The U.S. and global recession has certainly had a major affect on the construction and related markets—from contractors and producers to equipment manufacturers and every sales channel. Each group has been finding its own ways to survive and prepare for when business returns.

While many equipment manufacturers are taking a more “reduce costs and ride-it-out” approach, many equipment dealers are more aggressively reinventing themselves for long-term benefit. Manufacturers themselves have actually helped drive this change both before and during this recession.

Case In Point

• A major aggregate multi-state equipment dealer made a strategic decision in the past month to break with tradition and take on competitive product lines to better serve all aggregate producers in its territory. The dealer also plans to continue expanding its engineering and manufacturing capabilities that started in earnest when equipment manufacturers were too busy to work more closely with both producers and their dealers to fabricate the more customized and less profitable plant structures, conveyors and portable chassis.
  

• A multi-state equipment dealer representing major brands at different locations has seen the future and is looking to expand into a more profitable market segment. It has been looking for synergistic opportunities and has been in discussions with a well-established aggregate equipment company selling throughout The Americas.
• A major multi-state equipment dealer in the western U.S. has built strong connections with major road building and construction companies in the Middle East and continues to design and supply entire processing plants and support equipment throughout the recession.

Dealers Breaking Through The Boundaries
As many manufacturers have retreated to wait out the recession, many equipment dealers have been searching for and expanding their businesses into more profitable opportunities once dominated by manufacturers.

The more aggressive dealers have been evaluating the future landscape of construction and related equipment opportunities and the events reshaping the industry, including: tight credit, lower cost offshore equipment, increased competition, thin margins and changing contractor purchasing strategies to compensate for their tougher environments.

As equipment sales opportunities remain fewer and farther between for the next couple of years, many dealers are proactively striving forward with one or more of the following approaches:

1. Strengthening and solidifying their relationships with customers as solution providers versus strictly representing manufacturers and providing the equipment and service. Customers are now turning more to their local dealers to recommend, design, engineer and install new operations and/or expand existing production facilities.
2. Continuing to shift away from single-brand loyalty for the following reasons:

• Customer preference is changing toward the specific brands they prefer for each type of equipment. Many larger manufacturers are highly respected for their expertise in one technology or product line and not in others. This is especially true with cranes, quarry equipment and rolling stock. More customers today desire a combination of the best brands to fit their exact needs.
• The intense pressure for dealers to work with their customers’ brand preferences or risk losing sales has opened the door to more aggressively work with other manufacturers, dealers representing the customers’ preferred choices or encouraging the customer to directly purchase the equipment as part of the agreement.
• The recession’s affect has changed contractors’ and producers’ equipment purchasing strategies to reflect the challenges changing their business model. Once premium brand buyers exclusively, some are opting for lower cost brands and accepting the trade-off between price and possibly longevity and performance. Many dealers are now maintaining their premium brand as well as selling a lower cost brand to keep customers. It also allows them to attract new customers not desiring the premium brand.

3. Working with leading-edge manufacturers that are currently focusing on innovation. Many well-established manufacturers are not investing seriously in new product technology and are relying on their past to continue selling equipment. While this still has merit and dealers wish to maintain the highly profitable parts and service business, they recognize the need to work with competitive manufacturers leading the charge in product development wherever possible.

Manufacturers Helped Drive Today’s
Dealer Dynamics
Manufacturers are just as responsible as the recession for changing customer attitudes and dealers shifting their business practices to survive and thrive in the future. 

As order volumes continued to rise from 2005 through 2008, manufacturers began focusing their efforts on producing their primary core products that kept their factories humming. As the focus intensified, far more customer relationships as well as ancillary components, customization, installation and support equipment were left to their dealers to handle. This occurred in all types of equipment from rolling stock to processing equipment.

The results are beginning to speak for themselves. While brands still remain important, many customers now turn to their dealers to customize their new loaders, excavators and other equipment while others rely more on dealers to design, engineer and build many installation structures and support equipment for processing plants.

The dynamics of the manufacturer–dealer–customer relationship are continuing to shift in favor of many equipment dealers despite the recession and the significant slow down in manufacturing. Once supported by the manufacturers to help handle the boom years, dealers appear to be reluctant to reverse the roles again. And, it appears many customers are supporting the dealers’ efforts to reshape the equipment landscape.

Manufacturers must now seriously consider how they will make the most of these developments within the dealer sales channel and customer base. As we have seen in past post recessions, certain proactive dealers often turn into the next generation of manufacturers of primary core products.

The next BMG Idea File will address ideas and actions manufacturers can consider to adapt to the changing dynamics between manufacturers, dealers and customers during this recession.

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