Growing From Within

So good afternoon, young man. You're looking good.

What do you mean by that?

I think one of the traps you and I were both in is that we're in such a hurry trying to keep up with what's going on. We don't really have time to look over the wall to see what's out there. Is that a fair characterization?

It's almost like somebody should be assigned that, maybe on a rotating basis. This month, George does it. Next month, Frank does it. So what do they look for? What should they be trying to exploit?

So we take a guy who's a specialist and we take that labor out of the pool and have him create new business with his specialties, but we must backfill that hole, right?

Yeah, yeah, exactly. So what in essence you're doing is your pool of labor is general technicians. And then you identify and almost promote specialists that can take advantage of their specialized skills at a higher rate.

And typically that higher rate is how much more do you think?

My goodness.

How much of that do you think is the, quote, the status of the service department in the business? That, you know, we're sales, rentals, parts, service administration. And sales and rentals typically don't understand what we do. When we are checking for labor rates, we typically call around to the competitors to find out what they're charging so that we're in line and we're able to defend ourselves. But I've never felt that we got value. Like the $177 that you talked about, you know, how many equipment dealers in Arizona, New Mexico, Nevada have $177 as a basic labor rate? Yeah. Not many. Not many. And hell, if it's $177 for a pop-up with a basic shop, I'm not going to say dirt floor, but pretty close, you know, why aren't we charging $200 an hour? Yeah. So we've got that going too, really, don't we? We've got the general labor rate, and we're all happy if we get 65% to 75%. And as you say, we're working on efficiencies to make that better.

But at what point do we become proud of what we do?

I'm still struck by the fact that market share-wise, we don't get very good market share on maintenance. We do reasonably well on rebuilds, especially when we get into replacement before failure. lifecycle management type stuff. But general repairs, it's a struggle. In the old days, we used to talk about wage multiples. You take the guy's wages,20 bucks an hour, multiply it by three. You're going to charge 60 bucks an hour. You're going to get 66% gross profit. Congratulations. And everybody was happy. That's almost 50 years ago now. And the world is a hell of a lot different place today with technology and ceramics and everything else that goes. But I don't know that we've changed our mindset on wage multiples. Have you seen that or are we still stuck on that?

Yeah, it's funny with COVID 2020, let's call it, and coming out of COVID now at 2025, there's nothing that I find out there anywhere that hasn't had dramatic price changes, except us. Yeah. Yeah. How do we break that logjam?

Yeah, and if you look across industries, forestry, mining, material handling, crane and hoisting, engine, marine, all of them have considerably different approaches to labor. So, you know, the reason I'm spending time on this is your specialty. Your specialist troubleshooters, that might be the avenue that we want to follow to break the log gen. We have a hydraulics specialist troubleshoot, electronics, we have engine, we have powertrain, et cetera, et cetera. And each of them has specialist rates that maybe are multiples of five or six times weight. And we shrink the general technician pool accordingly. Does that make any sense?

So let me look at France. And, you know, I started up in Canada and Quebec and we dealt a fair amount with France. At one point in the 70s, dealer for the country of France, had one technician in the field for every 20 machines. That technician was responsible for those 20 machines with those customers, period. So if a customer had a problem, they called. If the guy was already busy, he had access to somebody to back him up, and rarely did they have two out of those 20 that were in problems at the same time. It was phenomenal. Just think about your machine population in Arizona, for instance. Divide that by 20, how many technicians you'd have. That'd be a hell of a lot more than you currently have, right? Yeah. And then in the 80s, they got rid of it. And their market share in labor went, poof, surprise, surprise. What do you think of that approach? Taking specialized customers and assigning a technician to them.

For instance, you've got a mine that has 50 machines of various models and sizes. and you say, okay, here's three men. I'm going to give you those three men. They're going to be on your job site every single morning at 7 o 'clock. You're going to be there until 5 o 'clock, and you can deploy them. Think we can handle that?

So we had a

Did you work, did you do the invoicing on a work order basis or was it on a month basis?

So the whole administrative thing became easier.

So the office piece of expenses, which if I remember right, was somewhere administratively is about 20% for other salaries and wages rather than wage. That's cut in half. You're getting another five points right there.

Plus shop supplies. Specialized tools, facility costs, all of those things. It's a hell of a concept. I don't know why it didn't catch on more broadly. You know, Road, where you were, was a rather progressive dealer. There was a bunch that were, but not everybody. And it was surprising to me. Bill Blackie and you and I were both there when Blackie was the chairman. with his parts gram and service grams, he was a maniac for process. We seem to have lost that. Is it something that we need to have somebody in the service department that is constantly looking at continuous improvement?

I think you bring up another great point that parts and service, let's just, leave ourselves there. The parts department is basically a warehousing, inventory, purchasing, selling group. The service department is repairs, maintenance, rebuilds group. We can throw inspections in. But both of them have a need for business management. Both of them need to have process improvement management. It's almost like we should strip the department down into here's the customer facing functions and here's all the support that's required for that. Does that make any sense?

Yeah, you got that right.

We're getting into a bit of a trap now, Ron. I think, you know, what I characterize it as in the last 40 years, we've seen a 50% reduction of the number of dealers competing in the marketplace about every 20 years. So if we started in 1975, or 85, I guess, is the right place, at 100 customers,2005, we're at 50,2025, we're at 25 customers. And it's not because the dealers didn't operate well, but they didn't manage the business well. And they got themselves into trouble, either too many machines on hand and interest rates got them or market changes got them or various things. The leadership's happy because sales revenue went up. That's how they measure their performance. And that's a trap. And if it continues on another 20 years, we're going to be down to 12 dealers. At which point the customer is going to be looking at the Walmart model and the Amazon model and a different approach and dealers might be at risk.

