Navigating the Future of Equipment Manufacturing and Dealerships: Insights from Industry Veteran Steve Day

for both OEM manufacturers as well as dealers in executive positions and has had a lifetime of experience that I'd like to just lean on. So, Mr. Day, it is good to see you from Alabama. Welcome.

Thank you. Good to see you, Ron.

So what year did you start in this industry?

1978.

And prior to that, you were in the Navy as one stint. What else did you do prior to coming into the industry?

I came into the industry straight from college, out of college, then went into the Navy and then came into our business.

And where did you start? What was your entry, John?

It was about as low as you can get. I actually started in a equipment inventory control position with Komatsu, kind of handling dealer orders. and actually going out and counting how many machines there were and how many blades there were. It was certainly not a career that I was thinking was going to be where I would end up.

And what year did you retire officially?

2020. Never retired during a pandemic.

So 42 years in the industry. Was it split equally between the OEM, the manufacturer, and the dealer, or how was it split?

The first 25 was with a manufacturer and then with a dealer.

So from that background, we have seen over the last 20 years a remarkable consolidation of dealers. And let me use my typical example. In Canada, when I started in 69, there were 10 dealers. Today, there's two. Why do you think that's happening, Steve?

Well, first of all, our business is very capital intensive. And years ago, you could kind of get into it pretty cheap. You can't do that anymore. It's very people intensive as far as training is concerned. And dealers are kind of a pain in the butt for manufacturers. And manufacturers are kind of a... a pain for dealers. And when I say that, you know, being able to focus on a program or being able to focus on a technology or being able to focus on an area of development that a manufacturer wants to see happen within their distributor network. If you can convince eight guys to do what you want to do instead of trying to convince 50. That's easier. And also the infrastructure required to pull those things off is easier if you have to do it with a smaller number of bigger dealers. And the same thing goes with how many accounts you're going to have if you're a dealer. In the old days, somebody might have 40 or 50 accounts.

Manufacturers take up a lot of your time. You know, so the combination of being able to move faster with fewer dealers and being able to have access to greater capital with bigger dealers. It just makes a lot of sense for both sides to be moving in that direction. And you got to grow.

You made an interesting comment that the dealers are a pain in the ass for the manufacturers and vice versa. They never seem to be on the same page agreeing with how to proceed in a market. Is that a fair comment?

Exactly, yes. Yeah, and I think perhaps the manufacturers looking at it as North America. And the dealers looking at it is three states. And so, but when you get into with a big dealer, with a larger distributor group, you can go to that guy and go and maybe customize things a little bit more because you're only customizing it for 10 people than if you're trying to do it for 50 people, which would become almost impossible to manage. Yeah, we're a pain in the butt for each other. I never, you know, when I got to vote on whether you take on a new manufacturer, I usually voted no. And it's because of the reward for the amount of time and the effort and the investment you're putting into it. If it wasn't a big enough opportunity for you, it just didn't make sense. So I think, you know.

The larger manufacturers are going to have fewer dealers, and maybe the smaller manufacturers, the lower market share manufacturers will go and stay with the old lots of dealers because they have no other option.

I'm going to split the market up into four pieces. I'm going to call it specialty industries like mining and forestry, then into different sizes of dealers, large, medium, small. And I'm going to say on the extremely large side, you might have six manufacturers, Komatsu, Caterpillar, P &H, or not P &H, that's already owned, but Liebherr and perhaps others in the construction equipment world. Then you've got a similar split in cranes, in material handling, in road, highway, transportation, etc., etc. And if I look at the large dealers, not the mining guys, I see four. Caterpillar, Deer, Komatsu, and Volvo. Is there anybody that I should be adding other than the Chinese manufacturers?

Well, I think not. I think... China's problem is maybe even impossible for them to solve in the North American market. And so I would have Caterpillar, John Deere, Komatsu and Volvo. And Volvo tends to be very dependent upon their distribution. Are you good? How good is your dealer? Are you weak? You don't have one. And really, that's sort of the way for everybody except maybe cat.

And why is cat different? Or how are they different?

You know, they've done such a good job over many years of building up the reputation in the marketplace that they've got the most highly capitalized distribution. And, you know, if you're a cat dealer. kind of go along with what they say, because you can make a lot of money. And so Cat probably has the best bully pulpit. And I think very early on, Cat did the best job of pushing product support and really good customer, I don't want to say really good customer support and built that into their DNA and, you know, sort of, force their dealers to have that level of competence that perhaps nobody else was as quick to jump into. And part of that also came from how big was, you know, how much capital could you invest in being good at customer support? And smaller dealers just can't do that very well.

