Trailer Dealers' Importance In The Manufacturer's Distribution Chain

THE importance of dealers in the distribution chain of large trailer manufacturers was the topic of a presentation by Harold C "Hal" Bennett, president of Utility Trailer Manufacturing Company in City of Industry, California. He spoke November 8 at the National Trailer Dealers Association convention in Hilton Head Island, South Carolina.

"The Utility Trailer Manufacturing Company appreciates what the independent trailer dealer does," Bennett said. "Independent trailer dealers are essential to a successful distribution chain. Nothing happens until a dealer sells a trailer and closes a deal."

The relationship between a trailer manufacturing plant and its dealers is a mutually dependent relationship requiring teamwork and open, two-way communication, Bennett said. Trailer dealers are the eyes and ears of manufacturers in the marketplace.

"Without a good feel for the marketplace, trailer manufacturers could miss the mark badly," Bennett said. "With our strong, committed dealer network, we have eliminated the risk of not knowing what the end user wants and needs."

Trailer dealers perform other key functions in product support, Bennett said. Dealers perform maintenance and repair work, do factory warranty work, sell replacement parts, and sell trailers traded in for new equipment. In addition, some trailer dealers finance customer purchases.

"The best trailer dealers track product performance, monitor changes in customer operations that might affect specifications for future orders, and advise the factory," Bennett said.

Trailer Dealer Feedback Utility relies on its dealers to provide feedback on market trends, customer problems, competitive strategies and pricing, and an overall performance review of the company's products, Bennett said. In addition, dealers for Utility Trailer evaluate the marketing efforts of the company and its training programs.

"At Utility Trailer, we use the phrase `Teamwork is Listening' to stress the importance of listening and hearing the feedback from the marketplace," Bennett said. "We remind our employees that to be a good team player, listening is the most important part of the job."

Utility Trailer provides several channels of communication for customers to ensure their needs are met, he said. Dealers have multiple contact points for feedback including customer service, marketing surveys, sales contacts, service work, dealer meetings, and a council of dealers.

Dealers can communicate with management through ombudsmen, Bennett said. The ombudsmen are Frank Guerin at the company's corporate office in City of Industry and Gary Fruscello in Utility's office in Atlanta, Georgia.

Future Trends Bennett talked about future trends in the trailer manufacturing industry that may affect trailer dealers. Quoting from Competitive Strategy, a book written by Harvard Professor Michael Porter, Bennett said "as any industry matures, companies have three strategies for success:"

* The first is growth to a dominant industry position such as first, second, or third place. The result should be lower production costs for the industry leaders.

* The second is to have differentiation in the products offered, services provided, or markets served.This differentiation should produce leadership in a niche position.

* The third strategy is to focus on a tightly defined user group, product line, or geographic market.

"The entire focus strategy is built around serving a particular target very well, better than a firm that is competing very broadly," Bennett said. "I think many successful dealers have adopted a focus strategy."

In any industry, midsize companies that do not grow will struggle to succeed when competing against large producers with lower costs, he said. Some of Utility's competitors are struggling to make a profit.

"These are midsize trailer manufacturers that lack a strategy to succeed," Bennett said.

Undertaking Success Strategies Obviously, a company's financial capital will determine how long it can survive, and if it can undertake one of the three success strategies, he said. If a manufacturer has limited capital, it may attempt consolidation to achieve a larger economy of scale.

"Trailer manufacturers that lack adequate capital may try to downsize and restructure as a niche player," Bennett said. "One manufacturer I know of has shrunk to a focused strategy in a geographic area it believes it can dominate."

These trends are present today in the trailer manufacturing industry, he said. Until manufacturers in the trailer industry complete the present cycle of maturation, the primary industry trend will be toward consolidation.

Greater consolidation is also present in the trucking industry, Bennett said. Some truck fleets and leasing companies are merging and, as a result, have larger markets on a national and even global scale. Other large, publicly-owned truck fleets are growing by purchasing middle-size, privately-owned truck fleets.

"Truck fleets are becoming more specialized to differentiate themselves from their competitors," Bennett said.

Some of Utility's middle-size truck fleet customers are struggling with their profitability, he said. In contrast, some large truck fleet customers are making public offerings of stock to finance greater growth.

Effects on Trailer Dealers These trends can affect trailer dealers in several ways, Bennett said. To take advantage of these trends, trailer dealers should evaluate the strategies of their primary supplier. If those strategies are successful, a trailer dealer should align its goals and plans with those of the manufacturer, he said. The success of a trailer dealer will depend on how well it creates an alignment with its manufacturer supplier.

