tobe fun, so any closing words
that you want to throw at us.
Speaker 2 (40:53):
No, I would say, as always, thank you for your time
and your continued guidance, andit's been a pleasure working
with you over the last 26 plusyears.
I know I say that in everypodcast we talk about, but it
truly is.
You know, you continue to keepme sharp and on my toes and I
like those sidebar conversations.
(41:14):
They get a little spicy attimes, which is good.
Speaker 1 (41:17):
Flattery will get you everywhere.
Partner.
Speaker 2 (41:19):
I will, but no other than that, thank you for your
time and look forward to ournext conversation.
Speaker 1 (41:27):
Okay, and thank everybody who's been listening
to us and hope you've enjoyedthis.
We'll have another CanadaConversation with Troy very soon
.
Thank you for being with us,mahalo.
We'll see you next time.
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