Learning Without Scars
As a third-generation educator, it is easy to say that teaching and training are in the blood for Ron Slee. From his beginnings as a coach, through his time at McGill University, Ron developed a foundation for the work he does today. From working within dealerships, to operating a consulting company, creating a training business and running twenty groups, Ron has been directly involved in this Industry since 1969. Ron has been known as the industry expert for years, and has brought this expertise to bear through his training programs. Today, Ron provides specialized, job function based internet based subject specific classes, job function skills assessments, as well virtual seminars and webinars. These courses are designed for manufacturers and their dealers, as well as independent businesses in the construction equipment, light industrial, on-highway, engine, and agricultural industries through Learning Without Scars (www.LearningWithoutScars.com). This platform is a continuation of the work begun by Quest, Learning Centers which was established in 1996. This training is aimed at improving dealer parts and service operations through qualified people that are knowledgeable in using operational metrics and current market and operational best practice methods.
Learning Without Scars
Navigating the Future of Equipment Manufacturing and Dealerships: Insights from Industry Veteran Steve Day
Steve Day, a recently retired executive with over four decades in the equipment manufacturing and dealership industry, joins us to share his unique perspective on the evolution of this dynamic field. From his start in inventory control with Komatsu in 1978 to witnessing the consolidation of dealers, Steve offers invaluable insights into how larger dealers are transforming industry standards. Our conversation delves into the complexities of manufacturer-dealer relationships and the strategic challenges posed by these shifts, examining the successes of major players like Caterpillar, John Deere, Komatsu, and Volvo.
We explore essential strategies for maximizing equipment maintenance and service, crucial for extending the life of heavy machinery and maintaining operational efficiency. Steve emphasizes the significance of planned maintenance and the power of strong service relationships in safeguarding the parts business amidst a rising wave of aftermarket parts. We discuss financial dynamics and the importance of selective manufacturer partnerships, shedding light on how a well-trained, specialized service team can sustain a competitive edge in a rapidly changing market landscape.
Our journey concludes with a look at the future, where adapting to globalization in parts manufacturing and enhancing dealership service technicians are key to thriving in this industry. Steve shares his vision for optimizing workforce skills through structured training and scheduling systems, ensuring that each technician's strengths are effectively utilized. We wrap up by considering how distributors can maintain their relevance by fostering strong customer relationships and delivering exceptional service. Join us for a comprehensive overview of the strategic challenges and opportunities facing the equipment manufacturing and dealership industry today.
Visit us at LearningWithoutScars.org for more training solutions for Equipment Dealerships - Construction, Mining, Agriculture, Cranes, Trucks and Trailers.
We provide comprehensive online learning programs for employees starting with an individualized skills assessment to a personalized employee development program designed for their skill level.
Aloha and welcome to another. The Clouds Are Upside Down podcast, that sobriquet, that title is allowing us to look at the world through fresh eyes, and today we're blessed to have Steve Day, a recently retired executive who worked 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.
Speaker 2:Thank you, good to see you, ron.
Speaker 1: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?
Speaker 2:I came into the industry straight from college, out of college then went into the Navy and then came into our business.
Speaker 1:And where did you start? What was your entry job?
Speaker 2: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 and what? Year did you retire officially 2020. Never retired during a pandemic.
Speaker 1:So 42 years in the industry. Was it split equally between the OEM, the manufacturer and the dealer?
Speaker 2:Or how was it split?
Speaker 1:The first 25 was with the 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.
Speaker 2: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 pain for dealers.
Speaker 2:And when I say that, 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. 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 and 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.
Speaker 1:You made an interesting comment that the dealers are a pain in the ass for the manufacturers, and vice versa for the manufacturers and vice versa. They never seem to be on the same page agreeing with how to proceed in a market.