So if I look very critically at those four, Caterpillar is the only one that's rather pure in what they do. One of the things that I felt was an advantage was that every Caterpillar dealer in the world had to use Caterpillar's chart of accounts, which made it a whole heck of a lot easier for dealers to compare each other, Caterpillar to evaluate and audit, and for support to be applied properly. John Deere had a similar advantage, but it was agriculture. Once they got rid of international harvester ag, once they got rid of New Holland ag, odds and sods of things, Deere was standing pretty much by themselves. Massey Ferguson was the last one that kind of controlled the world. Komatsu was always a tag-along when it started, wasn't it? I think it was tied to... you know, Wabco in the trucking side and Clark in the rubber-tired loader side.

And am I wrong in saying it was somewhere in the 80s that Komatsu came out with everything and set up their own dealers? Is that about the right?

Komatsu started setting up their own dealers actually probably about 75, but still only had dozers and crawler loaders. And so it was in the 80s when they brought on their other product lines, the wheel loader, certainly the excavator and their own truck line that they forced dealers into making decisions and choices. You know, I'll take on the truck line. I don't need to be a Wabco dealer anymore. I'll take on the excavator line and I'm going to get rid of. Poclean or whatever product they had before. I'll take on the wheeler line and there goes Clark. But they still were sort of following the Caterpillar model at that point, but without... the level of capitalization. Basically, you took your own dealer and just forced more accounts on him, but he didn't have any more money. He didn't have any more capital capabilities.

And if I look at Volvo, and this is true to some degree for Massey, Volvo basically owned their dealers, their distribution, whether it was in the United States or anywhere in the world. And they started getting dealers going maybe only 40 years ago. Right. So if I look forward 20,30 years, are those four still going to be there or will there be fewer or will there be more?

I think you'll still see Caterpillar, John Deere, Komatsu in construction. John Deere almost stands alone. in North and South America with agriculture. And, you know, Europe is not a huge agricultural market for big ag equipment. And then, you know, Australia and some other places have decent ag markets, but John Deere sort of stands alone. I don't know where Volvo is going to end up. You know, Komatsu, made a left turn with mining and said, we're going to do that ourselves and we'll keep the construction in our dealer network. Caterpillar has chosen to keep the mining business in their distributor network. And those guys are approaching very similar market shares. And kind of there's nobody else really in there anymore. So the but the number of customers you're dealing with in mining is far, far, far smaller than the number of customers you're dealing with in construction or forestry or road building or whatever.

And so I think the basic highly capitalized dealer model is going to stay in play. But I think you're going to see the number of dealers get fewer and fewer, more big guys. It's training. Cat dealers have five, six, seven trainers. And then you'll have small dealers that don't even have a trainer. And I know in our business, we... kept growing those numbers because you had to start growing your own people. What is the future going to bring? A lot of that has to do with, you know, we saw John Deere Ag lose the decision. There's still an appeal, but one right to repair. You know, the farmers like to fix it themselves and the independent contractors want all the, the software and ag is probably a little bit ahead of, of construction in that regard.

But how much is AI going to figure into and, you know, and satellites and, and sensors going to figure into, you know, repair being plug and play and, and, and, and then who's, you know, so the future of, of. of the dealers, that's a question we have to always be asking ourselves is, um, that, and I haven't even really considered as much as I should. So I'm kind of winging it here, but I, I don't know how much that's going to impact on, you know, that could be a big game changer. Um, you're right, right now you still got to work on the old stuff, but each new series tells you a lot more every day about what's, what's going on with that machine.

It's really an interesting thing. You know, if I look at mining, I would submit that maybe 90% of the mining product support is Caterpillar and Komatsu, just the two of them. 10% other noise, according to the way that comes across. And that business model and that support model is totally different in my mind than construction. What do you think?

