The changing role of construction equipment dealers
28 November 2022
In an age when major equipment buyers source directly from OEMs and where the ‘right to repair’ movement is trying to liberalise the repair and maintenance business, construction equipment dealerships may feel they are being squeezed on all sides. KHL’s Lucy Barnard finds out what the modern dealer does and what role it will play in the future.
Vesa Valtonen stands in front of a fleet of JLG access platforms at the Mansen Mörinät trade show in Pirkkala, Finland, and scans the lot for potential leads.
As a sales director at Rotator Oy, one of the country’s most venerable and successful equipment dealers, Valtonen is in a good position, acting as the official supplier in Finland for brands including JLG, Hitachi, Bell, Bomag and Metso: Outotec.
With a history stretching back 68 years, a staff of 160, and eight company offices spread throughout the country, Rotator is proud of its position in Finland, with OEMs eager to secure the dealer’s services in what some perceive to be a difficult market.
“We are a very popular dealer with manufacturers around the world,” Valtonen says. “Quite often we receive interest from suppliers to be their dealer. And based on our customer satisfaction surveys, our customers too are extremely happy with our services.”
But, despite the company’s prominence, Valtonen says that changing business practices among construction companies and changing technology are forcing the company to adapt its strategy from that of a sales-focused business to focusing instead on its repairs and advisory functions.
“Rotator has changed a lot during the years. It is no longer ‘give me a price on a machine and I will pay seven days after delivery’. More and more the after-sales business – servicing and repairs - is a bigger part of Rotator,” Valtonen says.
“Nowadays customers think more of the machine lifetime costs and rental has a bigger role than in the past.”
And Rotator is not alone. Around the world equipment dealers – independent companies which specialise in selling, maintaining and repairing construction machinery - are finding that their business model, which has in some cases remained constant for more than a century, is proving inadequate in today’s market.
A big change, Valtonen says, is that more and more contractors around the world are choosing to rent equipment rather than buy it, and the trend is for larger rental companies to buy their machines direct from manufacturers, cutting out traditional dealers.
Rental companies buy direct
“It has not always been this way,” Valtonen says. “When I started in the business more than 30 years ago, most of the machines would have been owned by companies - they had their own machinery. But nowadays they tend to own practically nothing and rent machines instead.”
Valtonen estimates that in the aerial platform sector, rental companies currently account for around 90% of new machinery sales, while in the earthmoving sector they are much lower. However, he expects this to change over time to become more in line with the US and the UK where most earthmoving machines are also supplied by rental firms.
Even if contractors choose to buy equipment rather than rent it, he says, 70% of the Rotator’s sales are made on a service lease basis where customers pay a set monthly fee and the dealer takes care of machine maintenance.
Martin Sebestyén, is head of fleet management and pricing at Zeppelin Rental, which has operations in Germany, Austria, the Czech Republic, Denmark, Slovakia and Sweden and is the sister company to German Caterpillar dealer Zeppelin Baumaschinen.
He says that despite its close ties with Zeppelin Baumaschinen, Zeppelin Rental buys direct from Caterpillar and the other OEMs that it deals with. Some 80% of its equipment comes directly from manufacturers, covering light equipment, aerial platforms, construction machines, vehicles and modular space.
With many manufacturers employing key account managers who deal directly with the large orders from rental firms, Sebestyén says it is often more efficient and simpler for firms like his to place large orders directly rather than dealing with multiple dealers in different countries.
“Manufacturers usually cover orders for all the countries which simplifies our internal order processes,” Sebestyén says. “Another advantage when dealing directly with the manufacturer is the direct contact in case of challenges such as shipment difficulties or machine failures.”
A change in the dealer business model
In the US, Ken Taylor, who is the 2022 Chairman of US-based Associated Equipment Distributors (AED) - which represents the interests of equipment distributors in construction, agriculture, mining and forestry - and owner and President of Ohio-based Caterpillar dealer Ohio CAT, says that the rise of the rental industry has fundamentally changed the dealer business model. As a dealer which has grown its own in-house rental business, Taylor says rental now makes up two fifths of his business and could potentially grow further in future.
“Traditionally the business was split three ways between sales, parts and service,” he says. “But since the 1990s we have seen the rise of the rental industry. These days our own rental operation accounts for around 40% of the business, while parts makes up another 15-20% and service brings in around 10-15% and sales makes up the rest.”
Taylor says that his rental business supplies a full range of Caterpillar and non-Caterpillar equipment, with the non-Cat machines sourced directly from smaller manufacturers with “some price adjustment for a bulk deal.”
