February 17, 2025 • 68 mins
Steve Day, a recently retired executive with over four decades in the equipment manufacturing and dealership industry, joins us to share his unique perspective on the evolution of this dynamic field. From his start in inventory control with Komatsu in 1978 to witnessing the consolidation of dealers, Steve offers invaluable insights into how larger dealers are transforming industry standards. Our conversation delves into the complexities of manufacturer-dealer relationships and the strategic challenges posed by these shifts, examining the successes of major players like Caterpillar, John Deere, Komatsu, and Volvo.
We explore essential strategies for maximizing equipment maintenance and service, crucial for extending the life of heavy machinery and maintaining operational efficiency. Steve emphasizes the significance of planned maintenance and the power of strong service relationships in safeguarding the parts business amidst a rising wave of aftermarket parts. We discuss financial dynamics and the importance of selective manufacturer partnerships, shedding light on how a well-trained, specialized service team can sustain a competitive edge in a rapidly changing market landscape.
Our journey concludes with a look at the future, where adapting to globalization in parts manufacturing and enhancing dealership service technicians are key to thriving in this industry. Steve shares his vision for optimizing workforce skills through structured training and scheduling systems, ensuring that each technician's strengths are effectively utilized. We wrap up by considering how distributors can maintain their relevance by fostering strong customer relationships and delivering exceptional service. Join us for a comprehensive overview of the strategic challenges and opportunities facing the equipment manufacturing and dealership industry today.
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.
The Clouds Are Upside Downpodcast, that sobriquet, that
title is allowing us to look atthe world through fresh eyes,
and today we're blessed to haveSteve Day, a recently retired
(00:22):
executive who worked for bothOEM manufacturers as well as
dealers, in executive positionsand has had a lifetime of
experience that I'd like to justlean on.
So, Mr Day, it is good to seeyou from Alabama.
Welcome.
Speaker 2 (00:43):
Thank you, good to see you, ron.
Speaker 1 (00:46):
So what year did you start in this industry?
1978.
And prior to that you were inthe Navy as one stint.
What else did you do prior tocoming into the industry?
Speaker 2 (01:01):
I came into the industry straight from college,
out of college then went intothe Navy and then came into our
business.
Speaker 1 (01:10):
And where did you start?
What was your entry job?
Speaker 2 (01:13):
It was about as low as you can get.
I actually started in aequipment inventory control
position with Komatsu, kind ofhandling dealer orders and
actually going out and countinghow many machines there were and
how many blades there were.
It was certainly not a careerthat I was thinking was going to
(01:37):
be where I would end up, andwhat year did you retire
officially and what?
Year did you retire officially2020.
Never retired during a pandemic.
Speaker 1 (01:50):
So 42 years in the industry.
Was it split equally betweenthe OEM, the manufacturer and
the dealer?
Speaker 2 (02:00):
Or how was it split?
Speaker 1 (02:08):
The first 25 was with the manufacturer and then with
a dealer.
So from that background we haveseen over the last 20 years a
remarkable consolidation ofdealers.
And let me use my typicalexample In Canada when I started
in 69, there were 10 dealers.
Speaker 2 (02:41):
Today there's two.
Why do you think that'shappening, steve?
Well, first of all, ourbusiness is very capital
intensive and years ago youcould kind of get into it pretty
cheap.
You can't do that anymore.
It's very people intensive asfar as training is concerned and
(03:05):
dealers are kind of a pain inthe butt for manufacturers and
manufacturers are kind of a painfor dealers.
And when I say that, being ableto focus on a program or being
able to focus on a technology orbeing able to focus on an area
(03:27):
of development that amanufacturer wants to see happen
within their distributornetwork, if you can convince
eight guys to do what you wantto do instead of trying to
convince 50, that's easier.
50, that's easier, and also theinfrastructure required to pull
(03:52):
those things off is easier ifyou have to do it with a smaller
number of bigger dealers.
And the same thing goes withhow many accounts you're going
to have if you're a dealer.
In the old days somebody mighthave 40 or 50 accounts.
Manufacturers take up a lot ofyour time and so the combination
(04:13):
of being able to move fasterwith fewer dealers and being
able to have access to greatercapital with bigger dealers, it
just makes a lot of sense forboth sides to be moving in that
direction, and you got to grow.
Speaker 1 (04:37):
You made an interesting comment that the
dealers are a pain in the assfor the manufacturers, and vice
versa for the manufacturers andvice versa.
They never seem to be on thesame page agreeing with how to
proceed in a market.
Speaker 2 (04:56):
Is that a fair comment?
Exactly yes, yeah, and I thinkperhaps the manufacturers
looking at it as North Americaand the dealers looking at it as
you know, north america and thedealer's looking at it as three
states, um and and so uh.
But but when you get into witha big dealer, with a larger
(05:18):
distributor group, you can go tothat guy and go and and maybe
customize things a little bitmore, because you're only
customizing it for for 10 peoplethan if you're trying to do it
for 50 people, which wouldbecome almost impossible to
manage.
So, yeah, we're painting thebutt for each other.
(05:39):
Um, I I never would.
You know, when I got to vote onwhether you take on a new
manufacturer, I usually voted no, and it's because of the reward
for the amount of time and theeffort and the investment you're
putting into it.
If it wasn't a big enoughopportunity for you, it just
(06:01):
didn't make sense for you, itjust didn't make sense.
So I think you know the largermanufacturers are going to have
fewer dealers and maybe thesmall guys will.
You know the smallermanufacturers, the lower market
share manufacturers, will go inand stay with the old lots of
dealers because they have noother option.
Speaker 1 (06:25):
I'm going to split the market up into four pieces.
I'm going to call it specialtyindustries like mining and
forestry, then into differentsizes of dealers large, medium,
small.
And I'm going to say, on theextremely large side you might
(06:50):
have six manufacturers Komatsu,caterpillar, p&h or not P&H,
that's already owned butLiebherr and perhaps others in
the construction equipment world.
Then you've got a similar splitin cranes, in material handling
, in road, highwaytransportation, et cetera, et
cetera.
And if I look at the largedealers not the mining guys I
(07:18):
see four Caterpillar, deere,komatsu and Volvo.
Is there anybody that I shouldbe adding other than the Chinese
manufacturers?
Speaker 2 (07:32):
Well, I think not.
I think China's problem ismaybe even impossible for them
to solve in the North Americanmarket.
And so, yeah, I would haveCaterpillar, john Deere, komatsu
(07:55):
and Volvo, and Volvo tends tobe very dependent upon their
distribution.
Are you good?
How good is your dealer?
Are you weak?
You don't have one, and reallythat's sort of the way for
everybody, except maybe cat.
Speaker 1 (08:15):
And why is cat different or how are they
different?
Speaker 2 (08:34):
different.
They've done such a good jobover many years of building up
their reputation in themarketplace that they've got the
most highly capitalizeddistribution.
And if you're a, if you're acat dealer, Kind of go along
with what they say because youcan make a lot of money and so
cat probably has the best bullypulpit.
And I think very early on catdid the best job of Pushing
(09:08):
product support and really goodcustomer support and built that
into their DNA and sort offorced their dealers to have
that level of competence thatperhaps nobody else was as quick
to jump into.
And part of that also came fromhow much capital could you
(09:37):
invest in being good at customersupport?
And smaller dealers just can'tdo that very well.
Speaker 1 (09:47):
So if I look very critically at those four,
caterpillar is the only onethat's rather pure in what they
do.
One of the things that I feltwas an advantage was that every
Caterpillar dealer in the worldhad to use Caterpillar's chart
(10:09):
of accounts, which made it awhole heck of a lot easier for
dealers to compare each otherCaterpillar to evaluate and
audit and for support to beapplied properly.
John Deere had a similaradvantage, but it was
agriculture.
Once they got rid ofinternational harvester ag, once
(10:35):
they got rid of New Holland agodds and sods of things Deere
was standing pretty much bythemselves.
Massey Ferguson was the lastone that kind of controlled the
world.
Komatsu was always a tag alongwhen it started, wasn't it?
I think it was tied to, youknow, wabco and the trucking
(10:56):
side and Clark and the rubbertired loader side.
And am I wrong in saying it wassomewhere in the eighties that
Komatsu came out with everythingand set up their own dealers?
Is that about the right?
Speaker 2 (11:11):
Komatsu started setting up their own dealers
actually probably about 75, butstill only had dozers and
crawler loaders.
Had dozers and crawler loaders.
And so it was in the 80s, whenthey brought on their other
product lines the wheel loader,certainly the excavator and
(11:41):
their own truck line that theyforced dealers into making
decisions and choices.
I'll take on the truck line.
I don't need to be a Wabcodealer anymore.
I'll take on the excavator lineand I'm going to get rid of
Poclain or whatever product theyhad before.
I'll, you know, take on thewheel loader line and there goes
(12:01):
Clark.
Wheel loader line and theregoes Clark.
But they still were sort offollowing the Caterpillar model
at that point, but without thelevel of capitalization.
Basically, you took your owndealer and just forced more
(12:23):
accounts on him, but he didn'thave any more money, he didn't
have any more capitalcapabilities.
Speaker 1 (12:30):
And if I look at Volvo and this is true to some
degree for Massey Volvobasically owned their dealers,
their distribution, basicallyowned their dealers, their
distribution, whether it was inthe United States or anywhere in
the world, and they startedgetting dealers going maybe only
(12:55):
40 years ago.
So if I look forward 20, 30years, are those four still
going to be there or will therebe fewer or will there?
Speaker 2 (13:10):
be more.
I think you'll still seeCaterpillar, john Deere, komatsu
in construction.
John Deere almost stands alonein North and South America with
agriculture, and you know Europeis not a huge agricultural
(13:35):
market for big ag equipment.
And then you know Australia andsome other places have decent
ag markets but John Deere sortof stands alone.
I don't know where Volvo isgoing to end up.
You know Komatsu made a leftturn with mining and said we're
(14:00):
going to do that ourselves andwe'll keep the construction in.
You know, in our dealer networkCaterpillar has chosen to keep
the mining business in theirdistributor network and those
(14:21):
guys are approaching verysimilar market shares and kind
of there's nobody else really inthere anymore.
Um, so the but the number ofcustomers you're dealing with in
mining is far, far, far smallerthan the number of customers
we're dealing with inconstruction or forestry or road
(14:46):
building or whatever.
And so I think the basic highlycapitalized dealer model is
going to stay in play.
But I think you're going to seethe number of dealers get fewer
and fewer.
More big guys you know it'straining Cat dealers have, you
(15:09):
know, five, six, seven trainers,and then you'll have small
dealers that don't even have atrainer.
And you know.
I know in our business we keptgrowing those numbers because
you had to start growing yourown people.
What is the future going tobring?
(15:30):
A lot of that has to do withyou know we saw John Deere Ag
lose the decision.
They're still in appeal.
But on a right to repair um,you know the, the farmers like
(15:51):
to fix it themselves and theindependent contractors want all
the software Um and ag isprobably a little bit ahead of
of construction in in thatregard, um, but you know how
much is ai going to figure intouh and you know and satellites
and and sensors going to figureinto um.
(16:13):
You know repair being plug andplay and and and uh and then
who's you know.
So the future of of of thedealers, so the future of the
dealers, that's a question wehave to always be asking
ourselves and I haven't evenreally considered it as much as
(16:34):
I should, so I'm kind of wingingit here, but I don't know how
much that's going to impact onyou know that could be a big
game changer Right now.
you still got to work on the oldstuff, but each new series
tells you a lot more every dayabout what's going on with that
machine.
Speaker 1 (16:56):
It's really an interesting thing.
If I look at mining, I wouldsubmit that maybe 90% of the
mining product support isCaterpillar and Komatsu, just
the two of them.
10% other noise, according tothe way that comes across, and
(17:18):
that business model and thatsupport model is totally
different in my mind thanconstruction.
What do you think?
Speaker 2 (17:29):
Absolutely.
You'll have a lot more parts onsite.
You'll have technicians on site,the customer has his own
technicians there You'reprobably he will tend to buy the
parts from you because you'remaking that deal probably
(17:55):
include some long-term support.
You know, with the bigequipment, you know the big
300-ton trucks and the bigshovels and the.
You know the big drag lines, umand and the fact that, uh, you
probably have one site parts, uhconsignment from the from the,
(18:16):
from the point of view of the uh?
Um manufacturer, and you alwaysknow what job site you're going
to every single day.
Uh, construction's different,it's a lot more um, and you
always know what job site you'regoing to every single day.
Construction's different, it'sa lot more fluid, and I'm not
sure how that's going to change.
But all the technology you canput into that big piece of
(18:43):
mining equipment as far assensors, you can put it into a
mini excavator, uh, and have ittell you this is what's wrong,
um and and so the futureprobably leads to customers
having much better availability,um, and who's going to give
that to them?
I am not always sure.
Speaker 1 (19:18):
Let me change the table a little bit.
As you indicated, there's maybe10, so make it 100, mining
companies worldwide that covermore than 90% of the mines, two
(19:43):
manufacturers that have thejuice to support those people,
those customers at the mine.
So the different eyes I'd liketo look at is we have a miner
make money getting product outof the ground and to the market.
We have the support, equipment,rentals, parts, service
(20:03):
programs, no-transcript takeparts.
(20:27):
Is that going to be the minerthat has the inventory and
support or is it?
Speaker 2 (20:33):
I think that's the manufacturer that's going to
have the inventory um on site,probably at least significant
amounts of it on site.
And the other thing you can dowith that big mining equipment
is highly planned maintenance,rebuild.
(20:54):
You know you can have a gliderkit for a big dump truck sitting
there and you say we're goingto take that down for, uh, you
know, for 60 days.
Um, you know, at this periodit's very planned but that
doesn't happen in construction.
Um, you know, I, I, uh, half,the more than half the guys that
(21:20):
would buy a rubber track for amini excavator bought one hand
by two.
He broke the one on the rightside.
Speaker 1 (21:27):
He just wanted it working yeah, because he's
making money with it.
Speaker 2 (21:30):
That's his livelihood that's exactly right so.
But the mining guys do so muchmore planning.
The big ag companies do so muchmore planning, um, and it's and
it's.
You know, sometimes yourplanning rebuilds three years in
advance for that big equipmentand I think that's that's going
to be in concert with amanufacturer every time, you
(21:53):
know, just to have stuff readywhen you're done.
Speaker 1 (21:56):
So let's take that and go back to parts and service
.
The manufacturer makes money onparts, the dealer makes money
on parts.
Is that at risk going forward?
Speaker 2 (22:16):
That's been at risk for 25 years or longer, as
people are getting aftermarketparts in certain areas.
And so, once again, I think youknow 25 years ago it was true
and today it's true who does thework will make a big impact on
(22:38):
what parts get bought.
So you know if it's done by thedealer, done by the, the uh
(23:00):
dealer, then it's almostcertainly going to be oem
manufacturer parts and that ofthat.
The fact that there is anaftermarket keeps everybody
honest.
But once you go, you knowyou'll have people that a
(23:20):
customer may not always bemaking a good decision on what
he's putting into.
I cannot tell you the number oftimes I've seen collateral
damage when somebody put in anaftermarket part that was not a
reputable aftermarket part andtrashed an entire hydraulic
system.
And then there's all thisfinger pointing starts happening
(23:43):
.
So but you'll have some guythat's your, your maintenance
manager that doesn't like thatdealer, um, or has some issue
with them.
Uh, that's thinking he's goingto save his company some money,
or he's going to rebuild acomponent himself, or, um, and
(24:03):
he makes the wrong decision, uh,he's probably not going to tell
his boss that he made a baddecision.
So how you maintain your partsbusiness as a manufacturer?
By being reasonably priced andmaking sure your dealers are
(24:25):
getting as much of the servicework as you can possibly get.
How?
And if I were a manufacturerand if I were a dealer,
everything I'd be working forright now would be toward
maintaining a strong servicerelationship with all my
customers and and whether that'syou, you know, being the guy
(24:47):
that changes their oil, um, youknow, every time it gets changed
, uh, you, you got me into thatbusiness in a big way and you
know what we see absolutelyhugely extended component lives
on on the machines that we weredoing that service on, just
(25:09):
because we always showed up andthe other guy might not have
gotten it in that month, youknow, might not have done the
oil change when he was supposedto do the oil change.
So I absolutely think that it'sgoing to be that manufacturers
(25:30):
should be most concerned aboutmaintaining that service link
with that customer, that directservice link with that customer,
whether it's him fixing it inthe mine or him having a dealer
that is completely capable ofgetting folks out, because that
(25:53):
contractor, that constructioncontractor, he needs it up and
running fast too.
That's a big investment for himand him getting paid depends on
that machine running.
So I really think that's anotherreason why you're going to more
heavily capitalizeddistribution is their guys are
(26:14):
going to be able to invest inthe service trucks and the
tooling, in the training, in thetraining, in the training going
to make decisions, to focusless on lots of accounts and
more, on being, you know, verygood at taking care of the three
big manufacturers that wesupport, and that was I think I
(26:37):
mentioned earlier when I got avote whether we should add a
manufacturer.
I usually voted no because Ididn't want to have to train
people on a whole new system.
I didn't want to have to trainpeople on a whole new system.
I didn't want to have to trainpeople on a whole.
Speaker 1 (26:49):
you know, I wanted the guys that I had to be very
good at what they did and, andyou know that that expertise,
that reputation, that thatbuilds the relationship between
the customer, the miner and thedistributor, but it doesn't do
(27:13):
anything to the OEM.
Whoever's closest to thecustomer owns that relationship.
Do you agree with that?
I agree with that.
So let's shift over to.
Let's look at parts again,because you had both sides of
the world.
If I look at the gross profitthat's achieved from the price
(27:36):
that the manufacturer pays tobuy the part to the price that
the dealer charges the customerfor that same part, if it's $100
at the customer price, what doyou think the purchase price is
from the OEM for that same part?
(27:57):
Just spitball?
Speaker 2 (28:02):
Usually it's highly dependent upon if it is a part
that they're buying formanufacturing or if it's a part
that they're buying foraftermarket, you know, for parts
sales.
And usually I would say, youknow, if he's buying it to put
it into the machine, it's 20% ofthat $100.
(28:31):
If he's buying it to put itinto the parts inventories and
there's a lot of contracts thatseparate that If you're not
making it yourself, then there'sa lot of contracts that
separate that.
You know, is this going into,uh, engine parts?
(28:53):
Would be a a exception to that,probably.
But uh, you know, is this goinginto a machine on the line or
is this going into a partsinventory?
And so, uh, it's probably 50 ifit's going into a parts
inventory.
And so it's probably 50% ifit's going into a parts
inventory and 20% if it's going.
(29:14):
I mean there's a hugedifferential.
And then the dealer, the moreexpensive the part, the less
he's probably going to make onit.
Once again, you know you get topowertrain, you know a
remanufactured engine, thedealer's markup is not close to
(29:37):
what it's going to be on afilter, you know.
So the more expensive it is,the less the dealer's going to
make on it as a percentage.
As a percentage, yeah yeah,more dollars, less percent.
Speaker 1 (29:52):
What's interesting also then shift over to labor.
In my career I would have saidthat the manufacturer, the OEM,
was only interested in labor forwarranty and that was kind of
trying to control costs andother than that they really
(30:16):
didn't pay much attention to theservice department because they
didn't make any money there.
Is that a fair comment?
Speaker 2 (30:22):
That's a fair comment .
I ran a manufacturer servicedepartment and it was all about,
you know, giving technicaladvice and controlling your
warranty expense.
You tended to be rathergenerous and you know within the
(30:57):
warranty terms but you could.
You know you'd fight over.
You know what a dealer wascharging you.
You know I always felt when Igot to be a distributor that I
should get paid the same thingfor my warranty that I got paid
for my regular field servicelabor and actually manufacturers
have kind of started to comearound to that.
But one of the reasons I thinkthey started to come around to
(31:17):
it is that their machines are alot better and things break a
lot less during the warrantyperiod.
So they could say, yep, butwhen I first started in the
business you get half of astandard labor rate.
Speaker 1 (31:34):
You know from the warranty so with that all as
background, in 1952, the carindustry in the United States
contractually allowed a dealerto have one physical location
(31:54):
and there was a General Motorsdealer in California who had his
brother-in-law do all of thecar PDIs, preparation for
delivery, which General Motorsviewed as a second location.
So they canceled the dealerbecause it was a violation of
the contract.
(32:14):
The dealer said BS, you can'tcancel me, that's a restraint of
trade, that's a violation ofeverything that America stands
for.
And they went to court andGeneral Motors lost the dealer
won, rightfully so.
However, general Motors'response was to call their
(32:41):
compatriots Ford, chrysler, ac,delco, major suppliers in the
industry and say I just had thishappen.
I think we're all at risk here.
I don't want to lose my partsbusiness to the second or third
or fourth location, which ispotentially going to happen.
(33:01):
So I want to create acompetitive line of parts that I
want to call genuine parts.
I want it to be a publiclytraded company and I want to
have dealers all around thecountry Napa dealers.
I don't want them to carry allthe parts, I want them to carry
only the fast moving parts,because we're going to own this.
(33:21):
We already pay a big amount ofmoney in inventory support at
the OEM.
I don't want to do that at thedistribution level.
So we'll have 3,000 to 5,000part numbers and because of that
our lower operating costsshould allow us to make more
gross profit.
(33:42):
Seeing as how they're publiclytrading, we know what that is.
38.3%, that's from the pricethat the Napa store buys the
part from the OEM to the pricethey charge the customer.
38.3% is a hell of a lot higherthan what the dealer makes.
(34:03):
So who took the hit?
