In coming years, shops will have to make money.

In Coming Years, Shops Will Have to Make Money

As promised on our cover, we here start a series of articles in this and later issues that will take a forward look at various aspects of this business.

That periscope? The way I see it, this business is somewhat like a submarine that has been sitting on the bottom of the ocean, riding out an enemy's depth-charge attack for a long time. Things seem a little better now, so the sub has come up to take a look around. All managers in this business have had to run their operations like the commander of such a submarine --under intense pressure--and perhaps the miracle is that so many of them have survived and kept their commands intact.

The question that many managers in this business are asking today has to be, where is the pressure going to come from next? Well, today, if you'll continue reading this, the pressure is going to come from me. It has to do with some of the long-range implications of meeting the service obligation to the customer, or what might happen if it isn't met.

First, consider this:

The MacKay Report is a study that a consulting firm did for the Farm & Industrial Equipment Institute's Parts Committee. The idea was to get a handle on just where and how manufacturers and their dealers are losing parts business, and to what extent. The loss of parts volume to auto parts outlets has been reported before, and the loss of market share by dealers and manufacturers in the short span of five years (from 69 down to 59 percent of it!) has been tossed around in this space before.

There has also been a loss of service labor market share. The MacKay report estimates that farmers bought $1.3 billion in outside labor for repairs on their equipment in 1985, and that they spent 55 percent of it with franchised dealers and 45 percent with independent service shops. Just five years earlier, dealers had been getting an estimated 59 percent of that purchased labor dollar.

I was surprised that there were so many dollars involved in the farmers' purchase of outside labor for machinery repair. I was also surprised that dealers were getting a piece of the pie that wasn't much bigger than half. I had suspected, though, that dealers were losing market share.

With dealerships closing up in large numbers in the 1980-85 period, many farmers couldn't take their repair work to their nearby dealer; he wasn't there anymore. And with the closings, many service technicians, some of them quite competent and well-trained, were cut loose. Many who didn't catch on with another dealer's shop went into the farm equipment service business on their own.

Now let's ponder these questions.

1. Why do dealers lose so much service business to independents? Aren't their own mechanics good enough? Do they charge too much? Are they too hard to reach? Is the wait too long?

2. Will dealers keep losing market share in service labor sales to independent shops or self-employed technicians?

As for the first one, I doubt that quality of service is a big factor. Dealer technicians go to factory schools to keep up, and they usually have the benefit of access to better tools and diagnostic equipment. I doubt if distance from the customer is yet the problem that it is in parts marketing.

Charge too much? It's a matter of management, and where the dealership service department is not run tightly, vast amounts of unproductive hours accrue. This may put some dealers into an uncompetitive position. There's no real reason why a dealer's shop can't turn out the work as fast as any independent.

As for the other question, dealers may continue to lose service market share to other facilities. There are too many technicians out there who have been cut loose by dealership closings. With their own tools and a little more, they can pick up a lot of repair work that farmers' skill levels or time demands won't allow them to do themselves.

But some people feel this is a temporary thing. Dealerships are not closing up at the rate they were a few years ago, for one thing. For another, it is pointed out, the longer such mechanics are away from the dealership environment, the harder it is for them to keep up with the technological changes going on in farm and industrial equipment.

All that is true, but it will take a long time for the latest high-tech products of this industry to dominate the service picture. Most of the work that the independent service shop takes away from the dealer is on older, out-of-warranty, familiar machines.

A growing gap?

Now think about this for a while:

Robert A. Sohl is retired director of service for Deere & Co. About a year ago, when he was still at his post, he talked to some design engineers at a joint SAE-ASAE (automotive and agricultural engineers) meeting. He spoke with genuine candor. He said that while there was a time when dealer technicians could cope with the mechanical systems of equipment, the increasingly complex machines--with their hydraulics and electronics--have changed things.

"The disparity between engineering capability and field service competence will probably increase," he said. He offered reasons why.

Skilled and capable people are not seeking farm equipment service jobs. Most of them can do better elsewhere.

State vocational training programs for ag mechanics are having trouble. Enrollments are down; some programs have been discontinued. Vocational training for ag technicians is costly.

Dealers still consider the shop a cost center, not a profit source. There have been improvements, but many dealers don't want to invest more in service manpower, training and related product support approaches.

Farm machines are very diverse. That and their increasing complexity make it "next to impossible" for a mechanic to develop first-rate skills. Most repair situations, Sohl notes, are first-time experience; there a little hands-on learning through repetition.

Sohl concludes that the service capabilities of field service personnel will not improve in the near term. "In fact, the gap will widen between product designs and the technician's ability to keep products in the field."

It's hard to argue with Sohl's viewpoint. Do you find it as scary as I do?

What's to be done about it? Talking to engineers, Sohl stresses design-related service strategies that provide greater reliability (cutting down the frequency of need for repairs) and service-ability (making it easier for technicians to make the repairs).

He also speaks of companies' programs to improve field service capability --telephone hotlines, better training and skill maintenance devices, etc. And he urges the utmost involvement between engineers and the product support system.

Talking with I&T recently, Sohl said he thinks senior managements have to fully embrace integrated design strategies. "Service," he noted, "can be easily shoved into the background. There are a lot of other imperatives --safety, marketability, manufacturing cost, etc.--to think about. But senior management has to ask the hard questions about service at the design review stage.

"They are taking serviceability much more seriously today than in the past," Sohl commented, "but I don't think they have gone far enough."

Shop profitability or else . . .

Even if manufacturers and their engineers do all the things Sohl mentions to reduce the vulnerability that goes with service breakdowns, that gap he speaks of isn't going to close for a long time.

Can manufacturers afford to tolerate such a situation? And what happens to the dealer and his business if the gap widens as Sohl predicts?

I don't think that any company with high-ticket, complex products can afford to let field service quality and availability fall behind the level the customer needs and expects. If it does, it risks the danger of competitor finding a way to bridge the gap and eventually devour its market share.

So I think the companies will bypass their dealers to get the job done if that's what they have to do. Don't ask me how they might do this. But if they have to, they will.

And if this materializes, what do you think is going to happen to the margins dealers traditionally have gotten in new product sales? If manufacturers have to spend more money per sales dollar to service their products, the money is going to have to come from somewhere.

But there may be a better solution: Everybody should get more involved in making the dealer's service department live up its profit potential. If dealers can learn how to make money back in the shop, then they'll be able to attract and keep the talented servicemen. They'll be able to afford the intense training. They will be able, through their associations, to upgrade the vocational training schools.

If profitability became commonplace among dealer service departments, dealers might be able to afford solutions to the problem of insufficient experience on complex repair jobs. I have some ideas about this, but I'd rather hear them arise from dealers and from companies' servicing organizations.

And if most dealers were making money back in the shop, life would be much easier for manufacturer-suppliers. For one thing, dealers would survive hard times and the supplier would be spared the expensive agony of finding suitable replacements.

Manufacturers say it's the dealer's responsibility to run a profitable shop. True enough, but these manufacturers have a bigger stake in that profitability than they seem willing to perceive. If they really understood how service and product support are the marrow of this business, they wouldn't appoint dealers who couldn't make money in the shop. They would also get more involved with dealer associations' efforts to improve the situation.

And so my own contribution to I&T's look-ahead issue is this warning. Everybody in this business needs to get more involved in making dealer service departments profitable. Otherwise, expect ever more intense pressure from those depth charges.