Car sales are going online
And its not just the rise of rental businesses that threatens to change the equipment dealer business model. With electric vehicle manufacturers such as Tesla, Rivian and Lucid Motors all rejecting traditional auto dealers to sell their cars exclusively online directly to customers, and carmakers Mercedes-Benz, Volkswagen and Volvo annoucing plans for some direct on-line sales, some fear that construction equipment manufacturers could eventually follow suit.
And, with the covid pandemic accelerating a move towards greater digitisation in the construction industry, online suppliers such as Amazon, eBay and Alibaba are also looking to snap up some of the market for smaller construction machinery and spare parts, offering low prices and next-day shipping for products which would traditionally have been sold through dealers. And, alongside these retail giants there are online portals specialising in construction equipment such as Gearflow or Maq Parts.
How are dealers responding to these vatious challenges?
“Buying online already happens but it is more concentrated for smaller equipment like plate compactors,” says Valtonen at Rotator. “But it is not happening for the bigger machines because they have a lot of different tools and options. If you buy machines from Google there is always the risk that the seller is not trustworthy or the manufacturer will not provide after sales.
“If I get five phone calls from customers who want to buy a machine, then perhaps two thirds of the time I can influence them, and they will buy a different machine from the one they originally intended.
“Sometimes the customer knows exactly what he needs but quite often he doesn’t. If you rely on the internet, then perhaps two thirds of the time these customers would end up with inadequate machinery.”
AED’s Ken Taylor says that, as local businesses, dealers have a greater understanding of their customers’ needs than online retailers can ever have and can benefit from decades-long relationships in their local communities.
“I believe one of the strengths of the dealership network is being locally owned and operated,” he says. “Owners are involved in their communities. We keep our dollars local. We are businesses based in the heart of our communities. We sponsor local sports teams and provide jobs to local people. There are a lot of long-standing relationships between privately-owned dealers and their customers - relationships that sometimes go back three generations. We are not just a hired hand in a factory.”
Taylor says that his business can get parts to customers quicker than Amazon and is more likely to have the required parts.
“Recent supply chain problems have hit us all but we obtain parts at a high level and carry inventory,” he says. “We have hundreds of technicians working in the field with equipment ranging from a $50,000 van to a $275,000 truck.”
And it is those resources, at a time of skills shortages, which dealerships say is fundamental to their success.
Sebestyén points out that even though Zeppelin Rental employs its own team of technicians, it still replies on dealers – both at Zeppelin Baumaschinen and elsewhere – to service and repair many of its machines.
“Even though we usually purchase from manufacturers rather than dealerships, we still depend on the technician network of the latter,” he says. “The number of technicians is decreasing all over Europe and qualified staff is enormously valuable. We all feel the shortage of skilled workers.”
Maintenance and servicing
Valtonen agrees. He says that in a sparsely populated country like Finland where contractors are spread over large distances, both manufacturers and rental companies rely on dealer networks to provide repairs and services.
“How do the manufacturers service the machines if they don’t have a proper dealer?” he asks. “In Finland if you go to Lapland from Helsinki, it is 1,300 km. If you go to the middle of the country, it is 600km.
“At Rotator, we have eight facilities and 13 service contractors in the smaller places and 37 service cars. This is the most important reason why we are so in demand with the manufacturers. We cover the whole of Finland with our service network.
“Wherever you are situated we can serve you locally. If it is a repair job, think how much more costly it will be if it is not local dealer. We are nearby so we only need to calculate perhaps a journey of 50km. If you need to drive 600km you cannot always be there the next day.
Valtonen adds that rental companies are - not surprisingly - open to outsourcing; “Even the rental companies, they have depots all over Finland with thousands of machines of all kinds - tools, compaction equipment, excavators, access platforms. Typically, they have one sales guy, one secretary and one mechanic. This one mechanic cannot fix everything.”
And, for manufacturers from Asia and elsewhere looking to undercut existing OEMs and break into new markets, establishing a robust dealer network with the ability to service and repair machines is key to winning new business.
Rental companies such as Zeppelin Rental say that finding a suitable dealer network able to repair and maintain each particular brand of machinery they use would be a prerequisite before entering a new country.
Valtonen goes further: “Customers won’t want to buy from any company if they can see that there is no technical support,” he says. “Typically all rental firms will ask what kind of support they will receive if they buy the machines. Even if the products are much cheaper then they won’t want to buy them because they are not able to manage the machines.”
And, as computer technology becomes more and more integrated into construction machinery, dealers are seeing an opportunity to deepen their service and repair offering.
“Normally the customer calls us and tells us the machine is broken and then we need to get our mechanics to see the problem and then we need to order the part and then, when it arrives in the office we can return to the customer and fix the machine,” Valtonen says.