Was it General Motors sellingto Napa or was it Napa selling
to the customer?
I think the answer is prettyclear when the gross profit from
Napa to the customer is higherthan the dealer makes.
So the manufacturer made lessmoney selling to Napa than they
(34:26):
did when they sold it to adealer.
Is my logic solid.
Speaker 2 (34:30):
I think your logic is solid, but the manufacturer
also was going.
If somebody else is making that, they're getting all the money.
At least I'm getting a piece ofthis Correct.
Speaker 1 (34:46):
Okay, so shift that over.
When I started contractually asa Caterpillar dealer, I was not
allowed to sell a competitivepart.
I was not allowed to purchase acompetitive part.
That was grounds forcancellation.
So I go out to British Columbiaat a Caterpillar dealer.
(35:07):
Then At the time was today.
It's the largest Caterpillardealer in the world.
We had 53 stores, from thePacific Ocean to the Great Lakes
, from the Arctic to the Mexicanborder, and we had a particular
part, a loader, linkage pinwhich is holding the bucket or
the hammer or the forks orwhatever, to a device, a machine
(35:31):
to allow it to go up and down.
They were selling the same part.
This competitive person that Iwas as a Caterpillar dealer, I
found where Caterpillar made thepart.
I had a contractual opportunityto buy the same part.
I talked to Caterpillar and say, well, wait a second, you're
(35:54):
killing me.
It's not because I don't wantto do the job, it's because
you're making too much money.
And they said what do you mean?
I said, well, I can buy thispart out of Italy for $10, and
your dealer net to me is $100.
The guy I'm competing with isselling the same part for $75.
You're killing me.
(36:17):
I'm not allowed to do anythingabout it contractually.
Let's talk about this I want tohave a different approach.
I want to sell that part andthey allowed me to do it as long
as the gross profit I made onthat part as a percentage was no
(36:40):
different than the percentagethat I made on the Caterpillar
part.
So if I bought it for $100, Isold it for 150 bucks.
That's a 33% gross margin.
I buy it for 10 bucks.
They're saying we'll let yousell it for 15 bucks.
I destroyed the competitor veryquickly, Like who's the price
(37:03):
house now?
Right, right, right.
When the competitor is gone,which they did I stopped buying
that brand, which I did, andlife continued.
I don't think the OEM in thefuture is going to be precluded
contractually that will stand upin court from alternate
(37:24):
sourcing one, two, three, almosteverybody.
With the internet, with Amazon,as our model has proven, son of
a gun, you can buy anythinganywhere, it doesn't really
matter.
Now it becomes quality, likeyou said, and the OEM dealer's
got a reputation as a highquality provider.
(37:47):
We used to call everybody else,quote gypos.
The implication was it wasgarbage.
Well, when we're selling thesame product that our competitor
down the street, we're introuble.
And the manufacturers causedthat by outsourcing motor grader
(38:08):
, cutting edges, by outsourcinghose and fittings, by
outsourcing batteries and fluids.
All of those things that theyoutsourced all of a sudden came
back as a vulnerability.
So you and I own thismanufacturer today.
We know everything we justtalked about.
(38:31):
What are we going to do overthe next 25 years that allows us
to continue to be in business?
Speaker 2 (38:41):
Great question and I don't know that I've got the
great answer and I don't knowthat what's going to be going on
?
There's no way I can possiblypredict what's going to happen
in 25 years.
I'm trying to do five.
Speaker 1 (39:02):
I agree with you.
I just went out further becauseit made the question more
difficult.
Speaker 2 (39:06):
And then you have to keep having the new plan because
you know the future becomesclearer the further you get into
the future Um.
I'm you know, I'll know what.
I'll know what it's going to belike 10 years from now.
I'm assuming I'm still alivefive years from now, way more
than I know what it's going tobe like 10 years from now today.
So, um, but I do think, uh,this is this is going to
(39:31):
continue to happen, wheresomebody is going to be making
that part in China or Vietnam orColombia or who knows, and it's
going to be making it at halfthe price of what I'm currently
paying for that part.
I'm currently paying for thatpart, but I still think it
(39:57):
depends on where that part goes.
So if it's going into ahydraulic system, if you've got
a brain in your head, you'regoing to be a little bit worried
about that because it affectsso much other parts of the
machine.
But if it's a track bolt,you're willing to take a chance.
(40:20):
At that track bolt.
You're paying, you know, 15cents for when your dealer is
charging you.
You know $1.10 is going to last80% as long and because if it
breaks I'm losing a track shoe.
(40:41):
That's it, you know.
So there are going to be things.
You know filtration.
You've going to clearly have toshow that there's a.
You know that you're notstuffing a roll of toilet paper
in that tin can that you've gota product there that's worth it.
And so I keep going back to ifyou fix it, you control where
(41:06):
the parts are coming from.
If you're not fixing it, you'renot controlling that at all.
If you're not fixing it.
Speaker 1 (41:16):
You're not controlling that at all.
So let me shift over to thatdirection then.
I think what that's saying isthe only way that we can be sure
to control our parts businessis by controlling the labor
business.
I think that's what you've beenimplying through this whole
(41:39):
discussion.
And our vulnerability there inthe supply chain, in the channel
, is the dealer is treating amaintenance technician, a repair
technician and a rebuildtechnician as all the same
(42:00):
technician.
They don't have specialty teamsof people identified and
segmented out to those threemarket segments and, as a result
of that, this one size fits allbrings the customer to the
(42:20):
conclusion well, I can findsomebody out there that's going
to change that hose for me athalf the price that the dealer
charges and they go out and doit.
And then the dealer's vulnerableto whomever it is that does
that repair.
They're the ones that choosethe part.
So the mechanic is making theparts choice.
The customer has given themthat right, that option, and
(42:47):
they've earned the businessbecause their labor price is so
much lower than the dealer.
Labor price so far, so good.
Yes, so for the dealer to getinto the maintenance business,
to control the filter and fluidmarket, they need to have a
completely different technicalteam to support just maintenance
(43:08):
.
Yes, any other way that it canbe done logically yeah,
maintenance, yes, any other waythat it can be done logically.
Speaker 2 (43:14):
Yeah, we are our and I you're.
You're leading me intosomething that you pulled me
into the business in the firstplace, um, so, so you know, I
think if you're going to beseriously in the um, in in the
service, in the lubricationbusiness, for example, you have
(43:36):
to have a separate team ofschedulers.
Ours happened to have beenbased in a large room with huge
screens and quite a trackingsystem and quite a phone network
, a tracking system and quite aum, a phone network, and there's
(43:56):
, you know, seven or eightpeople that are doing scheduling
um for the whole company, um.
And then you have mechanicsthat are not technically at the
same level as um, as one of ournormal field technicians, um,
there's, but you know, all theydo all day long is they go and
they do their scheduled oilchanges and they do walk-around
(44:22):
inspections of things thatthey've been trained to do.
And they have.
You know, you're not charginghourly, you're charging by the
job, not charging hourly, you'recharging by the job and and
you're not receiving the samelabor rate that you receive.
But you are getting your filtersale and you are getting your
(44:42):
oil sale there and and and so,and, and some another person,
another dealer I know, has atwo-tiered labor system,
depending on what the job is.
And the important part there iswho is making the call on the
(45:08):
mechanic that we're going tosend out to do that job, that
we're going to send out to dothat job, and do they understand
the level of training requiredto do that job?
So this one distributor that Iknew, who I think had a great
plan, had a fleet of smallerservice trucks with fewer tools
(45:33):
and less experienced techniciansthat could grow into something
else through training, who wouldgo out and they would get maybe
$40 an hour less than whattheir regular charge out rate
was.
So you'd send this express guyout in this cheaper truck and
charge the guy 35% less on laborthan you would to send the guy
(45:58):
out to troubleshoot a hydraulicsystem or an emission system or
whatever.
And I heard a customer ask do Ihave the sun in your eyes here?
Yeah, it's okay, I've had a guygo.
Well, I want the $70 an hourguy, not the $140 an hour guy.
(46:19):
No, you don't, because that $70an hour guy will be there for
two weeks and still won't figureout what's wrong with your
machine when my $150 an hour guyis going to know in an hour and
a half and have it fixed.
He's way cheaper for you.
You know, do you want the cheapheart surgeon or the expensive
(46:40):
heart surgeon?
And so I do think that you canmaintain levels of service.
And once again, that requires abigger dealer that can manage
things a bit more effectively totry to pull off that
segmentation.
But you can still get, and he'sgoing to go out there with the
hose, so he's going to have thathose built and you got to build
(47:04):
that hose yourself and you gotthat hose sale and he's going to
install that hose.
He's a plus for you at thatpoint for generating hose
business where he's going toinstall an alternator.
You know what you're sendingthe guy out for Maybe do a water
pump or something and whatyou've also done in that
(47:25):
particular situation one you'vegot the labor, you got the parts
sale and you got to use yourmore expensive guy on more
expensive, more important, morehigh, technically difficult jobs
that that guy should be workingon.
So, so and, and once again, allthat requires management, all
(47:48):
that requires training, all thatrequires investment.
But if you want to keep thatbusiness, if you want to keep
that parts business.
It's a good way to do it.
Speaker 1 (47:59):
What that opens up, then, something that I don't
think dealers have a good viewof what are the individual
skills that every technicianbrings to you, so that I can, in
fact, assign a technician to ajob that's a match for his
(48:19):
skills, not an overmatch for hisskills or an undermatch for his
skills?
Speaker 2 (48:27):
Well, I'm not going to go into all the disasters
I've seen over time.
I'm not going to go into allthe disasters I've seen over
time, but I'll say once againdealers, some dealers do a great
job of training.
Some dealers try just to keeptheir manufacturer.
(48:49):
I'm going to do what it takesto keep my manufacturer happy
and I think manufacturers aregoing to really up their game on
what their trainingrequirements are.
I know we have manufacturersthat if your technician didn't
have a certain level ofcertification on that engine or
on that machine, then theyweren't going to pay warranty on
(49:09):
you sending him out to do thatjob.
He had to have that level ofcertification.
I think it's becoming more andmore critical that not just are
you training your people, butare you understanding what they
actually know?
Did you send them to school?
Did they learn anything?
And can they apply that?
And do you have that in yoursystem somehow so that when you
(49:34):
put it, hey, I've got this jobcoming up, five names pop up of
the guy, of people that you havein your branch that are
qualified to do that job on.
(50:00):
Is having all my people'straining very visible to me, not
just so that I can scheduleproperly and give the customer
the best experience possible,but so I can plan more training.
Who needs what Every year?
I should be talking to that guywhen I do my review, talking
about the training I'm going toget him this year, and I'm going
to talk to you while I.
Speaker 1 (50:23):
Oh, you're going to give me a break, and give me a,
I'll look at you.
Show off.
Speaker 2 (50:29):
As long as the wind doesn't blow, I don't have to
hook that up.
Speaker 1 (50:32):
Make that a little less bright.
Yeah, I have the same thing'tblow.
