Five Equipment Dealer Trends that will Shape 2023
Feb. 14, 2023 – The Association of Equipment Manufacturers (AEM), producer of the ConExpo-Con/Agg trade show coming up Mar. 14-18 in Las Vegas, has shared five equipment dealer trends it believes will shape 2023 and beyond.
AEM asked industry thought leaders to share their views about trends for the future.
Here’s what it heard.
Online sales and online rentals will increase significantly
In 2021, online sales of automobiles reached 30% of the market, the highest level ever.
In July 2022, Ford announced it would move sales of its electric vehicles online at a fixed price, following Volvo and Tesla. “Whatever happens in the auto industry, is coming to construction equipment dealerships,” says Garry Bartecki, CFO of a Top 100 rental company and former CFO of the Associated Equipment Distributors (AED).
A 2021 McKinsey & Company study sponsored by AED found that more than 40% of off-highway dealers surveyed think it is either very likely or somewhat likely that the OEM(s) they represent will implement a direct-to-consumer model within five years. They expect that within five years, fully digital sales (including the actual purchase) for new equipment will rise from 7% to 29%, and digital rentals will grow from 7% to 33%.
“We definitely see things moving in this direction,” says Jefferson Yin, director of new business models and commercial intelligence at Volvo Construction Equipment. In 2020, the company began allowing customers to pre-order new electric equipment online, and it recently launched an online configuration tool that lets customers “build and price” their ideal model.
“There will still be transportation, delivery, and service, but it will be much more efficient,” explained Steve Clegg, managing director and owner of Winsby Inc., a business-development firm with many clients in the construction-equipment industry.
“Dealers are behind the curve and contractors are ahead of the curve when it comes to utilizing the internet,” said Ron Slee, managing director of Learning Without Scars, a dealer training resource. The shift to e-commerce creates what he calls “the Amazon effect,” which will force dealers sell services instead of things.
With brand differentiation waning in the heavy-equipment market, Dale Hanna, CEO of Foresight Intelligence, a provider of business systems and telematics software, also believes the battle for customers will be based on customer experience. “Dealers need to adopt more technology to be able to serve more customers with the same amount of people or to attract better people,” he said.
Electrification will disrupt the dealer’s revenue model
Electrification of construction equipment is in early stages, but Grand View Research reports that the global off-highway electric vehicle market size is expected to reach $42.70 billion by 2030. Growth will be driven by lower operating costs as well as improved battery technology and lower costs for batteries. “You are going to see the whole industry switch to battery-operated or hybrid machines,” says Clegg. “The amount of parts drops by about 90%, so if your operating costs for a skid-steer were $20 an hour, that drops to $3 per hour.”
Dealers make their money on parts and services, and a high absorption rate (+85%) is a key focus. This metric is an indication of how well the margin from parts and services covers all the expenses of the dealership.
“Electric machines will cut the maintenance costs, so the dealers will make less money and the OEMS will make less money,” says Bartecki. “It’s a whole new ball game.”
To make up for the difference, dealerships will have to focus on new revenue sources. “Because they have the service expertise, I would recommend they move into supporting and servicing batteries, providing services such as recharging vehicles, tires, wear parts, and repair,” says Clegg. “They can also expand into different lines of equipment.”
According to Lars Arnold, electromobility product manager for Volvo Construction Equipment, the company is working closely with dealers on sales and service training. The company has added electromobility training at its Hayward Training Center and has plans to include it at its new training center at the Shippensburg headquarters.
Connected machines and jobsites will continue to reduce owning and operating costs
Telematics can greatly reduce owning and operating costs. Nearly all new construction equipment machinery is equipped with technology that allows equipment owners and dealers to avoid downtime through preventative maintenance and early detection of mechanical issues. The challenge has been getting equipment owners on board. “Across the industry, adoption of telematics is definitely under 50%, and maybe only 30%,” said Henderson.