Absolutely. You'll have a lot more parts on site. You'll have technicians on site. The customer has his own technicians there. You're probably, he will tend to buy the parts from you because you're making that deal probably includes some long-term support with the big equipment, the big. 300 ton trucks and the big shovels and the big drag lines. And the fact that you probably have one site parts consignment from the point of view of the manufacturer and you always know what job site you're going to every single day. Construction is different. It's a lot more fluid. And I'm not sure how that's going to change, but all the technology you can put into that big piece of mining equipment as far as sensors and you can put it into a mini excavator and have it tell you this is what's wrong. And so the future probably leads to customers having much better availability. And who's going to give that to them? I am not always sure.

Let me change the table a little bit. As you indicated, there's maybe 10, so make it 100, mining companies worldwide that cover more than 90% of the mines. Two manufacturers that have the juice to support. those people, those customers at the mine. So the different eyes I'd like to look at is we have a miner make money getting product out of the ground and to the market. We have the support, equipment, rentals, parts, service, programs. Are those departments going to continue? to be a purchase source for the miner, or are they going to be a standalone business by themselves? That's a great question. Take parts. Is that going to be the miner that has the inventory and support, or is it?

I think that's the manufacturer that's going to have the inventory.

On-site?

Probably. At least significant amounts of it on-site. And the other thing you can do with that big mining equipment is, highly planned maintenance rebuild, you know, you can have a glider kit for a, for a, for a big dump truck sitting there and you say, we're going to take that down for, you know, for 60 days, you know, at this period, it's very planned, but that doesn't happen in construction. You know, I, I, More than half the guys that would buy a rubber track for a mini excavator bought one and buy two. He broke the one on the right side. He just wanted it working.

Yeah, because he's making money with it. That's his livelihood.

That's exactly right. But the mining guys do so much more planning. The big ag companies do so much more planning. And sometimes your planning rebuilds three years in advance. for that big equipment. And I think that's going to be in concert with a manufacturer every time. You know, just to have stuff ready when you're going.

So let's take that and go back to parts and service. The manufacturer makes money on parts. The dealer makes money on parts. Is that at risk going forward?

That's been at risk for 25 years or longer as people. are getting aftermarket parts in certain areas. And so once again, I think 25 years ago it was true and today it's true. Who does the work will make a big impact on what parts get bought. So if it's done by the dealer, then it's almost certainly going to be OEM manufacturer parts. And that's... That's that relationship, that covenant between the dealer and the manufacturer. And it's probably usually, you know, a better product. On top of that, the fact that there is an aftermarket keeps everybody honest. But once you go, you know, you'll have people that a customer may not always be making a good decision. on what he's putting into. I cannot tell you the number of times I've seen collateral damage when somebody put in an aftermarket part that was not a reputable aftermarket part and trashed an entire hydraulic system. And then there's all this finger pointing starts happening.

So, but you'll have some guy that's your maintenance manager that doesn't like that dealer. or has some issue with him that's thinking he's going to save his company some money or he's going to rebuild a component himself and he makes the wrong decision, he's probably not going to tell his boss that he made a bad decision. So how you maintain your parts business as a manufacturer by being reasonably priced and making sure you're dealers are getting as much of the service work as you can possibly get. And if I were a manufacturer and if I were a dealer, everything I'd be working for right now would be toward maintaining a strong service relationship with all my customers. And whether that's being the guy that changes their oil every time it gets changed. You got me into that business in a big way. And you know what? We see absolutely hugely extended component lives on the machines that we were doing that service on.

Just because we always showed up and the other guy might not have gotten it in that month. You know, might not have done the oil change when he was supposed to do the oil change. I absolutely think that it's going to be that manufacturers should be most concerned about maintaining that service link with that customer, that direct service link with that customer, whether it's him fixing it in the mine or him having a dealer that is completely capable of getting folks out. That contractor, that construction contractor, he needs it up and running fast, too. That's a big investment for him. And him getting paid depends on that machine running. So I really think that's another reason why you're going to more heavily capitalized distribution is that there are guys that are going to be able to invest in the service trucks and the tooling and the training and the training and the training.

They're probably going to make decisions to focus less on lots of accounts and more on being very good at taking care of the three big manufacturers that we support. And that was, I think I mentioned earlier, when I got a vote, whether we should add a manufacturer, I usually voted no. Because I didn't want to have to train people on a whole new system. I didn't want to have to train people on a whole, you know, I wanted the guys that I had. to be very good at what they did.

And, you know, that expertise, that reputation, that trust, that builds the relationship between the customer, the miner, and the distributor. But it doesn't do anything to the OEM. Whoever is closest to the customer owns that relationship. Do you agree with that?