I don't have to hook that up.
Make that a little less bright.
I have the same thing, and if Idon't, at night when I go to
bed I have to pull the blindsdown Because if I don't, the
sunrise will come right into myface at 6 o'clock in the morning
or whatever the devil it is, ifyou keep going with that
extension.
Let me simplify it a little bitand say that I'm going to have,
(50:55):
for every job function, I'mgoing to have a red, yellow,
green, an ABC type of skill set.
Green he can do everything.
Orange, he can do some things.
Red he's very basic remove andinstall guy.
Red, he's very basic remove andinstall guy.
(51:19):
I'm going to have that kind ofcategorization for each job and
I'm going to have that kind ofqualification evaluation for
each technician and then I'mgoing to use a system-driven
scheduling system that assignsgreen to green, system that
assigns green to green, yellowto green, red to green, et
cetera, et cetera, so that whena job comes in, customer calls,
(51:43):
a machine sensor indicates, Ican get in touch with the
customer or I can respond to thecustomer and say that I have
(52:03):
George ready on Thursday at 10o'clock in the morning to be
available to you at your jobsite.
If you'll take a lesser skilledperson, I can have somebody
there this afternoon at twoo'clock.
I cannot provide you the samewarranty with a lesser skilled
person.
What do you want to do?
How close?
Speaker 2 (52:25):
do you think we are to that kind of scheduling for
service with dealers?
I think that is all over theboard on how what a dealer's
record keeping is on.
Dealers need help with thatBecause for me, in an ideal
world, I'm going to code jobs.
So my satellite system has toldme that this is the three
(52:53):
issues that are wrong on thatmachine right now and I can put
a code in there and I can pullup every technician I have with
a level of training and what hisschedule looks like right now
and I can pick the guy thatwould let somebody who's not a
service manager make those callssometimes.
And so how do you get there One?
(53:17):
You know what everybody's levelof training is.
You know because you sent themto the class.
In many dealers cases you'vedeveloped an apprentice program
to bring your people along.
You know to get you to.
You know to point A and, butyou cannot.
(53:38):
You got to start with knowingwhat they already know.
So you know if you have a basictesting system where you can
figure out.
You know what's the retainedknowledge.
Yeah, you went to the classlast year.
Do you remember anything youlearned?
So I would like to see beingable to test all of your people
(54:04):
up front to see what they needand then maybe every once in a
while or retest them to see whatthey still remember, see if
they'd have to be refreshed.
But you know, we kind of saw itas elementary school, high
school, grad school, and youknow the really good technicians
.
You are giving them maybemanufacturer-specific training
(54:25):
on a new model and you gave itto them at a different level
than you gave the guy thatyou're doing basic diesel or
basic hydraulics or basicelectrical with um.
And how do you do that?
Well, you've got to have agreat record keeping system, uh,
on each person and and you haveto have some way to certify
(54:47):
them as capable in each one ofthose areas.
So this is my electrical guy,this is a great hydraulics guy,
this is a great engine andemissions guy.
This guy can do electrical andengines and emissions.
This guy can do, he can do itall.
He's a 35 year guy and he, youknow he can, he can fix it if he
(55:07):
smells it, and that that, Ithink, is the ultimate system.
You know, I I think they'veevolved past where we were when
I left, but when, when I left,we knew what everybody's level
of training was at least.
Uh, and when I came we did.
And sometimes you'd have amanufacturer call you up, maybe
(55:31):
a major manufacturer call you upand say, um, we've got this
class, you need to have peoplein it.
And you'd find out, ok, sendthis guy and this guy.
You know I'm, I'm, I'm stampingthe manufacturer sheet but I'm
not necessarily putting theright guy in for the training
(55:52):
that we need to have.
And so you spend a lot of moneyon very ineffective training.
And it took us a long time toget to the point where if we
were going to spend money ontraining somebody, it was going
to be the right guy and theright training and the
manufacturer had to prove to usthat that was useful training.
And then we also had to makesure we were bringing them the
(56:15):
right product.
And I was embarrassed kind ofearly by sending.
You know I got told off by somepeople that were friends that
said you know that guy was anidiot.
And I found out, you know wehad sent somebody convenient
rather than somebody useful.
And so that's a big deal andthat's the value you're bringing
(56:41):
to the manufacturer sets, sothat when you send a guy out
there to that customer.
(57:01):
You fix his machine.
That's why he calls you back,you know, is because he can fix
it, and I'll tell you thatyou'll have a technician, leave
you and go out on his own andwithin two years his knowledge
is outdated and his value thathe's bringing to those customers
(57:24):
is highly diminished, andthey're not even getting what
they're paying for.
You have to keep these guys soupdated.
Things are changing so fastthat I would like to see a
certification capability atevery dealer.
Speaker 1 (57:42):
You got us into the creation of our assessments
because you didn't want to keepon training people that were
just taking oxygen out of theroom rather than being able to
be able to contribute.
So we started a skill andknowledge assessment program for
support functions in parts andservice selling, marketing, the
(58:06):
product support world.
Those were 90 to 100 multiplechoice questions, rather complex
, that were created from ourclass structure that we've been
using for 40 years, where 25 to30,000 people have gone through
it.
That said, these jobs requirethis kind of skill and we found
(58:33):
that out by having quizzes atthe end of every segment.
20 segments in a class, 32classes, 640 segments questions.
I'm pulling from 2,000questions to come down to 100.
And lo and behold, we usededucation criteria, which is 0%
(58:54):
to 50% is developing, 51% to 75%is beginning, 76% to 90% is
intermediate and 91% and aboveis advanced.
That might not be the rightterminology for our industry,
but that's what the educationworld uses.
And last year was some 3,500assessments.
(59:15):
We had less than 50 people thathad 90% or higher, which
surprised me.
But after thinking about it andtalking to different people,
didn't and shouldn't have Withthe technicians.
(59:44):
We've developed four segments45 questions per segment, 180
question multiple choice.
Skill and knowledge assessmentof technicians.
Brand independent.
Because they asked you to sendit and that person comes back
from the school and you ask themto see what their score was on
the final exam.
There is no final exam, so weassume he learned because, or
(01:00:06):
she learned because they went tothe class.
What I say to people is givethem a couple of weeks after
they're back and then have themtake our assessment and see what
score they come back with.
Now we open up a vista.
That's a completely differentballgame.
Capitalization is where westarted.
With the shrinking it's becomevery expensive.
(01:00:26):
The barrier to entry in ourdistribution channel is money.
And number two you came on veryquickly thereafter saying the
biggest problem, bigger problemis people, because there's not
enough at the skill level werequire and we don't know what
to give them to get them to thatskill level, because nobody's
(01:00:47):
prepared us for that.
That's not part of our skillset.
I have to outsource it.
Who do you go to to find out?
Who does that?
Well, guess what?
We're the only ones that dothat, and the schools don't even
do that, and they're stunned athow we can categorize all of
this nonsense.
But if a dealer, I guess theclouds are upside down.
(01:01:09):
Message from this discussion,this conversation, is if you
don't control the labor, you'reat risk.
Yes, it has nothing to do withmachine market share, because I
can do labor on every damnmachine, I don't care what brand
you've got.
But that implies that I'm goingto train people.
(01:01:32):
But that implies that I'm goingto train people and the dealer
has given up on having thoseschools themselves.
For the most part We'll doonboarding, that kind of stuff,
the easy stuff.
Speaker 2 (01:01:43):
Yeah, I think I'm seeing once again, when you get
into the big dealers, thecapitalized dealers, we figured
out that at any given time, westart two classes of eight to 10
(01:02:04):
people every year and theyspend a week a month going
through apprentice training for18 months.
So they'll have 18 weeks oftraining at the end of 18 months
.
Um, and we've found that andthat's a huge investment.
(01:02:25):
So at any given time you've got30, you know, somewhere between
you know 24 and 30 people inthat program, um, and that's a
huge investment because you're,you're, you know 24 and 30
people in that program andthat's a huge investment because
you're, you're, you're givingthem, you know, 12 weeks off a
year.
You're not getting any incomefor from them.
And then you've got the peoplethat are training them.
(01:02:45):
And there's more.
There's several dealers thatare that I know that are doing
that, and and othermanufacturers have those same
things in place.
And if you're not doing thatyou're, you're not developing
your people.
So, with anybody that wentthrough that program, and we
have a secondary program, one ofour manufacturers is set up
(01:03:08):
where you send people away toschool for two years and and
then they come off and theyspend time in your shop and they
spend time at the manufacturerfacility and you've got a heck
of a mechanic after two yearsand they stay with you for two
reasons.
One of them is they're kind ofgrateful for the training.
The other one is they developedall these buddies in those
(01:03:32):
classes that they use as assets,and so it's expensive and you
know the old Curtis Mathis anddamn well worth it.
Speaker 1 (01:03:47):
The interesting thing , steve, is we now have five
schools that carry our productsacross 20 states.
In each state there's ascholarship program that the
state will pay for the trainingthe cost of training plus the
(01:04:08):
wages of the people going toschool if the student passes our
assessment, and it's predicatedon the degree of difficulty of
the assessment, not just theoverall program.
And what I'm finding is thestates are crying out for
(01:04:29):
assistance in this directionacross a whole range of job
functions nurses, x-raytechnicians, technicians,
plumbers, electricians, whateverit is and we've spent the last
hour talking about things thatwe see and we haven't even
touched 10 or 15% of the optionsthat are out on the table.
(01:04:54):
Right, right, and yet I thinkwe've put forward some
provocation.
I'm hoping that people who havecome this far to listen to this
far are in a situation that said, damn, I never thought about
that, I better get a group ofguys.
We better start talking aboutthis because this is real.
Damn, I never thought aboutthat, I better get a group of
guys.
We better start talking aboutthis because this is real.
(01:05:14):
If you were going to put acircle on it now to summarize
where we've been as similarly apreface to the next one we do,
maybe in two or three months.
What would it be?
What would you say is aconclusion that you want people
to draw from our discussion sofar?
Speaker 2 (01:05:38):
Well, if you're, if you're, if you're a, if you're
in distribution and you'reinvesting a whole lot of your
personal money in your businessand you're wondering what's this
going to be worth in 10 years,you know, are manufacturers even
going to have distributors?
I think the answer to that isyes, and the distributors that
(01:06:01):
they're going to have are peoplethat can bring customers to
them and that can hold on tocustomers.
And there's no reason for adistributor for a manufacturer
to make a change.
There's no reason for adistributor for a manufacturer
to make a change if they've gotsomebody that has the ability to
grab customers and supportcustomers and hold on to those
(01:06:22):
customers.
And the way you do thatcustomers are business people is
you make sure they make moneywith your stuff and they make
money with your stuff when itruns and you make money when you
do parts and service businesswith them.
So you know it's a mutuallybeneficial relationship.
(01:06:45):
You want to sell them parts andservice.
They want you to fix theirmachine and keep it running.
How do you do that?