And I don't see anybody with their hand up saying, hey, wait a second, we've got a problem here. You've got some pretty sharp people at road today. You've got a, what, three-generation dealership, successful, going forward, in the past. Strong customer support, strong customer retention. But there's not many catapultors anymore.

Oh my.

Was that their primary job function?

Looking at the future?

So do you know what he went through to come up with those books? Did he do it himself or did he do it with outside help or how was it put together?

So the service managers then in that context, they were driving the labor. They were driving the repairs in the shop and in the field, scheduling it, closing it, doing it with good quality, doing it with good efficiency. That was their job. Right. So your point about finding additional work from the work we have. It's kind of rooted there, isn't it?

Yeah, what you're talking about in my jargon is we are still in a transaction world. We should be in a data world. So, you know, what we get is fine. What we don't get is even more important to me and to you based on what you just said. And then finding out why we don't get it. And more often than not, it's price. More often than not, I can kill price with, you know, I'll give you a three-year warranty. The other guy is going to go into business. If he has a failure, he goes, look, he's done. Yes. Yeah.

Yeah, with data analytics today, Ron, with lifecycle management, we've got so much available to us today in the form of data, but now I get worried about the accuracy. You know, we've got the job code, the standard SMCS code, swoosh now or whatever. And John Deere had the SPG and Komatsu's got a similar circumstance. And John Deere, believe it or not, stopped collecting all of that dealer repair history. Agriculture hadn't been doing it and didn't want to do it. And agriculture got the upper hand and all of a sudden the industrial side didn't. That was gold. You know, so I'm going to change. One of the things I used to do, and maybe you did a similar thing, is any machine that was in the shop that didn't have a Caterpillar filter on it, I changed the filter. I call the customer and say, I'm going to give you a free filter. And nine times out of ten, the customer didn't have their maintenance done by us. They had an independent do it.

And the independent didn't know what filter to. So whatever the filter was that was on there, that's the one they use. So it got me all kinds of additional business. It was stupid, but it's just that kind of thing. So we need the data analytics. We need to go to what they don't buy from us, find out why, how do we combat it? We need to create specialists based on the business that we have and try and set ourselves further apart. create a stronger base from a general technician perspective price-wise, in other words, be a little bit more proud of what we do, that should very seriously impact income. 10,15, maybe even as much as 20% per year.

I used to assign a part number to a sublet so that I could identify how frequently I used that sublet. And once we got to a certain volume, I refuse to let it continue to be a sublet. You do it five or 10 times. Enough of this nonsense. Why can't we do that ourselves? Yeah. Did the same thing with tooling. I put tools into the parts department. How often did we have a tool crib in the shop? You go to get a tool and the damn tool wasn't working. Because the guy who put it last in there, I never knew who it was. But if I had a part number on there, all of a sudden I had a tool charge. Parts return percentage. I had a tool usage percentage. It's remarkable how such simple things can make such a big difference. Yes. Like you said, first off, last on. Really, you know, in the 1990s, I think you and I have talked about this. There was a thing called BMW augmented reality where a technician walked up to a car that had the hood up.

His toolbox was on the right-hand side, and on top of that was a pair of glasses. And this was about 1993. He picked up the glasses, put them on, and pushed a button on the arm. And all of a sudden, the inside of that engine compartment lit up. First step. And it talked to him. And then it showed a diagram. It showed a graphic of what was going to be, you know, take off the radiator hose, take off the filter, take off the whatever. Here's the specs. Here's the torque, et cetera, et cetera. That's today. That's 30 years ago. Yeah. We can get in a plane, go to 100 dealers. I bet you we don't find two that have that.

And I don't know how people, yeah, we're going to be in trouble because I don't know how many people are going to be able to keep up with that. Yeah. That's the other thing that's happening out there. The number of skilled people that are available in the marketplace. I was watching something with Mike Rowe the other day. I think at the time there were 7.2 million job openings in America. And there were 6.7 million men,25 years and younger, that were not looking for work or not working. What in the heck is going on? School's not delivering the product that it used to. I don't want to get down that rabbit hole of being negative, but I think what you're bringing up that look at the data. What don't you get? Why don't you get it? Let's go after it. Look at areas where you can create specialists, have them be troubleshooters, apply those skills, different labor rates, and start paying attention, sublets, other things to the details.

We've already got it, but it means the service management job. has to be supplemented with something else, a business manager, a data manager, whatever it is. Is that a good conclusion to come to?

I think this is something everybody should pay attention to. I hope those that have been listening can see this. Ron, how long were you involved at the dealership? How many years?

Yeah, and I was about, well, I was in dealers for 13, but involved for 50. So, you know, we got scars. That's why I call it the ring without scars. I got scars on my backside. We don't need other people to do it. I hope everybody who's been listening gets something good from this. And Ron, I really appreciate you sharing your wisdom with us today. Any comments you want to put in as a close?

I think that's a great close. So again, thanks very much, Ron. Mahalo. And thanks to everybody who's here. I look forward to being with you at the next Candid Conversation. Mahalo. Thank you for listening to our podcast. We appreciate your support. Should you have any thoughts or comments, please don't hesitate to contact us at www. learningwithoutscars. com. The time is now. Mahalo.