I agree with that.

So let's shift over to, Let's look at parts again, because you had both sides of the world. If I look at the gross profit that's achieved from the price that the manufacturer pays to buy the part to the price that the dealer charges the customer for that same part, if it's $100 at the customer price, what do you think the purchase price is from the OEM for that same part? Just spitball.

Usually it's highly dependent upon if it is a part that they're buying for manufacturing or if it's a part that they're buying for aftermarket, you know, for parts sales. And usually I would say, you know, if he's buying it to put it into the machine, it's 20% of that hundred bucks. if he's buying it to put it into the parts inventories. And there's a lot of contracts that separate that. If you're not making it yourself, then there's a lot of contracts that separate that. Is this going into engine parts would be an exception to that probably. But is this going into a machine on the line? Or is this going into a parts inventory? And so it's probably 50% if it's going into a parts inventory and 20% if it's going, I mean, there's a huge difference. And then the dealer, the more expensive the part, the less he's probably going to make on it. Once again, you know, you get to powertrain, you know, a remanufactured engine.

The dealer's markup is not close to what it's going to be on a filter. So the more expensive it is, the less the dealer is going to make on it.

As a percentage?

As a percentage, yeah. Yeah, a bit more dollars, less percent.

What's interesting also then, shift over to labor. In my career, I would have said that the manufacturer, the OEM, was only interested in labor for warranty. And that was kind of trying to control costs. And other than that, they really didn't pay much attention to the service department because they didn't make any money there. Is that a fair comment?

That's a fair comment. I ran a manufacturer service department, and it was all about giving technical advice and controlling your warranty expense. You tended to be rather generous and, you know, within the warranty terms, but you could, you know, you'd fight over, you know, what a dealer was charging you. You know, I always felt when I got to be a distributor that I should get paid the same thing for my warranty that I got paid for my regular field service labor. And actually manufacturers of, kind of started to come around to that. But one of the reasons I think they started to come around to it is that their machines are a lot better and things break a lot less during the warranty period. So they could say, yep. But when I first started in the business, you'd get half of a standard labor rate from the warranty.

So with that all as background,1952, The car industry in the United States contractually allowed a dealer to have one physical location. And there was a General Motors dealer in California who had his brother-in-law do all of the car PDIs, preparation for delivery, which General Motors viewed as a second location. So they canceled the dealer because it was a violation of the contract. The dealer said, BS, you can't cancel me. That's a restraint of trade. That's a violation of everything that America stands for. And they went to court and General Motors lost. The dealer won, rightfully so. However, General Motors' response was to call their compatriots, Ford, Chrysler, AC Delco, major suppliers in the industry and say, I just had this happen. I think we're all at risk here. I don't want to lose my parts business to the second or third or fourth location, which is potentially going to happen.

So I want to create a competitive line of parts that I want to call genuine parts. I want it to be a publicly traded company. And I want to have dealers all around the country, Napa dealers. I don't want them to carry all the parts. I want them to carry only the fast-moving parts because we're going to own this. We already pay a big amount of money in inventory support at the OEM. I don't want to do that at the distribution level. So we'll have 3,000 to 5,000 part numbers. And because of that, our lower operating costs should allow us to make more gross profit. Seeing as how they're publicly trading, we know what that is,38.3%. The Napa store buys the part from the OEM to the price they charge the customer. 38.3% is a hell of a lot higher than what the dealer makes. So who took the hit? Was it General Motors selling to Napa? Or was it Napa selling to the customer?

I think the answer is pretty clear when the gross profit from Napa to the customer is higher than the dealer makes. So the manufacturer made less money. selling to Napa than they did when they sold it to a dealer. Is my logic solid?

I think your logic is solid. But the manufacturer also was going, if somebody else is making that, they're getting all the money. At least I'm getting a piece of this. Correct.

Okay, so shift that over. When I started contractually... As a Caterpillar dealer, I was not allowed to sell a competitive part. I was not allowed to purchase a competitive part. And that was grounds for cancellation. So I go out to British Columbia at a Caterpillar dealer then. At the time was, today it's the largest Caterpillar dealer in the world. We had 53 stores from the Pacific Ocean to the Great Lakes, from the Arctic to Mexican border. And we had a particular part, a loader linkage pin, which is holding the... bucket or the hammer or the forks or whatever to a device, a machine, to allow it go up and down. They were selling the same part, this competitive person, that I was as a Caterpillar dealer. I found where Caterpillar made the part. I had a contractual opportunity to buy the same part. I talked to Caterpillar and said, well, wait a second, you're killing me. It's not because I don't want to do the job.