And in large part, for me itcomes down to having great
people that can work with themto make sure that they get the
right service when they need it,at a reasonable price.
Speaker 1 (01:07:09):
Yeah, steve, I think that's a wonderful conclusion
for this.
The clouds are upside down issupposed to represent looking at
the world through differenteyes, through fresh eyes.
But in order to look at theworld with fresh eyes, you've
got to have eyes that have someexperience to them, that some
scars have been realized, and Ithink that our discussion,
(01:07:33):
hopefully, is going to allowsome people to start thinking
about this thing a littledifferently.
So thank you, steve, for yourcontribution and mahalo to
everybody who's been listeningto this.
The Clouds Are Upside Downpodcast.
Mahalo.
Aloha and welcome to another.
The Clouds Are Upside Downpodcast, that sobriquet, that
title is allowing us to look atthe world through fresh eyes,
and today we're blessed to haveSteve Day, a recently retired
(00:22):
executive who worked for bothOEM manufacturers as well as
dealers, in executive positionsand has had a lifetime of
experience that I'd like to justlean on.
So, Mr Day, it is good to seeyou from Alabama.
Welcome.
Speaker 2 (00:43):
Thank you, good to see you, ron.
Speaker 1 (00:46):
So what year did you start in this industry?
1978.
And prior to that you were inthe Navy as one stint.
What else did you do prior tocoming into the industry?
Speaker 2 (01:01):
I came into the industry straight from college,
out of college then went intothe Navy and then came into our
business.
Speaker 1 (01:10):
And where did you start?
What was your entry job?
Speaker 2 (01:13):
It was about as low as you can get.
I actually started in aequipment inventory control
position with Komatsu, kind ofhandling dealer orders and
actually going out and countinghow many machines there were and
how many blades there were.
It was certainly not a careerthat I was thinking was going to
(01:37):
be where I would end up, andwhat year did you retire
officially and what?
Year did you retire officially2020.
Never retired during a pandemic.
Speaker 1 (01:50):
So 42 years in the industry.
Was it split equally betweenthe OEM, the manufacturer and
the dealer?
Speaker 2 (02:00):
Or how was it split?
Speaker 1 (02:08):
The first 25 was with the manufacturer and then with
a dealer.
So from that background we haveseen over the last 20 years a
remarkable consolidation ofdealers.
And let me use my typicalexample In Canada when I started
in 69, there were 10 dealers.
Speaker 2 (02:41):
Today there's two.
Why do you think that'shappening, steve?
Well, first of all, ourbusiness is very capital
intensive and years ago youcould kind of get into it pretty
cheap.
You can't do that anymore.
It's very people intensive asfar as training is concerned and
(03:05):
dealers are kind of a pain inthe butt for manufacturers and
manufacturers are kind of a painfor dealers.
And when I say that, being ableto focus on a program or being
able to focus on a technology orbeing able to focus on an area
(03:27):
of development that amanufacturer wants to see happen
within their distributornetwork, if you can convince
eight guys to do what you wantto do instead of trying to
convince 50, that's easier.
50, that's easier, and also theinfrastructure required to pull
(03:52):
those things off is easier ifyou have to do it with a smaller
number of bigger dealers.
And the same thing goes withhow many accounts you're going
to have if you're a dealer.
In the old days somebody mighthave 40 or 50 accounts.
Manufacturers take up a lot ofyour time and so the combination
(04:13):
of being able to move fasterwith fewer dealers and being
able to have access to greatercapital with bigger dealers, it
just makes a lot of sense forboth sides to be moving in that
direction, and you got to grow.
Speaker 1 (04:37):
You made an interesting comment that the
dealers are a pain in the assfor the manufacturers, and vice
versa for the manufacturers andvice versa.
They never seem to be on thesame page agreeing with how to
proceed in a market.
Speaker 2 (04:56):
Is that a fair comment?
Exactly yes, yeah, and I thinkperhaps the manufacturers
looking at it as North Americaand the dealers looking at it as
you know, north america and thedealer's looking at it as three
states, um and and so uh.
But but when you get into witha big dealer, with a larger
(05:18):
distributor group, you can go tothat guy and go and and maybe
customize things a little bitmore, because you're only
customizing it for for 10 peoplethan if you're trying to do it
for 50 people, which wouldbecome almost impossible to
manage.
So, yeah, we're painting thebutt for each other.
(05:39):
Um, I I never would.
You know, when I got to vote onwhether you take on a new
manufacturer, I usually voted no, and it's because of the reward
for the amount of time and theeffort and the investment you're
putting into it.
If it wasn't a big enoughopportunity for you, it just
(06:01):
didn't make sense for you, itjust didn't make sense.
So I think you know the largermanufacturers are going to have
fewer dealers and maybe thesmall guys will.
You know the smallermanufacturers, the lower market
share manufacturers, will go inand stay with the old lots of
dealers because they have noother option.
Speaker 1 (06:25):
I'm going to split the market up into four pieces.
I'm going to call it specialtyindustries like mining and
forestry, then into differentsizes of dealers large, medium,
small.
And I'm going to say, on theextremely large side you might
(06:50):
have six manufacturers Komatsu,caterpillar, p&h or not P&H,
that's already owned butLiebherr and perhaps others in
the construction equipment world.
Then you've got a similar splitin cranes, in material handling
, in road, highwaytransportation, et cetera, et
cetera.
And if I look at the largedealers not the mining guys I
(07:18):
see four Caterpillar, deere,komatsu and Volvo.
Is there anybody that I shouldbe adding other than the Chinese
manufacturers?
Speaker 2 (07:32):
Well, I think not.
I think China's problem ismaybe even impossible for them
to solve in the North Americanmarket.
And so, yeah, I would haveCaterpillar, john Deere, komatsu
(07:55):
and Volvo, and Volvo tends tobe very dependent upon their
distribution.
Are you good?
How good is your dealer?
Are you weak?
You don't have one, and reallythat's sort of the way for
everybody, except maybe cat.
Speaker 1 (08:15):
And why is cat different or how are they
different?
Speaker 2 (08:34):
different.
They've done such a good jobover many years of building up
their reputation in themarketplace that they've got the
most highly capitalizeddistribution.
And if you're a, if you're acat dealer, Kind of go along
with what they say because youcan make a lot of money and so
cat probably has the best bullypulpit.
And I think very early on catdid the best job of Pushing
(09:08):
product support and really goodcustomer support and built that
into their DNA and sort offorced their dealers to have
that level of competence thatperhaps nobody else was as quick
to jump into.
And part of that also came fromhow much capital could you
(09:37):
invest in being good at customersupport?
And smaller dealers just can'tdo that very well.
Speaker 1 (09:47):
So if I look very critically at those four,
caterpillar is the only onethat's rather pure in what they
do.
One of the things that I feltwas an advantage was that every
Caterpillar dealer in the worldhad to use Caterpillar's chart
(10:09):
of accounts, which made it awhole heck of a lot easier for
dealers to compare each otherCaterpillar to evaluate and
audit and for support to beapplied properly.
John Deere had a similaradvantage, but it was
agriculture.
Once they got rid ofinternational harvester ag, once
(10:35):
they got rid of New Holland agodds and sods of things Deere
was standing pretty much bythemselves.
Massey Ferguson was the lastone that kind of controlled the
world.
Komatsu was always a tag alongwhen it started, wasn't it?
I think it was tied to, youknow, wabco and the trucking
(10:56):
side and Clark and the rubbertired loader side.
And am I wrong in saying it wassomewhere in the eighties that
Komatsu came out with everythingand set up their own dealers?
Is that about the right?
Speaker 2 (11:11):
Komatsu started setting up their own dealers
actually probably about 75, butstill only had dozers and
crawler loaders.
Had dozers and crawler loaders.
And so it was in the 80s, whenthey brought on their other
product lines the wheel loader,certainly the excavator and
(11:41):
their own truck line that theyforced dealers into making
decisions and choices.
I'll take on the truck line.
I don't need to be a Wabcodealer anymore.
I'll take on the excavator lineand I'm going to get rid of
Poclain or whatever product theyhad before.
I'll, you know, take on thewheel loader line and there goes
(12:01):
Clark.
Wheel loader line and theregoes Clark.
But they still were sort offollowing the Caterpillar model
at that point, but without thelevel of capitalization.
Basically, you took your owndealer and just forced more
(12:23):
accounts on him, but he didn'thave any more money, he didn't
have any more capitalcapabilities.
Speaker 1 (12:30):
And if I look at Volvo and this is true to some
degree for Massey Volvobasically owned their dealers,
their distribution, basicallyowned their dealers, their
distribution, whether it was inthe United States or anywhere in
the world, and they startedgetting dealers going maybe only
(12:55):
40 years ago.
So if I look forward 20, 30years, are those four still
going to be there or will therebe fewer or will there?
Speaker 2 (13:10):
be more.
I think you'll still seeCaterpillar, john Deere, komatsu
in construction.
John Deere almost stands alonein North and South America with
agriculture, and you know Europeis not a huge agricultural
(13:35):
market for big ag equipment.
And then you know Australia andsome other places have decent
ag markets but John Deere sortof stands alone.
I don't know where Volvo isgoing to end up.
You know Komatsu made a leftturn with mining and said we're
(14:00):
going to do that ourselves andwe'll keep the construction in.
You know, in our dealer networkCaterpillar has chosen to keep
the mining business in theirdistributor network and those
(14:21):
guys are approaching verysimilar market shares and kind
of there's nobody else really inthere anymore.
Um, so the but the number ofcustomers you're dealing with in
mining is far, far, far smallerthan the number of customers
we're dealing with inconstruction or forestry or road
(14:46):
building or whatever.
And so I think the basic highlycapitalized dealer model is
going to stay in play.
But I think you're going to seethe number of dealers get fewer
and fewer.
More big guys you know it'straining Cat dealers have, you
(15:09):
know, five, six, seven trainers,and then you'll have small
dealers that don't even have atrainer.
And you know.
I know in our business we keptgrowing those numbers because
you had to start growing yourown people.
What is the future going tobring?
(15:30):
A lot of that has to do withyou know we saw John Deere Ag
lose the decision.
They're still in appeal.
But on a right to repair um,you know the, the farmers like
(15:51):
to fix it themselves and theindependent contractors want all
the software Um and ag isprobably a little bit ahead of
of construction in in thatregard, um, but you know how
much is ai going to figure intouh and you know and satellites
and and sensors going to figureinto um.
(16:13):
You know repair being plug andplay and and and uh and then
who's you know.
So the future of of of thedealers, so the future of the
dealers, that's a question wehave to always be asking
ourselves and I haven't evenreally considered it as much as
(16:34):
I should, so I'm kind of wingingit here, but I don't know how
much that's going to impact onyou know that could be a big
game changer Right now.
you still got to work on the oldstuff, but each new series
tells you a lot more every dayabout what's going on with that
machine.
Speaker 1 (16:56):
It's really an interesting thing.