Speaker 2: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 as you know, north america and the dealer's looking at it as three states, um and and so uh. But but when you get into with a big dealer, with a larger distributor group, you can go to that guy and go and and maybe customize things a little bit more, because you're only customizing it for for 10 people than if you're trying to do it for 50 people, which would become almost impossible to manage. So, yeah, we're painting the butt for each other.
Speaker 2:Um, I I never would. 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 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 small guys will. You know the smaller manufacturers, the lower market share manufacturers, will go in and stay with the old lots of dealers because they have no other option.
Speaker 1: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, et cetera, et cetera. And if I look at the large dealers not the mining guys I see four Caterpillar, deere, komatsu and Volvo. Is there anybody that I should be adding other than the Chinese manufacturers?
Speaker 2:Well, I think not. I think China's problem is maybe even impossible for them to solve in the North American market. And so, yeah, 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.
Speaker 1:And why is cat different or how are they different?
Speaker 2:different. They've done such a good job over many years of building up their reputation in the marketplace that they've got the most highly capitalized distribution. And if you're a, 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 support and built that into their DNA and sort of forced 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 much capital could you invest in being good at customer support? And smaller dealers just can't do that very well.
Speaker 1: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 and the trucking side and Clark and the rubber tired loader side. And am I wrong in saying it was somewhere in the eighties that Komatsu came out with everything and set up their own dealers? Is that about the right?
Speaker 2:Komatsu started setting up their own dealers actually probably about 75, but still only had dozers and crawler loaders. 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. 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 Poclain or whatever product they had before. I'll, you know, take on the wheel loader line and there goes Clark. Wheel loader 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.
Speaker 1:And if I look at Volvo and this is true to some degree for Massey Volvo basically owned their dealers, their distribution, 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. So if I look forward 20, 30 years, are those four still going to be there or will there be fewer or will there?
Speaker 2: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.
Speaker 2: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. You know, 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. Um, so the but the number of customers you're dealing with in mining is far, far, far smaller than the number of customers we'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 you know it's training Cat dealers have, you know, five, six, seven trainers, and then you'll have small dealers that don't even have a trainer. And you know. I know in our business we kept growing those numbers because you had to start growing your own people.
Speaker 2: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. They're still in appeal. But on a right to repair um, you know the, the farmers like to fix it themselves and the independent contractors want all the software Um and ag is probably a little bit ahead of of construction in in that regard, um, but you know how much is ai going to figure into uh and you know and satellites and and sensors going to figure into um. You know repair being plug and play and and and uh and then who's you know. So the future of of of the dealers, so the future of the dealers, that's a question we have to always be asking ourselves and I haven't even really considered it as much as I should, so I'm kind of winging it here, but I don't know how much that's going to impact on you know that could be a big game changer Right now.
Speaker 2:you still got to work on the old stuff, but each new series tells you a lot more every day about what's going on with that machine.
Speaker 1:It's really an interesting thing. 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?
Speaker 2:Absolutely. You'll have a lot more parts on site.
Speaker 2: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 include some long-term support. You know, with the big equipment, you know the big 300-ton trucks and the big shovels and the. You know the big drag lines, um and and the fact that, uh, you probably have one site parts, uh consignment from the from the, from the point of view of the uh? Um manufacturer, and you always know what job site you're going to every single day.
Speaker 2:Uh, construction's different, it's a lot more um, and you always know what job site you're going to every single day. Construction's 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, you can put it into a mini excavator, uh, and have it tell you this is what's wrong, um and and so the future probably leads to customers having much better availability, um, and who's going to give that to them? I am not always sure.
Speaker 1: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, no-transcript take parts. Is that going to be the miner that has the inventory and support or is it?
Speaker 2:I think that's the manufacturer that's going to have the inventory um 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 big dump truck sitting there and you say we're going to take that down for, uh, you know, for 60 days. Um, you know, at this period it's very planned but that doesn't happen in construction. Um, you know, I, I, uh, half, the more than half the guys that would buy a rubber track for a mini excavator bought one hand by two. He broke the one on the right side.