“With the new technology the dealer can already see - sometimes before the customer - that there will be some kind of failure. We already know what the problem is before we go, so we can take the spare part with us and fix the machine. Sometimes we can even fix some things with the computer in our office. From an end user’s point of view, it is cheaper because he is paying for our time. I think this is the future.”
However, there are also some complications for dealers in this area of equipment repair. The requirement from OEMs that only official dealers can carry out repairs without compromising a machine’s warranty, coupled with the increasing use of computer software which requires access to specialist diagnostic equipment, has provoked some ‘Right to Repair’ protests in the US, EU and Australia.
These protests - which have also been seen in mobile phone and medical equipment markets - centre on the claim that by failing to provide independent repair shops with access to service manuals, diagnostic tools and parts, manufacturers and dealers are acting in an anti-competitive manner that is pushing prices up for consumers.
In 2022 a succession of farmers in the US filed lawsuits against construction and agricultural manufacturer John Deere. They say that Deere dealers’ repair businesses are much more profitable than their sales business and that by making it difficult for other mechanics to undertake repairs, the official dealers have been able to charge prices beyond what would be possible if there was free competition.
Deere has responded to these concerns, saying that it “fully support[s] a customer safely maintaining, diagnosing, and repairing their own equipment...We do not support customers modifying embedded software due to risks related to the safe operation of equipment, emissions compliance, engine performance, data security, warranty validation, and resale value.”
In March this year it announced that it would give customers and independent repair shops greater access to self diagnostic and repair resources, including the ability to buy its Customer Service ADVISOR directly from JohnDeereStore.com.
The right to repair
The right to repair movement last year prompted US president Joe Biden to sign an executive order aimed at making repairs easier for customers while at least 27 US states have considered right to repair legislation. Similar laws are being considered in the EU and Australia.
“The whole Right to Repair topic has gotten a bit out of hand over the past year,” says AED’s Ken Taylor, who has testified to the US and Canadian governments on the subject. “It appears that’s because other industries such as cell phones and consumer electronics have raised similar issues. The best answer that I can give is that we support our customers doing their own repairs where it is safe for them to do so and it does not infringe IP [intellectual property].
“What we don’t support is customers who want to modify their machines where that comes at a risk, for example disabling emissions controls, which is a government requirement, or disabling safety features. One of our main concerns is within used equipment sales. We don’t want to be in a position where we unknowingly sell on a machine on which safety features have been disabled.
“Overall, on the ground in our industry, this is rarely an issue for customers. For our industry at least, it is a solution in search of a problem.”
In Finland, Valtonen says that he has seen cases where problems are created when customers attempt to do their own repairs.
“If the end user tries to fix it himself there can be problems because machines are becoming more and more complicated and almost every machine has some kind of computer,” he says. “This isn’t the sort of job anyone can do. Our technicians must be very well trained.”
Second hand equipment sales
Another area where dealers are proving their worth, Sebestyén says, is in selling used equipment. Although Zeppelin Rental has sold some of its fleet through auctions, Sebestyén says that in general central European markets still prefer to tap into dealers’ experience and negotiation skills to sell used equipment.
“Dealerships are needed for used sales,” he says. “They usually have the knowledge and expertise to also sell great amounts of used machines and provide the respective warranty. With electric machinery, someone will also need to take care of the used batteries.”
Valtonen agrees; “One of the biggest jobs a dealer has to do is to handle old machines. Almost every time when we sell a machine, the customer wants to trade in a used machine.”
And, he says, by offering this sort of specialist fleet management advice about how much a machine is likely to fetch on the open market in five years’ time, dealerships like his can continue to prove their worth to customers.
“We try to ensure that our salesmen are more professional people who, together with the customer, try to advise the customer,” he says. “To do this you really need to know not only the machines but have some idea of economics of Europe and Finland and other business areas, and what is coming from the law and environmental point of view. Really planning those big investments carefully together with the customers.
“Is it better to buy more expensive electric machine or a cheaper diesel machine? How long will these machines last for? How much the oil will be? What sort of market will there be for used electric machines and what kind of residual value it will have when they come to sell?”
Daniel Fisher, Senior Vice President for Government and External Affairs at Associated Equipment Distributors, sums it up neatly; “For many years we have been hearing in the media about the demise of dealers, due to the rise of Amazon or new technology etc, etc. And yet we get dozens and dozens of approaches by new manufacturers from around the world looking to sign up dealers.
“I see that as proof that OEMs are more reliant on dealer networks today than ever before and distribution networks, certainly in the US and Canada, remain as strong as ever.“