If I look at mining, I wouldsubmit that maybe 90% of the
mining product support isCaterpillar and Komatsu, just
the two of them.
10% other noise, according tothe way that comes across, and
(17:18):
that business model and thatsupport model is totally
different in my mind thanconstruction.
What do you think?
Speaker 2 (17:29):
Absolutely.
You'll have a lot more parts onsite.
You'll have technicians on site,the customer has his own
technicians there You'reprobably he will tend to buy the
parts from you because you'remaking that deal probably
(17:55):
include some long-term support.
You know, with the bigequipment, you know the big
300-ton trucks and the bigshovels and the.
You know the big drag lines, umand and the fact that, uh, you
probably have one site parts, uhconsignment from the from the,
(18:16):
from the point of view of the uh?
Um manufacturer, and you alwaysknow what job site you're going
to every single day.
Uh, construction's different,it's a lot more um, and you
always know what job site you'regoing to every single day.
Construction's different, it'sa lot more fluid, and I'm not
sure how that's going to change.
But all the technology you canput into that big piece of
(18:43):
mining equipment as far assensors, you can put it into a
mini excavator, uh, and have ittell you this is what's wrong,
um and and so the futureprobably leads to customers
having much better availability,um, and who's going to give
that to them?
I am not always sure.
Speaker 1 (19:18):
Let me change the table a little bit.
As you indicated, there's maybe10, so make it 100, mining
companies worldwide that covermore than 90% of the mines, two
(19:43):
manufacturers that have thejuice to support those people,
those customers at the mine.
So the different eyes I'd liketo look at is we have a miner
make money getting product outof the ground and to the market.
We have the support, equipment,rentals, parts, service
(20:03):
programs, no-transcript takeparts.
(20:27):
Is that going to be the minerthat has the inventory and
support or is it?
Speaker 2 (20:33):
I think that's the manufacturer that's going to
have the inventory um on site,probably at least significant
amounts of it on site.
And the other thing you can dowith that big mining equipment
is highly planned maintenance,rebuild.
(20:54):
You know you can have a gliderkit for a big dump truck sitting
there and you say we're goingto take that down for, uh, you
know, for 60 days.
Um, you know, at this periodit's very planned but that
doesn't happen in construction.
Um, you know, I, I, uh, half,the more than half the guys that
(21:20):
would buy a rubber track for amini excavator bought one hand
by two.
He broke the one on the rightside.
Speaker 1 (21:27):
He just wanted it working yeah, because he's
making money with it.
Speaker 2 (21:30):
That's his livelihood that's exactly right so.
But the mining guys do so muchmore planning.
The big ag companies do so muchmore planning, um, and it's and
it's.
You know, sometimes yourplanning rebuilds three years in
advance for that big equipmentand I think that's that's going
to be in concert with amanufacturer every time, you
(21:53):
know, just to have stuff readywhen you're done.
Speaker 1 (21:56):
So let's take that and go back to parts and service
.
The manufacturer makes money onparts, the dealer makes money
on parts.
Is that at risk going forward?
Speaker 2 (22:16):
That's been at risk for 25 years or longer, as
people are getting aftermarketparts in certain areas.
And so, once again, I think youknow 25 years ago it was true
and today it's true who does thework will make a big impact on
(22:38):
what parts get bought.
So you know if it's done by thedealer, done by the, the uh
(23:00):
dealer, then it's almostcertainly going to be oem
manufacturer parts and that ofthat.
The fact that there is anaftermarket keeps everybody
honest.
But once you go, you knowyou'll have people that a
(23:20):
customer may not always bemaking a good decision on what
he's putting into.
I cannot tell you the number oftimes I've seen collateral
damage when somebody put in anaftermarket part that was not a
reputable aftermarket part andtrashed an entire hydraulic
system.
And then there's all thisfinger pointing starts happening
(23:43):
.
So but you'll have some guythat's your, your maintenance
manager that doesn't like thatdealer, um, or has some issue
with them.
Uh, that's thinking he's goingto save his company some money,
or he's going to rebuild acomponent himself, or, um, and
(24:03):
he makes the wrong decision, uh,he's probably not going to tell
his boss that he made a baddecision.
So how you maintain your partsbusiness as a manufacturer?
By being reasonably priced andmaking sure your dealers are
(24:25):
getting as much of the servicework as you can possibly get.
How?
And if I were a manufacturerand if I were a dealer,
everything I'd be working forright now would be toward
maintaining a strong servicerelationship with all my
customers and and whether that'syou, you know, being the guy
(24:47):
that changes their oil, um, youknow, every time it gets changed
, uh, you, you got me into thatbusiness in a big way and you
know what we see absolutelyhugely extended component lives
on on the machines that we weredoing that service on, just
(25:09):
because we always showed up andthe other guy might not have
gotten it in that month, youknow, might not have done the
oil change when he was supposedto do the oil change.
So I absolutely think that it'sgoing to be that manufacturers
(25:30):
should be most concerned aboutmaintaining that service link
with that customer, that directservice link with that customer,
whether it's him fixing it inthe mine or him having a dealer
that is completely capable ofgetting folks out, because that
(25:53):
contractor, that constructioncontractor, he needs it up and
running fast too.
That's a big investment for himand him getting paid depends on
that machine running.
So I really think that's anotherreason why you're going to more
heavily capitalizeddistribution is their guys are
(26:14):
going to be able to invest inthe service trucks and the
tooling, in the training, in thetraining, in the training going
to make decisions, to focusless on lots of accounts and
more, on being, you know, verygood at taking care of the three
big manufacturers that wesupport, and that was I think I
(26:37):
mentioned earlier when I got avote whether we should add a
manufacturer.
I usually voted no because Ididn't want to have to train
people on a whole new system.
I didn't want to have to trainpeople on a whole new system.
I didn't want to have to trainpeople on a whole.
Speaker 1 (26:49):
you know, I wanted the guys that I had to be very
good at what they did and, andyou know that that expertise,
that reputation, that thatbuilds the relationship between
the customer, the miner and thedistributor, but it doesn't do
(27:13):
anything to the OEM.
Whoever's closest to thecustomer owns that relationship.
Do you agree with that?
I agree with that.
So let's shift over to.
Let's look at parts again,because you had both sides of
the world.
If I look at the gross profitthat's achieved from the price
(27:36):
that the manufacturer pays tobuy the part to the price that
the dealer charges the customerfor that same part, if it's $100
at the customer price, what doyou think the purchase price is
from the OEM for that same part?
(27:57):
Just spitball?
Speaker 2 (28:02):
Usually it's highly dependent upon if it is a part
that they're buying formanufacturing or if it's a part
that they're buying foraftermarket, you know, for parts
sales.
And usually I would say, youknow, if he's buying it to put
it into the machine, it's 20% ofthat $100.
(28:31):
If he's buying it to put itinto the parts inventories and
there's a lot of contracts thatseparate that If you're not
making it yourself, then there'sa lot of contracts that
separate that.
You know, is this going into,uh, engine parts?
(28:53):
Would be a a exception to that,probably.
But uh, you know, is this goinginto a machine on the line or
is this going into a partsinventory?
And so, uh, it's probably 50 ifit's going into a parts
inventory.
And so it's probably 50% ifit's going into a parts
inventory and 20% if it's going.
(29:14):
I mean there's a hugedifferential.
And then the dealer, the moreexpensive the part, the less
he's probably going to make onit.
Once again, you know you get topowertrain, you know a
remanufactured engine, thedealer's markup is not close to
(29:37):
what it's going to be on afilter, you know.
So the more expensive it is,the less the dealer's going to
make on it as a percentage.
As a percentage, yeah yeah,more dollars, less percent.
Speaker 1 (29:52):
What's interesting also then shift over to labor.
In my career I would have saidthat the manufacturer, the OEM,
was only interested in labor forwarranty and that was kind of
trying to control costs andother than that they really
(30:16):
didn't pay much attention to theservice department because they
didn't make any money there.
Is that a fair comment?
Speaker 2 (30:22):
That's a fair comment .
I ran a manufacturer servicedepartment and it was all about,
you know, giving technicaladvice and controlling your
warranty expense.
You tended to be rathergenerous and you know within the
(30:57):
warranty terms but you could.
You know you'd fight over.
You know what a dealer wascharging you.
You know I always felt when Igot to be a distributor that I
should get paid the same thingfor my warranty that I got paid
for my regular field servicelabor and actually manufacturers
have kind of started to comearound to that.
But one of the reasons I thinkthey started to come around to
(31:17):
it is that their machines are alot better and things break a
lot less during the warrantyperiod.
So they could say, yep, butwhen I first started in the
business you get half of astandard labor rate.
Speaker 1 (31:34):
You know from the warranty so with that all as
background, in 1952, the carindustry in the United States
contractually allowed a dealerto have one physical location
(31:54):
and there was a General Motorsdealer in California who had his
brother-in-law do all of thecar PDIs, preparation for
delivery, which General Motorsviewed as a second location.
So they canceled the dealerbecause it was a violation of
the contract.
(32:14):
The dealer said BS, you can'tcancel me, that's a restraint of
trade, that's a violation ofeverything that America stands
for.
And they went to court andGeneral Motors lost the dealer
won, rightfully so.
However, general Motors'response was to call their
(32:41):
compatriots Ford, chrysler, ac,delco, major suppliers in the
industry and say I just had thishappen.
I think we're all at risk here.
I don't want to lose my partsbusiness to the second or third
or fourth location, which ispotentially going to happen.
(33:01):
So I want to create acompetitive line of parts that I
want to call genuine parts.
I want it to be a publiclytraded company and I want to
have dealers all around thecountry Napa dealers.
I don't want them to carry allthe parts, I want them to carry
only the fast moving parts,because we're going to own this.
(33:21):
We already pay a big amount ofmoney in inventory support at
the OEM.
I don't want to do that at thedistribution level.
So we'll have 3,000 to 5,000part numbers and because of that
our lower operating costsshould allow us to make more
gross profit.
(33:42):
Seeing as how they're publiclytrading, we know what that is.
38.3%, that's from the pricethat the Napa store buys the
part from the OEM to the pricethey charge the customer.
38.3% is a hell of a lot higherthan what the dealer makes.
(34:03):
So who took the hit?
Was it General Motors sellingto Napa or was it Napa selling
to the customer?
I think the answer is prettyclear when the gross profit from
Napa to the customer is higherthan the dealer makes.
So the manufacturer made lessmoney selling to Napa than they
(34:26):
did when they sold it to adealer.
Is my logic solid.
Speaker 2 (34:30):
I think your logic is solid, but the manufacturer
also was going.
If somebody else is making that, they're getting all the money.
At least I'm getting a piece ofthis Correct.
Speaker 1 (34:46):
Okay, so shift that over.
When I started contractually asa Caterpillar dealer, I was not
allowed to sell a competitivepart.
I was not allowed to purchase acompetitive part.
That was grounds forcancellation.
So I go out to British Columbiaat a Caterpillar dealer.