It's because you're making too much money. And they said, what do you mean? They said, well, I can buy this part out of Italy for $10, and your dealer net to me is $100. The guy I'm competing with is selling the same part for $75. You're killing me. I'm not allowed to do anything about it contractually.

Let's talk about this because I want to

have a different approach. I want to sell that part. And they allowed me to do it. As long as the gross profit I made on that part as a percentage was no different than the percentage that I made on the Caterpillar part. So if I bought it for $100, I sold it for $150, that's a 33% gross margin. I buy it for $10, they're saying, we'll let you sell it for $15. I destroyed the competitor very quickly. Like, who's the price house now?

Right, right.

When the competitor is gone, which they did, I stopped buying that brand, which I did. And life continued. I don't think the OEM in the future is going to be precluded contractually that will stand up in court from alternate sourcing, one, two, almost everybody with the internet, with Amazon as our model. has proven, son of a gun, you can buy anything anywhere. It doesn't really matter. Now it becomes quality, like you said. And the OEM dealer has got a reputation as a high-quality provider. We used to call everybody else, quote, gyppos. The implication was it was garbage. Well, when we're selling the same product at our competitor down the street, we're in trouble. And the manufacturers caused that. outsourcing motor grader cutting edges, by outsourcing hose and fittings, by outsourcing batteries and fluids. All of those things that they outsourced all of a sudden came back as a vulnerability. So you and I own this manufacturer today.

We know everything we just talked about. What are we going to do over the next 25 years that allows us to continue to be in business?

Great question. And I don't know that I've got the great answer and I don't know that that what's going to be going on. There's no way I can possibly predict what's going to happen in 25 years. I'm trying to do five.

I agree with I agree with you. I just went out further because it made the question more difficult.

And then you have to keep having the new plan because the future becomes clearer the further you get into the future. I'll know what it's going to be like 10 years from now, assuming I'm still alive five years from now, way more than I know what it's going to be like 10 years from now today. But I do think this is going to continue to happen where somebody is going to be making that part in China or Vietnam or Columbia or who knows, and is going to be making it at half the price of what I'm currently paying for that, uh, that part. And, but I still think it depends on what that, where that part goes. Um, so, you know, if it's going into a hydraulic system, if you've got a brain in your head, you're going to be a little bit worried about that.

Um, because it affects so much, uh, other parts of the machine, but if it's a, uh, uh, a track bolt, You're willing to take a chance at that track bolts you're paying, you know,15 cents for when your dealer is charging you, you know, a dollar 10 is going to last 80% as long. And because if it breaks, I'm losing a track shoot. That's it. You know, so there are going to be things, you know, filtration. You're going to clearly have to show that there's a. You know, that you're not stuffing a roll of toilet paper in that tin, in that tin can, that you've got, you know, a product there that's worth it. And so I keep going back to if you fix it, you control where the parts are coming from. If you're not fixing it, you're not controlling that at all.

So let me shift over to that direction then. I think what that's saying is the only way that we can be sure to control our parts business is by controlling the labor business. I think that's what you've been implying through this whole discussion. And our vulnerability there in the supply chain, in the channel, is the dealer is treating a maintenance technician, a repair technician, and a rebuild technician as all the same technician. They don't have specialty teams of people identified and segmented out to those three market segments. And as a result of that, this one-size-fits-all brings the customer to the conclusion, well, I can find somebody out there that's going to change that hose for me at half the price that the dealer charges. And they go out and do it. And then the dealer's vulnerable to whomever it is that does that repair. They're the ones that choose the part. So the mechanic is making the parts choice.

The customer has given them that right, that option, and they've earned the business because their labor price is so much lower than the dealer labor price. So far, so good?

Yes.

So for the dealer to get into the maintenance business to control the filter and fluid market, they need to have a completely different... Technical team to support just maintenance. Yes. Any other way that it can be done logically?