Speaker 1:He just wanted it working yeah, because he's making money with it.
Speaker 2:That's his livelihood that's exactly right so. But the mining guys do so much more planning. The big ag companies do so much more planning, um, and it's and it's. You know, sometimes your planning rebuilds three years in advance for that big equipment and I think that's that's going to be in concert with a manufacturer every time, you know, just to have stuff ready when you're done.
Speaker 1: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?
Speaker 2: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 you know 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.
Speaker 2:So you know if it's done by the dealer, done by the, the uh dealer, then it's almost certainly going to be oem manufacturer parts and that 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, your maintenance manager that doesn't like that dealer, um, or has some issue with them. Uh, that's thinking he's going to save his company some money, or he's going to rebuild a component himself, or, um, and he makes the wrong decision, uh, he's probably not going to tell his boss that he made a bad decision.
Speaker 2:So how you maintain your parts business as a manufacturer? By being reasonably priced and making sure your dealers are getting as much of the service work as you can possibly get. How? 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 and whether that's you, you know, being the guy that changes their oil, um, you know, every time it gets changed, uh, you, you got me into that business in a big way and you know what we see absolutely hugely extended component lives on 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. So 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, because 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.
Speaker 2:So I really think that's another reason why you're going to more heavily capitalized distribution is their guys are going to be able to invest in the service trucks and the tooling, in the training, in the training, in the training going to make decisions, to focus less on lots of accounts and more, on being, you know, 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 new system. I didn't want to have to train people on a whole.
Speaker 1:you know, I wanted the guys that I had to be very good at what they did and, and you know that that expertise, that reputation, that that builds the relationship between the customer, the miner and the distributor, but it doesn't do anything to the OEM. Whoever's 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?
Speaker 2: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 $100. 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. You know, is this going into, uh, engine parts? Would be a a exception to that, probably. But uh, you know, is this going into a machine on the line or is this going into a parts inventory? And so, uh, it's probably 50 if it's 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.
Speaker 2:I mean there's a huge differential. 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, you know. So the more expensive it is, the less the dealer's going to make on it as a percentage. As a percentage, yeah yeah, more dollars, less percent.
Speaker 1: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?
Speaker 2:That's a fair comment. I ran a manufacturer service department and it was all about, you know, 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 have 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 get half of a standard labor rate.
Speaker 1:You know from the warranty so with that all as background, in 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.
Speaker 1: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.
Speaker 1:Seeing as how they're publicly trading, we know what that is. 38.3%, that's from the price that 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.
Speaker 2: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.
Speaker 1:Okay, so shift that over.
Speaker 1: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. 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 the 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 to go up and down. They were selling the same part.
Speaker 1: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 say, 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? I 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.
Speaker 1:Let's talk about this 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 bucks. That's a 33% gross margin. I buy it for 10 bucks. They're saying we'll let you sell it for 15 bucks.
Speaker 1:I destroyed the competitor very quickly, Like who's the price house now? Right, 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, three, 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's got a reputation as a high quality provider.
Speaker 1:We used to call everybody else, quote gypos. The implication was it was garbage. Well, when we're selling the same product that our competitor down the street, we're in trouble. And the manufacturers caused that by 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?
Speaker 2:Great question and I don't know that I've got the great answer and I don't know 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.
Speaker 1:I agree with you. I just went out further because it made the question more difficult.
Speaker 2:And then you have to keep having the new plan because you know the future becomes clearer the further you get into the future Um.
Speaker 2:I'm you know, I'll know what. I'll know what it's going to be like 10 years from now. I'm 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. So, um, but I do think, uh, this is this is going to continue to happen, where somebody is going to be making that part in China or Vietnam or Colombia or who knows, and it's going to be making it at half the price of what I'm currently paying for that part. I'm currently paying for that part, but I still think it depends on where that part goes.