(35:07):
Then At the time was today.
It's the largest Caterpillardealer in the world.
We had 53 stores, from thePacific Ocean to the Great Lakes
, from the Arctic to the Mexicanborder, and we had a particular
part, a loader, linkage pinwhich is holding the bucket or
the hammer or the forks orwhatever, to a device, a machine
(35:31):
to allow it to go up and down.
They were selling the same part.
This competitive person that Iwas as a Caterpillar dealer, I
found where Caterpillar made thepart.
I had a contractual opportunityto buy the same part.
I talked to Caterpillar and say, well, wait a second, you're
(35:54):
killing me.
It's not because I don't wantto do the job, it's because
you're making too much money.
And they said what do you mean?
I said, well, I can buy thispart out of Italy for $10, and
your dealer net to me is $100.
The guy I'm competing with isselling the same part for $75.
You're killing me.
(36:17):
I'm not allowed to do anythingabout it contractually.
Let's talk about this I want tohave a different approach.
I want to sell that part andthey allowed me to do it as long
as the gross profit I made onthat part as a percentage was no
(36:40):
different than the percentagethat I made on the Caterpillar
part.
So if I bought it for $100, Isold it for 150 bucks.
That's a 33% gross margin.
I buy it for 10 bucks.
They're saying we'll let yousell it for 15 bucks.
I destroyed the competitor veryquickly, Like who's the price
(37:03):
house now?
Right, right, right.
When the competitor is gone,which they did I stopped buying
that brand, which I did, andlife continued.
I don't think the OEM in thefuture is going to be precluded
contractually that will stand upin court from alternate
(37:24):
sourcing one, two, three, almosteverybody.
With the internet, with Amazon,as our model has proven, son of
a gun, you can buy anythinganywhere, it doesn't really
matter.
Now it becomes quality, likeyou said, and the OEM dealer's
got a reputation as a highquality provider.
(37:47):
We used to call everybody else,quote gypos.
The implication was it wasgarbage.
Well, when we're selling thesame product that our competitor
down the street, we're introuble.
And the manufacturers causedthat by outsourcing motor grader
(38:08):
, cutting edges, by outsourcinghose and fittings, by
outsourcing batteries and fluids.
All of those things that theyoutsourced all of a sudden came
back as a vulnerability.
So you and I own thismanufacturer today.
We know everything we justtalked about.
(38:31):
What are we going to do overthe next 25 years that allows us
to continue to be in business?
Speaker 2 (38:41):
Great question and I don't know that I've got the
great answer and I don't knowthat what's going to be going on
?
There's no way I can possiblypredict what's going to happen
in 25 years.
I'm trying to do five.
Speaker 1 (39:02):
I agree with you.
I just went out further becauseit made the question more
difficult.
Speaker 2 (39:06):
And then you have to keep having the new plan because
you know the future becomesclearer the further you get into
the future Um.
I'm you know, I'll know what.
I'll know what it's going to belike 10 years from now.
I'm assuming I'm still alivefive years from now, way more
than I know what it's going tobe like 10 years from now today.
So, um, but I do think, uh,this is this is going to
(39:31):
continue to happen, wheresomebody is going to be making
that part in China or Vietnam orColombia or who knows, and it's
going to be making it at halfthe price of what I'm currently
paying for that part.
I'm currently paying for thatpart, but I still think it
(39:57):
depends on where that part goes.
So if it's going into ahydraulic system, if you've got
a brain in your head, you'regoing to be a little bit worried
about that because it affectsso much other parts of the
machine.
But if it's a track bolt,you're willing to take a chance.
(40:20):
At that track bolt.
You're paying, you know, 15cents for when your dealer is
charging you.
You know $1.10 is going to last80% as long and because if it
breaks I'm losing a track shoe.
(40:41):
That's it, you know.
So there are going to be things.
You know filtration.
You've going to clearly have toshow that there's a.
You know that you're notstuffing a roll of toilet paper
in that tin can that you've gota product there that's worth it.
And so I keep going back to ifyou fix it, you control where
(41:06):
the parts are coming from.
If you're not fixing it, you'renot controlling that at all.
If you're not fixing it.
Speaker 1 (41:16):
You're not controlling that at all.
So let me shift over to thatdirection then.
I think what that's saying isthe only way that we can be sure
to control our parts businessis by controlling the labor
business.
I think that's what you've beenimplying through this whole
(41:39):
discussion.
And our vulnerability there inthe supply chain, in the channel
, is the dealer is treating amaintenance technician, a repair
technician and a rebuildtechnician as all the same
(42:00):
technician.
They don't have specialty teamsof people identified and
segmented out to those threemarket segments and, as a result
of that, this one size fits allbrings the customer to the
(42:20):
conclusion well, I can findsomebody out there that's going
to change that hose for me athalf the price that the dealer
charges and they go out and doit.
And then the dealer's vulnerableto whomever it is that does
that repair.
They're the ones that choosethe part.
So the mechanic is making theparts choice.
The customer has given themthat right, that option, and
(42:47):
they've earned the businessbecause their labor price is so
much lower than the dealer.
Labor price so far, so good.
Yes, so for the dealer to getinto the maintenance business,
to control the filter and fluidmarket, they need to have a
completely different technicalteam to support just maintenance
(43:08):
.
Yes, any other way that it canbe done logically yeah,
maintenance, yes, any other waythat it can be done logically.
Speaker 2 (43:14):
Yeah, we are our and I you're.
You're leading me intosomething that you pulled me
into the business in the firstplace, um, so, so you know, I
think if you're going to beseriously in the um, in in the
service, in the lubricationbusiness, for example, you have
(43:36):
to have a separate team ofschedulers.
Ours happened to have beenbased in a large room with huge
screens and quite a trackingsystem and quite a phone network
, a tracking system and quite aum, a phone network, and there's
(43:56):
, you know, seven or eightpeople that are doing scheduling
um for the whole company, um.
And then you have mechanicsthat are not technically at the
same level as um, as one of ournormal field technicians, um,
there's, but you know, all theydo all day long is they go and
they do their scheduled oilchanges and they do walk-around
(44:22):
inspections of things thatthey've been trained to do.
And they have.
You know, you're not charginghourly, you're charging by the
job, not charging hourly, you'recharging by the job and and
you're not receiving the samelabor rate that you receive.
But you are getting your filtersale and you are getting your
(44:42):
oil sale there and and and so,and, and some another person,
another dealer I know, has atwo-tiered labor system,
depending on what the job is.
And the important part there iswho is making the call on the
(45:08):
mechanic that we're going tosend out to do that job, that
we're going to send out to dothat job, and do they understand
the level of training requiredto do that job?
So this one distributor that Iknew, who I think had a great
plan, had a fleet of smallerservice trucks with fewer tools
(45:33):
and less experienced techniciansthat could grow into something
else through training, who wouldgo out and they would get maybe
$40 an hour less than whattheir regular charge out rate
was.
So you'd send this express guyout in this cheaper truck and
charge the guy 35% less on laborthan you would to send the guy
(45:58):
out to troubleshoot a hydraulicsystem or an emission system or
whatever.
And I heard a customer ask do Ihave the sun in your eyes here?
Yeah, it's okay, I've had a guygo.
Well, I want the $70 an hourguy, not the $140 an hour guy.
(46:19):
No, you don't, because that $70an hour guy will be there for
two weeks and still won't figureout what's wrong with your
machine when my $150 an hour guyis going to know in an hour and
a half and have it fixed.
He's way cheaper for you.
You know, do you want the cheapheart surgeon or the expensive
(46:40):
heart surgeon?
And so I do think that you canmaintain levels of service.
And once again, that requires abigger dealer that can manage
things a bit more effectively totry to pull off that
segmentation.
But you can still get, and he'sgoing to go out there with the
hose, so he's going to have thathose built and you got to build
(47:04):
that hose yourself and you gotthat hose sale and he's going to
install that hose.
He's a plus for you at thatpoint for generating hose
business where he's going toinstall an alternator.
You know what you're sendingthe guy out for Maybe do a water
pump or something and whatyou've also done in that
(47:25):
particular situation one you'vegot the labor, you got the parts
sale and you got to use yourmore expensive guy on more
expensive, more important, morehigh, technically difficult jobs
that that guy should be workingon.
So, so and, and once again, allthat requires management, all
(47:48):
that requires training, all thatrequires investment.
But if you want to keep thatbusiness, if you want to keep
that parts business.
It's a good way to do it.
Speaker 1 (47:59):
What that opens up, then, something that I don't
think dealers have a good viewof what are the individual
skills that every technicianbrings to you, so that I can, in
fact, assign a technician to ajob that's a match for his
(48:19):
skills, not an overmatch for hisskills or an undermatch for his
skills?
Speaker 2 (48:27):
Well, I'm not going to go into all the disasters
I've seen over time.
I'm not going to go into allthe disasters I've seen over
time, but I'll say once againdealers, some dealers do a great
job of training.
Some dealers try just to keeptheir manufacturer.
(48:49):
I'm going to do what it takesto keep my manufacturer happy
and I think manufacturers aregoing to really up their game on
what their trainingrequirements are.
I know we have manufacturersthat if your technician didn't
have a certain level ofcertification on that engine or
on that machine, then theyweren't going to pay warranty on
(49:09):
you sending him out to do thatjob.
He had to have that level ofcertification.
I think it's becoming more andmore critical that not just are
you training your people, butare you understanding what they
actually know?
Did you send them to school?
Did they learn anything?
And can they apply that?
And do you have that in yoursystem somehow so that when you
(49:34):
put it, hey, I've got this jobcoming up, five names pop up of
the guy, of people that you havein your branch that are
qualified to do that job on.
(50:00):
Is having all my people'straining very visible to me, not
just so that I can scheduleproperly and give the customer
the best experience possible,but so I can plan more training.
Who needs what Every year?
I should be talking to that guywhen I do my review, talking
about the training I'm going toget him this year, and I'm going
to talk to you while I.
Speaker 1 (50:23):
Oh, you're going to give me a break, and give me a,
I'll look at you.
Show off.
Speaker 2 (50:29):
As long as the wind doesn't blow, I don't have to
hook that up.
Speaker 1 (50:32):
Make that a little less bright.
Yeah, I have the same thing'tblow.
I don't have to hook that up.
Make that a little less bright.
I have the same thing, and if Idon't, at night when I go to
bed I have to pull the blindsdown Because if I don't, the
sunrise will come right into myface at 6 o'clock in the morning
or whatever the devil it is, ifyou keep going with that
extension.
Let me simplify it a little bitand say that I'm going to have,
(50:55):
for every job function, I'mgoing to have a red, yellow,
green, an ABC type of skill set.
Green he can do everything.
Orange, he can do some things.
Red he's very basic remove andinstall guy.
Red, he's very basic remove andinstall guy.