Yeah, we are. And you're leading me into something that you pulled me into the business in the first place. So, you know, I think if you're going to be seriously in the service, in the lubrication business, for example, you have to have. a separate team of schedulers. Ours happened to have been based in a large room with huge screens and, and, and quite a, a tracking system and quite a, a phone network. And there's, you know, seven or eight people that are doing scheduling for the whole company. And then you have mechanics that are. Not technically at the same level as one of our normal field technicians. But, you know, all they do all day long is they go and they do their scheduled oil changes and they do walk around inspections of things that they've been trained to do. And they have, you know, you're not charging hourly, you're charging by the job.

And and you're not receiving the same labor rate that you receive, but you are getting your filter sale and you are getting your oil sale there. And so and some another person, another dealer I know has a two tiered labor system with depending on what the job is. And it all has. And the important part there is. Who is making the call on the mechanic that we're going to send out to do that job? And do they understand the level of training required to do that job? So this one distributor that I knew, who I think had a great plan, had a fleet of smaller service trucks with fewer tools. less experienced technicians that could grow into something else through training who would go out and they would get maybe $40 an hour less than what their regular charge out rate was.

So you'd send this express guy out in this cheaper truck and charge the guy 35% less on labor than you would to send the guy out to troubleshoot a hydraulic system or an emission system or whatever. And I heard a customer ask, do I have the sun in your eyes here?

Yeah, it's okay.

I've had a guy go, well, I want the $70 an hour guy, not the $140 an hour guy. No, you don't. Because that $70 an hour guy will be there for two weeks and still won't figure out what's wrong with your machine. Where, you know, my $150 an hour guy is going to know. in an hour and a half and have it fixed. He's way cheaper for you. Do you want the cheap heart surgeon or the expensive heart surgeon? And so I do think that you can maintain levels of service. And once again, that requires a bigger dealer that can manage things a bit more effectively to try to pull off that segmentation. But you can still get, and he's going to go out there with the hose. So he's going to have that hose built and you got to build that hose yourself and you got that hose sale and he's going to install that hose. He's a plus for you at that point for generating hose business where he's going to install an alternator. You know what you're sending the guy out for.

Maybe do a water pump or something. And what you've also done in that particular situation, one, you've got the labor, you got the parts sale and. You got to use your more expensive guy on more expensive, more important, more technically difficult jobs that that guy should be working on. So so and once again, all that requires management, all that requires training, all that requires investment. But if you want to keep that business, if you want to keep that parts business, it's a good way to do it.

What that opens up then. something that I don't think dealers have a good view of. What are the individual skills that every technician brings to you so that I can, in fact, assign a technician to a job that's a match for his skills, not an overmatch for his skills or an undermatch for his skills?

Well, I'm not going to go into all the disasters I've seen over time. But I'll say once again, dealers, some dealers do a great job of training. Some dealers try just to keep their manufacturer. I'm going to do what it takes to keep my manufacturer happy. And I think manufacturers are going to really up their game on what their training requirements are. I know we have manufacturers that if your technician didn't have a certain level of certification on that engine or on that. on that machine, then they weren't going to pay warranty on you sending him out to do that job. He had to have that level of certification. I think it's becoming more and more critical that not just are you training your people, but are you understanding what they actually know? Did you send them to school? Did they learn anything? And can they apply that?

Do you have that in your system somehow so that when you put it, hey, I've got this job coming up, five names pop up of the guy of people that you have in your branch that are qualified to do that job. If I were a dealer, that's what I would be working on is having all my people's training very visible to me. Not just so that I can schedule properly and give the customer the best experience possible, but so I can plan more training. Who needs what? Every year I should be talking to that guy when I do my review, talking about the training I'm going to get him this year. And I'm going to talk to you while I...

Well, you're going to give me a break and give me a... I'll look at you show off.

As long as the wind doesn't blow, I don't have to get that a little less bright.

I have the same thing. And if I don't, at night when I go to bed, I have to pull the blinds down because if I don't, the sunrise will come right into my face at six o 'clock in the morning or whatever the devil it is. If you keep going with that extension, let me simplify it a little bit and say that I'm going to have, for every job function, I'm going to have a red, yellow, green, an ABC type of skill set. Green, he can do everything. Orange, he can do some things. Red, he's very basic. Remove and install guy. I'm going to have that kind of categorization for each job, and I'm going to have that kind of qualification evaluation for each technician. And then I'm going to use a system-driven scheduling system. that assigns green to green, yellow to green, red to green, et cetera, et cetera.

