Mets Kramer and Ron talk about the impending recession and how it won’t affect equipment dealers

The blog that you posted that's going up tomorrow night. is talking about service as a savior and all of the fear that seems to be out there from everybody in the economic world and the business channels and that there's a recession and we're in trouble and you seem to be taking a different stance. And I agree with that approach you're taking 100%. So why don't you share it with the audience?

Absolutely true. And, you know, I share a similar experience, even though I started earlier. Every time there was a slowdown, you know, we were almost trained that when the market slowed down, that's the one that you invested more money. That's when you got market share. That's when a lot of people pulled in their horns, let people go. So capacity in the industry was going away. What's really interesting this time is that as you. I spent a lot of time talking to a lot of different dealers and 21,2021 was one of the biggest years they've ever had on record. And almost everybody I talked to more revenue.

There's a conflict. I've just finished a learning blog that'll come out in a couple of weeks or a month about what's happened during the pandemic. And there's some really interesting circumstances that are out there. There's 11 million job openings right now in America. There's 6 million people that are on unemployment. We've never had that big a gap ever. The backlog of money in the programs that have been put out over the last four years for highway construction, bridges, dams, roads, and it hasn't been spent yet. The only real trouble I see for the industry out there is they don't have, as usual, access to equipment. So they're having to scramble a little bit more.

So fundamental truth is in a slowdown, people will not replace new equipment or old equipment with new equipment. That's the number one strategy that they seem to employ.

And now with interest rates going up, there's another meeting Wednesday. And they're anticipating another three quarters of a point. We're seeing a slowdown in purchases of homes. But we're not seeing a slowdown of building new homes. We're seeing, in fact, building new homes is held back because they can't find workers. Yeah.

Big time. That 20 to 22, let me call it. I call it 27 months. A lot of people have got reflected on their lives a little bit and they're doing different things. And working from home is changing the dynamics and the Zoom and Teams like what we're doing that weren't there 10 years ago has made significant differences. Customer service has an opportunity to be able to take advantage of a lot of people that retired because they can work from home for a couple of three days and be happy to do it. Yeah.

So service has or is now a savior because the older equipment needs to be repaired and brought up to speed.

Yes. So the real bugaboo in service is finding and keeping talented people. Yeah. The backlogs are getting longer. Yeah. Customer satisfaction is going down because we can't turn the machine around fast enough. We're starting to see supply problems on the parts. Some of the Bobcat parts that I've been involved with Bobcat dealers are not available in the world. It won't be for another 90 to 120 days. These are high control controls. It's amazing today. So our industry in the product support world doesn't really matter what happens economically. We're going to continue on. We

That brings me to another part of the whole service department. Service managers have always been slow. to hire people. And at the same time, well, what they say is, I don't want to bring somebody in. I'd rather have overtime. So now we're sitting at 50,60 hours a week, including overtime for everybody, sometimes Saturdays. The technicians won't mind the money, but it becomes dangerous. Unsafe working conditions start to pop up. But what the service managers over my career have said to me is, no, I'm going to delay hiring that guy, even though my overtime's high. Yeah. And Bill Piles puts out a blog, I think it might have been last week, I think it was last week, on guidelines for staffing in the service department. Yeah. And the reason that the service managers give for not wanting to hire is because they're the ones that have to lay them off. I don't know why anybody ever lays off a technician.

Yeah, over the years, best in class. I think it was as high as 35% market share of the labor on their equipment. And most normally it was somewhere between 10 and 15%, which is unbelievable. You go to a dealership, they got a hundred technicians and that represents to make the arithmetic easy. 10% of the labor market. There's a thousand, there's 900 other mechanics out there working on your equipment and yet they're not going to hire people. Yeah.

And I remember years ago, the French, the Caterpillar dealer in France, Bézarec Montvoyeur, had their market share on labor was north of 80,85%. They had one technician. If my number, if my memory is right, it was one technician for either 10 or 20 machines. That technician was assigned to those customers. And so if they had 20,000 machines in the territory and it was 20, they had a thousand or. whatever technicians. Life was really simple. They had that type of structure. Yeah. Longer the case because somebody else came in and started looking at profitability and that opens up a whole nother aspect of how we report things. Service is an area nobody understands. It's the group behind that wall back there. And they don't treat it as a profession. They don't treat it as a professional business. And it's It's the core behind the profitability of the dealership.

I think we've got, you know, Dale Hanna with Foresight Intelligence does exactly that as far as engagement. But the other part of things that I think we're at an inflection point, a transition where we're going to be selling programs like the waterboard or the electrical grid, where because of GPS and sensors everywhere, we're going to be able to sell programs where we'll look after your machines, sir. As long as you follow my advice, if I call you up at two in the afternoon and tell you to shut the machine down, I'd like you to do it. And we're going to schedule a service for you next Thursday at seven o 'clock at night. And I expect the machine to be where it's supposed to be because we're going to deploy everything. The whole world is changing from the old blacksmith day when the best mechanic was the guy that had the strongest back. I don't know if you've looked, but the technicians today have to be awfully smart.

The electronics and the hydraulics in the equipment, computerizations and engines and final drives and transmissions. It's incredible today. Yep. And yet we still treat them. You know, there was a case in California about 20 years ago where the dealership had their Christmas party and the technicians, almost to a man, their hands were in their pockets. because they couldn't get the grease out from underneath their fingernails. So today in California, they wear lanolin line gloves so that that doesn't happen anymore. I mean, we've got a bunch of wussies.

What is this?

It's all manner of things. I was really pleased at the... the content of that blog, that service really needs to become the forefront of everybody's head. That should almost be the number one issue. And how we manage service has to change. When you came in, you know, inspecting machines before you give a quote, quoting on everything, having times. Imagine if we guaranteed the price and the completion date on every work order. Yeah.

We'll give you back 500 bucks, you know.

When I started out at the Quebec Cattleboro Dealer, we used to hire engineers to come in as assistant service managers. Yeah. What we were trying to do is have the service management become business management rather than technical management.

Historically, what we'd always done is promoted the best mechanic to be the manager. So you'd take the best wrench out of the shop and make him a best manager. And so rhetorically, I would come back and say, well, do you take your best salesman and make him the sales manager? Or do you take your best hockey player and they're the manager of the team or the best basketball player? And, you know, Wayne Gretzky, one of the best hockey players ever. failed miserably as a coach. These superstar athletes are very rarely the good leaders. Scottie Bowman played hockey, sure, but he had a problem with his eyesight and he became one of the best coaches out there. It's a remarkable deal. Just moving from the technical expertise to the business expertise. And you're right. It's up to us to communicate to people. You know, that goes back to, I feel like I'm a mule brain in a tin barn. I make a lot of noise, but nobody follows. You know, it's remarkable.

Typically, the market leader is rarely the one that drives change. They're happy. They're conservative. They've got control of it, right? Yeah. It's the Pepsi challenge. Coke's the real thing. That type of thing. And so it isn't typically the market leader, but, you know, there's some weird things. Go back to the economy and the recession. Do you know that American savings are today $4 trillion higher than they were when the pandemic started?

That's good to hear. And 68% of the people that got government money, you remember the assistance program? Yep. Need more money when they weren't working than they did when they were working.

It really has been shocking. But the net effect of that is we have so much cash out there. It's unbelievable.

We have three different businesses, if you think about it. We've got new equipment. We've got used equipment. And we've got rental equipment. And product support. administration is supporting those three avenues. Yes, we've got independent sales of parts, but the activity that we get into in the parts and service world is basically supporting our equipment. We don't aggressively go out and try and do maintenance work on a brand we don't represent. And somebody's going to come out and say, hey, wait a second, we're going to create the NAPA. in parts for construction equipment and we're going to have the Mr. Goodwrench or the Midas muffler or the independent mechanic be organized as well. It's not that far away.

Yeah, I've been trying to do that my whole life at Finning. We had 53 stores.

And we treated each store like an independent business. Yeah. And then what we did was we said, okay, this 53 stores is actually seven regional businesses. Yep. And then we started setting up a hierarchy. And as a result of that, we took over 20% of the inventory out and gave better levels of service. Yep. It's, you know, return on capital employed. Like you say, once Wall Street or the money people, hedge funds and others, start realizing how much we actually make return on capital employed. If you manage the business well, Mets, the only thing that outstrips this is the legal pharmaceuticals. The illegal pharmaceuticals outstrip everybody, but we don't need to talk about that one.

Well, sure. And, you know, somebody, there's a lot of, a lot of investment in parts inventories. The other side of that table, stay with service for a little longer. How we manage tool rooms is disgusting. Really, it's in a cage on the floor in the shop and no record of who uses and doesn't use. For years, I've been trying to get everybody to take those tools, put them in the warehouse, give them a tool number, give them a bin location, give them a price. And when the guy needs the tool, have them place an order for it. When he returns it, have a restocking charge that becomes a tool charge on the bill.

And everybody says, you can't do that. You know, you got a transmission test bench. Yeah. A hundred thousand bucks. Yeah. And I'm going to give that away for free. Get out of town. There's no way in the world. I got to be able to replace that at some point in time.

And then, like you say, culturally and geographically, you go to Europe. A lot of the field service vehicles are vans. We've got this big macho world. We've got to have a two-ton freight liner with five-ton crane and outriggers and blah, blah, blah. It's when you could, you can look at my career, the 50 years and take it before and after the first 20 years, I never hardly ever saw a two ton truck. Yeah. And the last 20 years you get out into the wildness, the West,

it's gotta be a two ton truck. Yeah. Four wheel drive. Get out of it.

yeah average 50 miles an hour yeah

Actually, I'm going to change the tone on that. I don't want to sell a machine. I don't want to sell a part. I don't want to sell a labor hour. I want to sell the fact that I can improve the profitability of the customer's business. Let me get engaged with it. You've got mechanics. You love the guy. He's your son-in-law. He's your brother, whatever the heck it is. Fine. We'll manage him. We'll train him. We'll give him the tooling. And everybody said, oh, you can't do that. That's going to cost the customer too much. And that gets you back to the shop cost analysis that's been out for 100 years. The customer mechanic costs the same as the dealer mechanic. Come on. That's good. You know, the only thing that they're missing is they're missing the gross profit that we make on the labor. But when you dig deep enough, the customer will actually share financials and be honest about it. I've never had a customer whose actual labor costs per hour.

is less than 90% of mine. No. And then I start talking about warranty and that difference goes away altogether. So your point is, the market is slow. Baloney, I got backlogs in the shop.

Sure. The other part of that is it guarantees the cash flow for the dealership. And if you think about it, it's a subscription model. It is. It's what Amazon has with Amazon Prime.

That's what we do for the learning. It's just, it's quite, it's quite simple. Anniversary date of an employee. Okay. It's time for a performance review. Click. There goes the assessment. You got 30 days to get it done. Yeah. The assessment's in. Copy goes to the boss. Copy goes to the technician. Let's set a date when you're both, your schedule will say you can do it the 27th of the month. That's 2 o 'clock. Congratulations. We can do exactly this ironed iron thing for an excavator, a mining truck. Mining is easier, actually. So is forestry.

With mining, and if we use that as an example, there might be 10 major customers on the planet.

Then they're all huge. Yeah. And they're all financial institutions. It's not about the ore they mine. It's how they make money. Yeah. Where it gets complicated is when you come down to the smaller equipment. The man who owns one to three machines, he's a... independent contractor. He's got a skid steer, a Takeuchi, and off he goes. He's got his truck. He hauls it around in a dump truck. Those guys get more complicated. Then, you know, I used to tease people and say, I want to do all that work. And you're going to run up against a customer who's going to say, well, wait a second. I'm, I'm, Matt, I'm going to do all your maintenance for you. You're going to be able to spend more time with your wife. The only time I ran into objections is when the guy really didn't want to do that.

Yeah, that's right. She's the one that pays the bills.

and and like you say find what find the success story within the business and see what another sector of the market could take that and then go over there do it and then just keep repeating it yep Sooner or later, it'll blow up and everything will be great. Yeah. You know, to some degree, I'll give the dealer group a pass because we haven't been able to find the technicians. But it's funny, over the last 60 to 90 days, Steve Johnson, the former vice president of the AAD Foundation, who certified the technical schools, and I've been talking to technical schools and junior colleges, they all won. workforce development for their clients. So that's the car dealers, the farmers, the, you know, wherever all over the place. And they, with the computers now and the internet, a small town gets just as much service as a big town. Yeah. That's a very seriously different circumstance. Yeah.

Where we run into trouble there is that's why Bezos and Must are going to have a. competing satellite service where we'll have internet services from a satellite. That's the only thing that's standing in the way. Yeah. You know, I get, I have trouble here on the island. Between three in the morning and six in the morning, I get terrible service and I'm convinced nobody's acknowledging it, but I'm convinced that's the military time that the data transmission gets sucked up by the military, the Navy and the Army and Air Force that are here.

Yeah. Well, I run 200 to 500 MPSs normally. Yeah. Between three and six in the morning, it can be six to 12. Yeah. You know, it's, so again, it's all pointing into the same direction, isn't it? If you can, if you can create a model for your labor to maintain and repair things, keep things in working order, don't charge by the bill. Charge a subscription monthly. Whether it's used or not is a separate thing. It'll be used as is necessary. So where it really started happening for me about 10 or 15 years ago was maintenance contracts. Everybody used to sell it annually. They said, baloney, we're going to sell you a 5,000-hour maintenance contract,10,000-hour maintenance contract. It might take five years. I don't care. And we're going to prorate the charges, make it easy for you. Oh. We have to change how we look at the business. And you're exposing that service is almost immune from any economic cycle.

We can find any technicians. You know, everybody says that to me all the time. I can't find technicians, so I can't get excited about, I don't want to add service bays. I don't want to add locations because I can't find technicians. The dilemma is not finding technicians. The dilemma is keeping. technicians. It's a very different ballgame. Working conditions, tooling, safety, progressions, training, development, all of those things that are important for a person in their career. We start somebody at 20,25 years old, and we'd like to have them there for the next 40 years. But we don't treat them that way at all. Engagement seems to be something that almost every worker out there wants. You've been lucky enough to be, and so have I, to be engaged in what we do. But a lot of people are being treated like they're tools in a toolbox, Mets. And that doesn't have a future. That's not sustainable.

So yeah, going from 10 technicians to 20, we can do that in three months. Easy. Keeping my 20 technicians for the next 90 days, now that's a different ballgame. It's obscene to me how much turnover there is in the mechanical staff. And part of that is benefits, part of it's working conditions, part of it is wages.

Well, no, I had a case a couple of weeks ago where a man moved in the same city, in the same industry, from $70,000 to $120,000. So different companies value job functions differently. And that's not the sustainable position. The same thing in, I can't find technicians. That's not a sustainable position. It's just like selling equipment. I can't get equipment. Might as well not have a salesman. Get over it. You're absolutely right. We can find technicians.

In a territory in Quebec. you've got, say,10 dealers, just to pull a number. It's bigger than that, but say 10. The relative positioning, ranking, size is reasonably static. It's going to take a long time for a guy who's in the number three market share position to get to number two or get to number one. You don't just wave a wand and all of a sudden that's done. You've got to start. I think that's the whole point you're making. Find something that works. Find another place that it would work in and start. Yeah. No more excuses.

What it comes down to from my perspective, you're calling it engagement. I call it market coverage. Yep. We don't have a strategy that is allowing us to retain customers. Engagement is the only way, talking to them. Buying patterns, customer retention, two of the things that Winsby does particularly well, Steve Clegg and Debbie Freaks. Anytime a customer's buying pattern changes or somebody calls into the parts department. And the parts department person who answers the phone and deals with that customer should be able to see on their screen. Hey, Matt, good to hear from you. You haven't bought anything from us since January 17th,2016. Where have you been? Just having that kind of knowledge. Before we started, we were talking about the old paper to glass, Alex Schussler's computerization that we've been going through and how you're building an ERP now. It's a completely different platform.

We'll save that for another day, but it's all engagement, isn't it?

Yeah.

See, there's that generational thing again. You younger guys are giving us older guys heart attacks, you know. What's this terminology I've got to catch up with, you know? But it's absolutely true. How you frame things, how you present things, it becomes critically important. Yep. So I think we've talked about the service side of the business protecting us against recessions or economic slowdowns. Anything else you want to bring into it before we wrap this up?

I agree. I agree. The pandemic showed us 27 months. We compressed a lot of change into that 27 months. A lot of people did reflection on how they did things, what they did, why they did it, et cetera. We're in the same place now with the interest rates going up. It's been, it's been roughly. 40 years where we've had, except for the 2008 blip, where interest rates and inflation have been rather static, not much change. So now, in the course of a month, we'll see prime go up by a point and a half if they turn out to be true on Wednesday. That's causing a lot of people in my age block, and we're risk averse. We don't really go for change. We like what we got. We're incumbents. We don't want to lose it. Don't want to take a risk. It might screw something up. Now is precisely the time to be going out and finding out what the customer wants. And you're going to have to change how you treat it. And that's okay.

Whatever the customer wants is what we've got to give. A couple of weeks, three weeks ago was, just say yes. What do you want? Okay, yeah, I'll do that. Just say yes. Let's go. It was a wonderful subject. It was a great blog. I appreciate it. Thank you. And thank you for this chat. I think we expanded.

good

Well, I always want to have you in my bed. I don't want it to be the other way around. Remember that. Thanks, Mets. You got anything you want to add before I close this?

Well, thank you, Mets, for this chat, this candid conversation. And thank you to everybody listening. We'll hope you'll tune in to another candid conversation in the near future. 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!