Another effect of these trends on dealers is that more competition exists for larger orders, Bennett said. Major trailer manufacturers all want to pursue large transactions. This competition results in smaller profit margins, which leads some manufacturers to sell directly to fleets, excluding dealers from the sale.

"This trend is particularly true of second tier trailer manufacturers who would not generally be the preferred suppliers unless their price was the lowest," Bennett said.

As trailer manufacturers strive to improve productivity and lower costs, their own production capacity increases, Bennett said. In trailer manufacturing and other maturing, consolidating industries, over capacity is common. This over-capacity increases pressure on prices.

"Some of the current price pressure experienced by trailer dealers is the direct result of the excess manufacturing capacity that exists in our industry today," Bennett said. "Over-capacity is once again a major issue in our industry. Even companies that recently failed and went through bankruptcy have been rejuvenated and not liquidated."

Impact on Dealers The final impact of these trends on trailer dealers is in servicing truck fleet accounts, Bennett said. Customers' demands of trailer dealers are increasing in terms of service after the sale.

Often, the larger a company grows, the more demanding it can become in terms of service, he said. Some modern computer systems and software allow companies to track costs for service, parts prices, freight, and equipment downtime.

"Trailer dealers' profit margins are being squeezed by the large accounts," Bennett said."This is the world of mature industry consolidations. It is how we do business today in the trailer industry."

But even with all the changes affecting trailer manufacturers and their dealers, business has been very good in the 1990s, he said. Especially since 1992, and business is expected to be very good through the year 2000.

"Our strong economy is encouraging strong entrants in the trucking industry and providing solid growth for existing customers," Bennett said. "This results in an increased demand for new and used trailers."

To help supply this demand in 1997, the industry will produce about 231,000 trailers, 30,000 containers, and a few thousand dollies, Bennett said. Most recent forecasts are for slight growth in 1998 and a small decrease in 1999 and the year 2000.

Building 231,000 Trailers "Any number of trailers built over 210,000 to 220,000 is a very good year from my perspective," Bennett said.

On the West Coast where Utility is based, a strong local economy is driven by technology, entertainment, and trade, he said. These and other factors create a steady rise in the demand for trucking.

"The end is not in sight," Bennett said. "A building boom unlike anything we have seen since the early 1980s is underway in many parts of the country, and this bodes well for trucking.

"The demand for American products and trucking services should remain strong for several years because of a growing population in North America and the expansion of free trade."

In the past 6 1/2 years, the overall economy has benefited from steady growth, low unemployment, modest interest rates, and declining inflation, he said. International trade is increasing and the flow of goods has improved greatly between the United States, Canada, and Mexico.

In this 6 1/2-year timeframe, trailer dealers should have doubled their net worth, Bennett said. Utility's best trailer dealers double their net worth every four to five years. To achieve this result, dealers must reinvest profits in their businesses.

"Our best dealers are always upgrading and expanding their facilities and offering new products and services. These dealers will be well capitalized and use their financial muscle to fuel growth and to differentiate their dealerships from the competition."

Increasing Net Worth Many trailer dealers have even tripled or quadrupled their net worth in this 6 1/2-year timeframe, Bennett said. Trailer dealers that have not doubled their net worth in this timeframe need to rethink their business strategy.

"The marketplace is saying that you are not large enough to be cost effective or specialized enough to be a niche player," Bennett said. "Utility had 10 or 12 dealers that could not adjust to changes in the marketplace. These dealers either retired, sold their businesses, or even failed during this period of unprecedented prosperity."

While the economy remains healthy, the only resource in short supply is good employees, Bennett said. Experienced employees are the core workers a business depends upon.

"In today's labor market, a business cannot replace good employees, and competitors gain an advantage by hiring away your employees," Bennett said. "New employees are less experienced, less motivated, and have more reasons to leave than current employees. Therefore, turnover is unacceptable."

Invest in Employees People are as important as the financial capital a company needs to compete in a mature industry, he said. Trailer dealers must invest in employee training programs to improve productivity and help employees grow with their business.

"If your ego puts you above dealing with people or if you have a manager or department head who is insensitive to human relations issues, address this weakness before it ruins your business," Bennett said.

Successful trailer dealers are leaders, and good leaders will attract the best employees, he said. Employees have to be sold on a company by their employer.

"If you don't sell employees on your company, a competitor will sell them on theirs," Bennett said. "Let's remember, the competitor for your employees may be well outside the trailer industry."

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish