Muddy Waters clearly captivating

AS usual, the convention's manufacturer-distributor panel session, organized by the NTEA's Young Executives Network, turned out to be a provocative 75 minutes.

It was titled, “Muddy Waters: The Changing Truck Equipment Distribution Channels,” and one of the panelists, Gene Kohler Jr of Kranz Automotive Body Co in St Louis, Missouri, alluded to it when he said the forces at work today have made his company's “manufacturer-distributor relationships as clear as mud.”

Kohler said distributors have been industry “cowards” for almost 40 years and “have not spoken up to the manufacturer because we've been afraid to.” He said distributors' money has been working for the manufacturers and asked, “Why should we be their bank?”

Which prompted another panel member to joke, “How do you really feel about it?”

That generated a reaction from a member in audience who said he has endured “heartburn” caused by manufacturers who “represent themselves as distributor-oriented and then sell direct in my territory. They try to have two bites out of the apple, both mine and their own.”

Replied panelist Jan Carter of Lodi Equipment in West Sacramento, California: “I think everybody in this room needs to face the reality that our markets are changing enormously. The Internet and everything else have brought about significant changes.”

Carter said that unlike in the truck equipment industry, warranty processing is a profit center for truck dealers.

“When a Ford is sold, every Ford dealer in the place is willing to service that truck because it's a profit center for him,” he said.

“One of our successful ventures was selling mechanics trucks, each valued at $100,000, on the Internet. We sell them from Alaska to Hawaii to the Philippines. We had to seriously address with manufacturers how it was going to get locally serviced. It took us five years to get their warranty changed to face the reality of the market — that when Fleet or AutoTruck or ABC or somebody sells a major account that's not physically domiciled in your area and something goes wrong, the manufacturer has to have some way of getting that serviced. And they shouldn't put us at a competitive disadvantage by making us sell back their parts at cost. They should give us some token for our labor. It's going to be an industry issue. We've had ongoing discussions with our manufacturers, and I think it will be resolved. The old way was, ‘If I don't sell it, nobody sells it in my marketplace.’ That's gone. Kiss it goodbye.”

Another viewpoint

The manufacturers' side came from Rick Horn of Supreme Corp.

“The market is just not as pretty and clean as we'd all like it to be,” he said. “There's just so much business that goes across markets. Unless you're going to be a very small, narrow niche and not grow and say, ‘I'm not going to deal with those kinds of customers,’ you've got to deal with it.

“We spent money to put in 16 places around the country, out of our own pocket, to service product. We have some markets where we have just one salesman, and we don't sell nearly as much as in a market where we have service capabilities. We also have a number of markets where we do sell to third-party distributors where we'll have them fix our products, and we pay what they tell us we have to pay.

“Now, if there are three or four distributors in a particular market, you shop it and you find out where you can have it done at a reasonable rate. Nobody wants to be gouged. On the other hand, I've never worked for a company where I thought the right thing to do was not to make money. In a lot of products, you don't add that much value selling the product. What's the application engineering for doing a basic 10-foot flatbed? Not much.”

Kohler said relationships become pivotal for mutual success. The key is understanding.

“The channels of distribution become much more clear when you throw in two variables: trust and respect,” he said. “We have to have both in tandem to make it work. The NTEA has truly helped us in our operation to get together with the proper people. You earn your own respect.”

Horn said that if manufacturers expect to be competitive, they have to keep an open mind about partnerships.

“We are constantly tinkering to find a better way,” he said.

He said distributors need to break down their value-added into categories such as application engineering, installation, chassis pools, and after-sales service.

“The problem has been, if you go back through the history of our industry, the distributor was going, ‘I'm stem to stern. I'm going to sell it, do the application engineering, mount it, ship it. I want to handle everything,’” he said. “Then people like us might come in on some products and parts of it, and we can do it at a fourth of the cost. Distributors have to think it through and pick the right pieces. If they pick the wrong pieces, they're going to be hitting their head against the wall.”

Crystal ball

What does the future hold? Will the waters still be muddy in five years?

“I know things change,” said Rob Parkhurst of Parkhurst Manufacturing Co Inc in Sedalia, Missouri, “but I've got to believe there will always be truck equipment houses. I don't want things to change. I'm hoping it's not just because I don't want things to change, but I think as long as there are truck equipment houses, I'll continue to do it the way I'm doing it now. Having a big fleet account might be a wonderful thing, but I can't help but think of it as hammering down the price and taking all the fun out of it. I would speculate that we'll just flow along and keep doing what we're doing. I guess it if does change, I'll start driving a rock truck or something.”

Horn said three scenarios will be profitable:

  • A few major national companies will work the pools.

    “We see a lot of consolidation going on,” Horn said. “Our biggest customer in the country was Rollins Truck Leasing. Bang! They get bought by a guy in Penske who doesn't do that much business with us. That's just life. It's going on all the time. We hope we can continue to be one of them, but it takes an enormous investment in people, plants, and chassis pools. Anybody who's spent much time with chassis pools in the last year realizes the dark side. The interest rates in a month can be unbelievable. It's a powerful weapon, but if you don't handle it carefully, you'll shoot yourself.”

  • The group of distributors that form the second-tier markets can continue, but they have to get better at what they do.

    If you look at the distributors in some of these markets 10 years from now, I think it'll look similar,” he said.

  • Niche distributors — such as those for railroads and utilities — will be even more profitable than they've been over the past 10 years.

“If you can find a niche that takes an enormous amount of application engineering — where you have to put together four, five, eight different kinds of equipment from different manufacturers — there's a lot of value added there,” Horn said. “I've seen some margins I'd love to have. But they're very focused on a particular niche.

“If you're in a major market and are trying to deal with very big dealers and major fleets, you'd better be ready to get big or change your focus, because I don't think the economics are going to work for you.

“I think there is money to be made by some distributor saying, ‘Listen, I'm not going to be a traditional distributor. I'm going to be a rep on this product line and this kind of customer. I'll take my 7, 8, 9% and all I want to do is sell this stuff for you. I can make money just off the selling side. I'm not servicing it. I'm not marketing it. It's not even going into my market. But that's cheaper than putting a salesman in that particular market for that kind of customer and that kind of problem.’ I think the worst place, over the next 10 years, is to be a traditional distributor in a major market, trying to do it the old way.”

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