(51:19):
I'm going to have that kind ofcategorization for each job and
I'm going to have that kind ofqualification evaluation for
each technician and then I'mgoing to use a system-driven
scheduling system that assignsgreen to green, system that
assigns green to green, yellowto green, red to green, et
cetera, et cetera, so that whena job comes in, customer calls,
(51:43):
a machine sensor indicates, Ican get in touch with the
customer or I can respond to thecustomer and say that I have
(52:03):
George ready on Thursday at 10o'clock in the morning to be
available to you at your jobsite.
If you'll take a lesser skilledperson, I can have somebody
there this afternoon at twoo'clock.
I cannot provide you the samewarranty with a lesser skilled
person.
What do you want to do?
How close?
Speaker 2 (52:25):
do you think we are to that kind of scheduling for
service with dealers?
I think that is all over theboard on how what a dealer's
record keeping is on.
Dealers need help with thatBecause for me, in an ideal
world, I'm going to code jobs.
So my satellite system has toldme that this is the three
(52:53):
issues that are wrong on thatmachine right now and I can put
a code in there and I can pullup every technician I have with
a level of training and what hisschedule looks like right now
and I can pick the guy thatwould let somebody who's not a
service manager make those callssometimes.
And so how do you get there One?
(53:17):
You know what everybody's levelof training is.
You know because you sent themto the class.
In many dealers cases you'vedeveloped an apprentice program
to bring your people along.
You know to get you to.
You know to point A and, butyou cannot.
(53:38):
You got to start with knowingwhat they already know.
So you know if you have a basictesting system where you can
figure out.
You know what's the retainedknowledge.
Yeah, you went to the classlast year.
Do you remember anything youlearned?
So I would like to see beingable to test all of your people
(54:04):
up front to see what they needand then maybe every once in a
while or retest them to see whatthey still remember, see if
they'd have to be refreshed.
But you know, we kind of saw itas elementary school, high
school, grad school, and youknow the really good technicians
.
You are giving them maybemanufacturer-specific training
(54:25):
on a new model and you gave itto them at a different level
than you gave the guy thatyou're doing basic diesel or
basic hydraulics or basicelectrical with um.
And how do you do that?
Well, you've got to have agreat record keeping system, uh,
on each person and and you haveto have some way to certify
(54:47):
them as capable in each one ofthose areas.
So this is my electrical guy,this is a great hydraulics guy,
this is a great engine andemissions guy.
This guy can do electrical andengines and emissions.
This guy can do, he can do itall.
He's a 35 year guy and he, youknow he can, he can fix it if he
(55:07):
smells it, and that that, Ithink, is the ultimate system.
You know, I I think they'veevolved past where we were when
I left, but when, when I left,we knew what everybody's level
of training was at least.
Uh, and when I came we did.
And sometimes you'd have amanufacturer call you up, maybe
(55:31):
a major manufacturer call you upand say, um, we've got this
class, you need to have peoplein it.
And you'd find out, ok, sendthis guy and this guy.
You know I'm, I'm, I'm stampingthe manufacturer sheet but I'm
not necessarily putting theright guy in for the training
(55:52):
that we need to have.
And so you spend a lot of moneyon very ineffective training.
And it took us a long time toget to the point where if we
were going to spend money ontraining somebody, it was going
to be the right guy and theright training and the
manufacturer had to prove to usthat that was useful training.
And then we also had to makesure we were bringing them the
(56:15):
right product.
And I was embarrassed kind ofearly by sending.
You know I got told off by somepeople that were friends that
said you know that guy was anidiot.
And I found out, you know wehad sent somebody convenient
rather than somebody useful.
And so that's a big deal andthat's the value you're bringing
(56:41):
to the manufacturer sets, sothat when you send a guy out
there to that customer.
(57:01):
You fix his machine.
That's why he calls you back,you know, is because he can fix
it, and I'll tell you thatyou'll have a technician, leave
you and go out on his own andwithin two years his knowledge
is outdated and his value thathe's bringing to those customers
(57:24):
is highly diminished, andthey're not even getting what
they're paying for.
You have to keep these guys soupdated.
Things are changing so fastthat I would like to see a
certification capability atevery dealer.
Speaker 1 (57:42):
You got us into the creation of our assessments
because you didn't want to keepon training people that were
just taking oxygen out of theroom rather than being able to
be able to contribute.
So we started a skill andknowledge assessment program for
support functions in parts andservice selling, marketing, the
(58:06):
product support world.
Those were 90 to 100 multiplechoice questions, rather complex
, that were created from ourclass structure that we've been
using for 40 years, where 25 to30,000 people have gone through
it.
That said, these jobs requirethis kind of skill and we found
(58:33):
that out by having quizzes atthe end of every segment.
20 segments in a class, 32classes, 640 segments questions.
I'm pulling from 2,000questions to come down to 100.
And lo and behold, we usededucation criteria, which is 0%
(58:54):
to 50% is developing, 51% to 75%is beginning, 76% to 90% is
intermediate and 91% and aboveis advanced.
That might not be the rightterminology for our industry,
but that's what the educationworld uses.
And last year was some 3,500assessments.
(59:15):
We had less than 50 people thathad 90% or higher, which
surprised me.
But after thinking about it andtalking to different people,
didn't and shouldn't have Withthe technicians.
(59:44):
We've developed four segments45 questions per segment, 180
question multiple choice.
Skill and knowledge assessmentof technicians.
Brand independent.
Because they asked you to sendit and that person comes back
from the school and you ask themto see what their score was on
the final exam.
There is no final exam, so weassume he learned because, or
(01:00:06):
she learned because they went tothe class.
What I say to people is givethem a couple of weeks after
they're back and then have themtake our assessment and see what
score they come back with.
Now we open up a vista.
That's a completely differentballgame.
Capitalization is where westarted.
With the shrinking it's becomevery expensive.
(01:00:26):
The barrier to entry in ourdistribution channel is money.
And number two you came on veryquickly thereafter saying the
biggest problem, bigger problemis people, because there's not
enough at the skill level werequire and we don't know what
to give them to get them to thatskill level, because nobody's
(01:00:47):
prepared us for that.
That's not part of our skillset.
I have to outsource it.
Who do you go to to find out?
Who does that?
Well, guess what?
We're the only ones that dothat, and the schools don't even
do that, and they're stunned athow we can categorize all of
this nonsense.
But if a dealer, I guess theclouds are upside down.
(01:01:09):
Message from this discussion,this conversation, is if you
don't control the labor, you'reat risk.
Yes, it has nothing to do withmachine market share, because I
can do labor on every damnmachine, I don't care what brand
you've got.
But that implies that I'm goingto train people.
(01:01:32):
But that implies that I'm goingto train people and the dealer
has given up on having thoseschools themselves.
For the most part We'll doonboarding, that kind of stuff,
the easy stuff.
Speaker 2 (01:01:43):
Yeah, I think I'm seeing once again, when you get
into the big dealers, thecapitalized dealers, we figured
out that at any given time, westart two classes of eight to 10
(01:02:04):
people every year and theyspend a week a month going
through apprentice training for18 months.
So they'll have 18 weeks oftraining at the end of 18 months
.
Um, and we've found that andthat's a huge investment.
(01:02:25):
So at any given time you've got30, you know, somewhere between
you know 24 and 30 people inthat program, um, and that's a
huge investment because you're,you're, you know 24 and 30
people in that program andthat's a huge investment because
you're, you're, you're givingthem, you know, 12 weeks off a
year.
You're not getting any incomefor from them.
And then you've got the peoplethat are training them.
(01:02:45):
And there's more.
There's several dealers thatare that I know that are doing
that, and and othermanufacturers have those same
things in place.
And if you're not doing thatyou're, you're not developing
your people.
So, with anybody that wentthrough that program, and we
have a secondary program, one ofour manufacturers is set up
(01:03:08):
where you send people away toschool for two years and and
then they come off and theyspend time in your shop and they
spend time at the manufacturerfacility and you've got a heck
of a mechanic after two yearsand they stay with you for two
reasons.
One of them is they're kind ofgrateful for the training.
The other one is they developedall these buddies in those
(01:03:32):
classes that they use as assets,and so it's expensive and you
know the old Curtis Mathis anddamn well worth it.
Speaker 1 (01:03:47):
The interesting thing , steve, is we now have five
schools that carry our productsacross 20 states.
In each state there's ascholarship program that the
state will pay for the trainingthe cost of training plus the
(01:04:08):
wages of the people going toschool if the student passes our
assessment, and it's predicatedon the degree of difficulty of
the assessment, not just theoverall program.
And what I'm finding is thestates are crying out for
(01:04:29):
assistance in this directionacross a whole range of job
functions nurses, x-raytechnicians, technicians,
plumbers, electricians, whateverit is and we've spent the last
hour talking about things thatwe see and we haven't even
touched 10 or 15% of the optionsthat are out on the table.
(01:04:54):
Right, right, and yet I thinkwe've put forward some
provocation.
I'm hoping that people who havecome this far to listen to this
far are in a situation that said, damn, I never thought about
that, I better get a group ofguys.
We better start talking aboutthis because this is real.
Damn, I never thought aboutthat, I better get a group of
guys.
We better start talking aboutthis because this is real.
(01:05:14):
If you were going to put acircle on it now to summarize
where we've been as similarly apreface to the next one we do,
maybe in two or three months.
What would it be?
What would you say is aconclusion that you want people
to draw from our discussion sofar?
Speaker 2 (01:05:38):
Well, if you're, if you're, if you're a, if you're
in distribution and you'reinvesting a whole lot of your
personal money in your businessand you're wondering what's this
going to be worth in 10 years,you know, are manufacturers even
going to have distributors?
I think the answer to that isyes, and the distributors that
(01:06:01):
they're going to have are peoplethat can bring customers to
them and that can hold on tocustomers.
And there's no reason for adistributor for a manufacturer
to make a change.
There's no reason for adistributor for a manufacturer
to make a change if they've gotsomebody that has the ability to
grab customers and supportcustomers and hold on to those
(01:06:22):
customers.
And the way you do thatcustomers are business people is
you make sure they make moneywith your stuff and they make
money with your stuff when itruns and you make money when you
do parts and service businesswith them.
So you know it's a mutuallybeneficial relationship.
(01:06:45):
You want to sell them parts andservice.
They want you to fix theirmachine and keep it running.
How do you do that?
And in large part, for me itcomes down to having great
people that can work with themto make sure that they get the
right service when they need it,at a reasonable price.
Speaker 1 (01:07:09):
Yeah, steve, I think that's a wonderful conclusion
for this.
The clouds are upside down issupposed to represent looking at
the world through differenteyes, through fresh eyes.
But in order to look at theworld with fresh eyes, you've
got to have eyes that have someexperience to them, that some
scars have been realized, and Ithink that our discussion,
(01:07:33):
hopefully, is going to allowsome people to start thinking
about this thing a littledifferently.
So thank you, steve, for yourcontribution and mahalo to
everybody who's been listeningto this.
The Clouds Are Upside Downpodcast.
Mahalo.
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