The “Surviving and Thriving” session presented at the recent Work Truck Show in Atlanta had good news and bad news if you are a truck equipment distributor — or a company that supplies them.
The good news is that there will be fewer companies competing in the future. The bad news is that your company may contribute to the reduction.
Such was the conclusion of a comprehensive study of the truck equipment industry recently commissioned by the NTEA board of directors.
Acclaro Growth Partners, the outside consulting company that did the research, said that “all forces are in place for a greatly compressed sales and distribution channel in the not-too-distant future. Compression will result in more sales going through fewer outlets, resulting in a reduced number of suppliers and upfitters.”
That process is already underway.
“When you look back at the industry five or ten years ago, you find that companies that had very good reputations and seemed to be doing very well in the industry are not around anymore,” said Jim Carney, NTEA executive director. “We don't want our companies to meet their demise. I think a survival strategy is to build a real plan for the future. We need to build a strategic plan and stick with that plan.
“One of the things we can do is learn from the past, watch the present, and create the future. In creating the future, we have to be visionary, innovative.”
Carney said the industry is merely in the early stages of consolidation.
“In the next 3-5 years, we will see a tremendous amount of consolidation,” he said.
Chassis pools and ship-through programs will fuel consolidation at the distributor level. Such programs put some distributors in the position of being able to sell nationally, and they have caused customers to rethink the way trucks are bought, sold, and inventoried. They also have blurred traditional roles for manufacturers and distributors.
What drives truck equipment?
Consolidation, however, is but one of five factors that are changing the truck equipment industry, according to the results of the research project. The report also identified:
Technology. This includes business technology as well as the technology on trucks and equipment. The effects will carry over into the types of employees required, the type of training they will require, and the amount of money required to purchase new technology.
Customers. Today's customers tend to be more informed, know what they want, and with the Internet have more places from which to buy. Consolidating customers means more sales will come from fewer sources. And bigger customers are pushing for more standardized trucks — they want to use the same type of truck in multiple locations.
Globalization. This presents challenges and opportunities, including increased costs for energy and raw materials and opportunities for outsourcing and exporting. According to a recent NTEA survey, 48% are involved in international trade. Of those that are, 47% import and export.
Government. Agencies are pushing regulations to make trucks safer, more efficient, and more environmentally friendly. “Active government creates higher performance requirements and demands on businesses,” Carney said.
“Some of these factors offer opportunities,” Carney said. “Others can be harmful to your business if not acted upon quickly, aggressively, and wisely.”
Details from the research
Moh Hayatou, founder and partner, MHS Partners Consulting and formerly a partner with Acclaro Growth Partners, presented details of the survey. The results are based in part on in-depth interviews with chassis manufacturers, truck equipment manufacturers, truck equipment distributors, and truck users between May and August 2007. Copies of the report are available from the NTEA offices in Farmington Hills, Michigan.
The ways commercial trucks are sold and produced have changed radically, Hayatou said. Traditionally, chassis manufacturers sold through truck dealers, and truck body and equipment manufacturers sold through distributors. Local distributors worked through local truck dealers to produce a truck for the end user.
Today the options are varied, with far more contact between OEMs and end users, and with chassis pools and ship-through programs playing major roles. The transformation in the commercial truck distribution system is affecting the entire industry.
“The companies feeling it the most, though, are small- and mid-size truck upfitters,” Hayatou said. “They don't have the time or the resources to make the kind of adjustments needed.”
The squeeze is on
A variety of elements are putting pressure on small- and mid-sized distributors, Hayatou said, including:
Pools and ship-throughs.
Customers are more demanding.
Technology. It costs money, and it requires a higher level of training to make it work.
Private equity investors. Whenever industries undergo rapid changes, outside investors see opportunities to acquire companies and resell them.
Hayatou said that he found two general responses when he asked industry companies what they are doing in response to the changes. One group recognizes that change is here to stay and that something must be done. The other group was in denial. This group, Hayatou said, is at risk.
“Once they realize that they need to do something, it may be too late.”
Hayatou said there are opportunities in the global market for U S truck equipment. He said the industry has a good reputation for quality.
Global markets also have the potential for ease of entry.
“In the U S, barriers of entry are high,” Hayatou said. “That's because of the safety regulations that govern the industry here. It's getting extremely difficult for someone who does not have that learning curve already to do business here.”
Picking a path
With the pressure on, what options do companies have? Hayatou listed nine: divest, differentiate, acquire, focus, partner, outsource, penetrate, specialize, and diversify.
“Choosing one of these options will be a function of the resources a company has, the company's cost structure, and its core competence,” Hayatou said.
For small truck equipment companies, specialization appears to be the most viable choice, Hayatou said. Those choices could be geography, customer type, product type, or technology.
Penetrate is another choice — exploring ways to get more business from existing customers.
“It's possible to increase the bottom line 30-50% simply by getting additional business from customers with whom you already have a relationship and have established a level of trust,” Hayatou said.
Companies can differentiate themselves in a variety of ways by offering different products and services. “For small distributors, differentiation by the type of service or services offered is probably the only way to set yourself apart,” Hayatou said.