“The dealer has the trust of their customer, but they tend to be a single brand, while most customers have mixed fleets,” says Hanna.
Slee believes OEMs have tried to protect their own at the expense of the marketplace, but he’s starting to see some signs of change. “The machines need to be able to talk to each other as they do in other industries,” said Slee.
Jim Bretz, director of service and solutions for Volvo Construction Equipment, said about 60% of Volvo’s connected machines use the company’s advanced telematics system called ActiveCare Direct. Those machines are monitored 24/7/365 for alarms that indicate an issue. Actionable information is then sent directly to the customer’s equipment manager and the local dealer within minutes. It includes information that will help the customer address the issue without the help of a dealer. In addition, fleet reports are driving a change to the dealer’s business processes. “It gives them a tool to proactively consult with customers and help them evaluate and improve machine operation and maintenance,” said Bretz.
Technology will bring greater efficiency to parts and service
Parts are the bread and butter of a dealership, but for a user, buying parts is anything but easy. When a machine is down, the costs are astounding and end-users and rental dealers are likely to pay a premium to get a quality part as quickly as possible. Buyers often need guidance, and that may mean multiple phone calls and texts from multiple sources, including OEM and aftermarket parts dealers. Each part of the distribution chain has its own distribution, logistics, and markup.
According to Slee, OEM dealer market share for parts has dropped to 35-40%, about half of what it once was. Buyers today simply have more options, including Amazon.
Luke Powers, CEO of Gearflow, a web platform designed to work within the Equipment Triangle to facilitate the sale of parts, believes dealers will soon be competing directly with Amazon. “MRO supplies are the first entry point of Amazon coming into the industrial markets,” says Powers. “Amazon wants all procurement to be done on its platform regardless of the industry. Private-label brands in the construction equipment industry are the logical next step after adding MRO to their selection.”
Powers wants to take the inefficiencies out of buying OEM and aftermarket heavy equipment parts. To do that, he and co-founder Ben Preston created the Gearflow platform to make it easier for suppliers and users to work with each other. The platform provides one location for users to request parts from their existing suppliers or discover new ones, access their past parts order history paired to their machines, as well as centralize invoicing and reporting across their mixed fleet.
“The No. 1 way dealers lose customers is through miscommunication,” said Powers. A messaging center keeps communications tied to each part’s request and order, in a central location. “We’re trying to automate as much of the process as we can,” he says, “which ultimately will allow users and dealers to focus more on productivity and service.
Rental continues to grow, while an Equipment-as-a-Service model draws interest
Rental is expected to continue its upward trajectory, fueled by higher prices for construction machinery and rising interest rates. According to the America Rental Association, construction equipment rental revenue is expected to reach increase 12.5% in 2022 to more than $41.6 billion, with growth slowing to 7% in 2023, 2% in 2024, 3%in 2025, and 3% in 2026.
The concept of equipment-as-a-service, which transfers responsibility to the manufacturer or dealer, allows customers to focus on their core business. It is gaining interest. Unlike equipment rental, it might involve an entire fleet to be provided for several years with the potential to tie invoicing directly to usage.
Slee believes the concept has potential. “Contractors use the machine to dig a hole. They are only interested in the hole, and they look at the equipment merely as an operating cost,” he said.
Volvo CE is currently exploring the concept. “One of the most positive aspects from a customer perspective is the payment flexibility that this model offers since it’s usually linked to machine utilization,” says Dr. Ray Gallant, vice president of product management and productivity for Volvo Construction Equipment. It would allow companies with seasonal operations to match equipment expenses with revenue.
“It’s a very customized offer, and it requires that the OEM, dealer, and customer are aligned so the fleet performs accordingly and delivers the expected results,” says Gallant.
Change is coming fast
Change typically accelerates in the face of headwinds, whether it is a pandemic, inflation, or high-interest rates. Dealerships that want to succeed moving forward need to prepare for change and that means gearing up with the people, technology, and services the market demands.