Speaker 2:So 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 because it affects so much other parts of the machine. But if it's a track bolt, you're willing to take a chance. At that track bolt. You're paying, you know, 15 cents for when your dealer is charging you. You know $1.10 is going to last 80% as long and because if it breaks I'm losing a track shoe. That's it, you know. So there are going to be things. You know filtration. You've 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 can that you've got 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. If you're not fixing it.
Speaker 1: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.
Speaker 1: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, maintenance, yes, any other way that it can be done logically.
Speaker 2:Yeah, we are our and I you're. You're leading me into something that you pulled me into the business in the first place, um, so, so you know, I think if you're going to be seriously in the um, in 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 quite a tracking system and quite a phone network, a tracking system and quite a um, a phone network, and there's, you know, seven or eight people that are doing scheduling um for the whole company, um. And then you have mechanics that are not technically at the same level as um, as one of our normal field technicians, um, there's, 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, 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 and and so, and, and some another person, another dealer I know, has a two-tiered labor system, depending on what the job is. 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, 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 and 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.
Speaker 2: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 when 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. You know, do you want the cheap heart surgeon or the expensive heart surgeon? And so I do think that you can maintain levels of service.
Speaker 2: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 high, technically difficult jobs that that guy should be working on. So, so and, 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.
Speaker 1: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?
Speaker 2:Well, I'm not going to go into all the disasters I've seen over time. 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 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.
Speaker 2: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? And 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 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.
Speaker 1:Oh, you're going to give me a break, and give me a, I'll look at you. Show off.
Speaker 2:As long as the wind doesn't blow, I don't have to hook that up.
Speaker 1:Make that a little less bright. Yeah, I have the same thing't blow. I don't have to hook that up. Make 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 6 o'clock in the morning or whatever the devil it is, if you keep going with that extension.
Speaker 1: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. Red, he's very basic remove and install guy.
Speaker 1: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, 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 a lesser skilled person. What do you want to do? How close?
Speaker 2:do you think we are to that kind of scheduling for service with dealers? I think that is all over the board on how 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.
Speaker 2: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 the 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.
Speaker 2: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 um. And how do you do that? Well, you've got to have a great record keeping system, uh, on each person and 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, he can fix it if he smells it, and that that, I think, is the ultimate system.
Speaker 2:You know, I I think they've evolved past where we were when I left, but when, when I left, we knew what everybody's level of training was at least. Uh, 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, um, we've got this class, you need to have people in it. And you'd find out, ok, send this guy and this guy. You know I'm, I'm, 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. And 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.
Speaker 2: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 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 sets, so that when you send a guy out there to that customer. You fix his machine. That's why he calls you back, you know, 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.
Speaker 1: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. 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.
Speaker 1:Skill and knowledge assessment of technicians. Brand independent. Because they asked 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.
Speaker 1: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.
Speaker 1: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. 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.
Speaker 2:Yeah, I think I'm seeing once again, when you get into the big dealers, 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. Um, and we've found that and that's a huge investment.
Speaker 2:So at any given time you've got 30, you know, somewhere between you know 24 and 30 people in that program, um, and that's a huge investment because you're, you're, you know 24 and 30 people in that program and that's a huge investment because you're, you're, you're giving them, you know, 12 weeks off a year. You're not getting any income for from them. And then you've got the people that are training them. And there's more. There's several dealers that are that I know that are doing that, and and other manufacturers have those same things in place. And if you're not doing that you're, you're not developing your people.
Speaker 2: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 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.
Speaker 1: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% of the options that are out on the table. Right, right, and yet I think we've put forward some provocation.
Speaker 1: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. 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?
Speaker 2:Well, if you're, if you're, if you're a, 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, you know, 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 that can hold on to customers. And there's no reason for a distributor for a manufacturer to make a change. 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.
Speaker 2: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.
Speaker 1:Yeah, steve, I think that's a wonderful conclusion for this. The clouds are upside down is 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.