So that when a job comes in, customer calls, a machine sensor indicates, I can get in touch with the customer or I can respond to the customer and say that I have George ready on Thursday at 10 o 'clock in the morning to be available to you at your job site. If you'll take a lesser skilled person, I can have somebody there this afternoon at two o 'clock. I cannot provide you the same warranty with the lesser skilled person. What do you want to do? How close do you think we are to that kind of scheduling for service with dealers?

I think that is all over the board. What a dealer's record keeping is on. Dealers need help with that. Because for me in an ideal world, I'm going to code jobs. So my satellite system has told me that this is the three issues that are wrong on that machine right now. And I can put a code in there and I can pull up every technician I have with a level of training and what his schedule looks like right now. And I can pick the guy. That would let. somebody who's not a service manager make those calls sometimes. And so how do you get there? One, you know what everybody's level of training is, you know, because you sent them to the class. In many dealers cases, you've developed an apprentice program to bring your people along, you know, to get you to, you know, to point A and, but you cannot, You got to start with knowing what they already know.

So, you know, if you have a basic testing system where you can figure out, you know, what's their retained knowledge. Yeah, you went to the class last year. Do you remember anything you learned? So I would like to see being able to test all of your people up front to see what they need. And then maybe every once in a while or retest them to see what they still remember, see if they'd have to be refreshed. But, you know, we kind of saw it as elementary school, high school, grad school. And, you know, the really good technicians, you are giving them maybe manufacturer specific training on a new model. And you gave it to them at a different level than you gave the guy that you're doing basic diesel or basic hydraulics or basic electrical with. And how do you do that? Well, you've got to have a great record keeping system on each person and you have to have some way to certify them as capable in each one of those areas. So this is my electrical guy.

This is a great hydraulics guy. This is a great engine and emissions guy. This guy can do electrical and engines and emissions. This guy can do he can do it all. He's a 35 year guy and he, you know. He can fix it if he smells it. And that, I think, is the ultimate system. You know, I think they've evolved past where we were when I left. But when I left, we knew what everybody's level of training was, at least. And when I came, we did. And sometimes you'd have a manufacturer call you up, maybe a major manufacturer call you up and say, We've got this class. You need to have people in it. And you'd find out, OK, send this guy and this guy. I'm stamping the manufacturer sheet, but I'm not necessarily putting the right guy in for the training that we need to have. And so you spend a lot of money on very ineffective training.

It took us a long time to get to the point where if we were going to spend money on training somebody, it was going to be the right guy and the right training. And the manufacturer had to prove to us that that was useful training. And then we also had to make sure we were bringing them the right product. And I was embarrassed kind of early by sending, you know, I got told off by some people that were friends that said, you know, that guy was an idiot. And I found out, you know, we. We had sent somebody convenient rather than somebody useful. And so that's a big deal. And that's the value you're bringing to the manufacturer, and that's the value you're bringing to the customer. So having certified technicians that you're confident have those skill sets so that when you send a guy out there to that customer, You fix his machine. That's why he calls you back. It is because he can fix it.

And I'll tell you that you'll have a technician leave you and go out on his own. And within two years, his knowledge is outdated. And his value that he's bringing to those customers is highly diminished. And they're not even getting what they're paying for. You have to keep these guys so updated. Things are changing so fast. that I would like to see a certification capability at every dealer.

You got us into the creation of our assessments because you didn't want to keep on training people that were just taking oxygen out of the room rather than being able to be able to contribute. So we started a skill and knowledge assessment program for support functions. in parts and service selling, marketing, the product support world. And those were 90 to 100 multiple choice questions, rather complex, that were created from our class structure that we've been using for 40 years, where 25 to 30,000 people have gone through it, that said, these jobs require this kind of skill. And we found that out by having quizzes at the end of every segment,20 segments in a class,32 classes,640 segments, questions. I'm pulling from 2,000 questions to come down to 100. And lo and behold, we used education criteria, which is 0% to 50% is developing,51% to 75% is beginning,76% to 90% is intermediate, and 91% and above is advanced. That might not be the right.

terminology for our industry, but that's what the education world uses. And last year was some 3,500 assessments. We had less than 50 people that had 90% or higher, which surprised me. But after thinking about it and talking to different people, didn't and shouldn't have. With the technicians, we've developed four segments,45 questions per segment,180 question, multiple choice. skill and knowledge assessment of technicians, brand independent. So you send somebody to a school at your manufacturer because they ask you to send it. And that person comes back from the school and you ask them to see what their score was on the final exam. There is no final exam. So we assume he learned because or she learned because they went to the class. What I say to people is give them a couple of weeks after they're back and then have them take our assessment. and see what score they come back with. Now we open up a Vista that's a completely different ballgame.

Capitalization is where we started with the shrinking. It's become very expensive. The barrier to entry in our distribution channel is money. And number two, you came on very quickly thereafter saying the biggest problem, bigger problem is people. Because there's not enough at the skill level we require, and we don't know what to give them. to get them to that skill level, because nobody's prepared us for that. That's not part of our skill set. I have to outsource it. Who do you go to to find out who does that? Well, guess what? We're the only ones that do that. And the schools don't even do that. And they're stunned at how we can categorize all of this nonsense. But if a dealer, I guess the clouds are upside down message from this discussion, this conversation is, If you don't control the labor, you're at risk.

Yes.

It has nothing to do with machine market share. Because I can do labor on every damn machine. I don't care what brand you've got. But that implies that I'm going to train people. And the dealer has given up on having those schools themselves for the most part. We'll do onboarding, that kind of stuff, the easy stuff.

Yeah, I think I'm seeing. Once again, when you get into the big dealers and the capitalized dealers, we figured out that at any given time, we start two classes of eight to 10 people every year. And they spend a week a month going through apprentice training for 18 months. So they'll have 18 weeks of training at the end of 18 months. And that's a huge investment. So at any given time, you've got 30, you know, somewhere between, you know,24 and 30 people in that program. And that's a huge investment because you're giving them 12 weeks off a year. You're not getting any income from them. And then you've got the people that are training them. And there's more, there's several dealers that I know that are doing that. And other manufacturers have. those same things in place. And if you're not doing that, you're not developing your people.

So with anybody that went through that program, and we have a secondary program, one of our manufacturers is set up where you send people away to school for two years. And then they come off and they spend time in your shop and they spend time at the manufacturer facility. And you've got a heck of a mechanic after two years and they stay with you. for two reasons. One of them is they're kind of grateful for the training. The other one is they developed all these buddies in those classes that they use as assets. And so it's expensive. And, you know, the old Curtis Mathis and damn well worth it.

The interesting thing, Steve, is we now have five schools. that carry our products across 20 states. In each state, there's a scholarship program that the state will pay for the training, the cost of training, plus the wages of the people going to school if the student passes our assessment. And it's predicated on the degree of difficulty of the assessment, not just the overall program. And what I'm finding is The states are crying out for assistance in this direction across a whole range of job functions, nurses, x-ray technicians, technicians, plumbers, electricians, whatever it is. And we've spent the last hour talking about things that we see, and we haven't even touched 10 or 15 percent of the options that are out on the table, right? Right. And yet, I think we've... put forward some provocation. I'm hoping that people who have come this far to listen to this far are in a situation that said, damn, I never thought about that.

I better get a group of guys. We better start talking about this because this is real. If you were going to put a circle on it now to summarize where we've been as similarly a preface to the next one we do, maybe in two or three months, what would it be? What would you say is a conclusion that You want people to draw from our discussion so far.

Well, if you're in distribution and you're investing a whole lot of your personal money in your business and you're wondering, what's this going to be worth in 10 years? Are manufacturers even going to have distributors? I think the answer to that is yes. And the distributors that they're going to have are people that can bring customers to them. And they can hold on to customers. And there's no reason for a distributor, for a manufacturer to make a change if they've got somebody that has the ability to grab customers and support customers and hold on to those customers. And the way you do that, customers are business people, is you make sure they make money with your stuff and they make money with your stuff when it runs. And you make money when you do parts and service business with them. So, you know, it's a mutually beneficial relationship. You want to sell them parts and service. They want you to fix their machine and keep it running.

How do you do that? And in large part for me, it comes down to having great people that can work with them to make sure that they get the right service when they need it. at a reasonable price. Yeah.

Steve, I think that's a wonderful conclusion for this. The clouds are upside down. It's supposed to represent looking at the world through different eyes, through fresh eyes. But in order to look at the world with fresh eyes, you've got to have eyes that have some experience to them, that some scars have been realized. And I think that our discussion... hopefully is going to allow some people to start thinking about this thing a little differently. So thank you, Steve, for your contribution. And mahalo to everybody who's been listening to this The Clouds Are Upside Down podcast. 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.