Become a Solution Provider

JCB, one of the industry's leading manufacturers in earthmoving equipment, is recognized for innovations in products and distribution. In North America, JCB's headquarters and factory are located in Savannah, Ga. RER recently spoke with CEO Helmut Peters about the future growth of rentals, transitions in the distribution channel, where the economy is leading the industry and more.

RER: Given the changes in the distribution network, is it harder for a manufacturer to get products to market, to get services to customers?

Peters: It is definitely different. Traditionally up through the early '90s the manufacturer would deal almost exclusively through dealers. Then the demand for rental grew and initially many dealers were reluctant to create rental fleets, and that created a vacuum in the market that made it possible for these big national companies to come into the market. Now 35 percent of equipment in North America is distributed through rental activity, and there is room for further growth. In the United Kingdom, it's more than 70 percent. In the current economic climate, a tough period, the customer is more inclined to rent and with all the uncertainty, that's another good reason to rent.

The manufacturer can participate with this rental channel or work through the traditional channel of dealers. We treat rental companies as customers and work with them on that basis. We don't have a conflict of interest in this regard. We don't own a rental company, and we don't plan to. We want to provide equipment for our customers to rent, but we don't want to get into rental ourselves. If a dealer is distributing the product and is progressive, he welcomes the opportunity to service the additional fleet provided by rental companies in his territory. Some dealers welcome this, and they will go out and get parts and service business because those rental companies aren't in the repair business. So those dealers see the rental company as an additional customer.

Many JCB dealers do rentals, but they don't have stand-alone rental companies, they are mostly in the rent-to-sell, not the true rental business.

Do you encourage your dealers to participate in the rent-to-rent business?

If they have capital strength to do it, we don't discourage it, but most of our dealers would find it difficult in the current circumstances and aren't in a position to consider it. To see if they are really in the rental business, ask: “Do you rent by the hour or by the day?” They usually say no. So that is not really true rental activity.

Dealers usually cover a restricted territory. They cannot compete with national rental companies that can move equipment around. Dealers don't work together in moving fleet around. If their area is down, their utilization goes down.

What do you expect from your dealer network in this day and age?

We expect them to provide world-class service to customers, including to rental companies and to meet certain standards of performance and become more of a solution provider, not just selling product.

How has your company changed in terms of the way it approaches the marketplace — that is the way it approaches the end user and the way it approaches the rental market?

We're open to look for opportunities to bring our products to the market. We see national rental companies as customers, we also work with dealers, we work with other channels of distribution, we are open minded in how we bring the product to market. The dealer is very much playing a role in becoming a solution or service provider.

Did some dealers complain when you began to sell directly to rental companies?

Dealers of course complained as rental companies grew. I brought to their attention the fact that those rental companies didn't compete against them directly, and many dealers said “let's not worry about the rental companies.” They continued to grow, and continued to consolidate. A few dealers complain still, but that is changing as they recognize the realities of the marketplace today.

What changes in manufacturer-dealer/distributor relationships do you expect to see in the next few years?

Manufacturers need to work closely with dealers so customers don't feel a difference between dealing with the dealer or the manufacturer. There should be a seamless support network for the customer. Dealers and manufacturers need to work together to create that.

What changes do you foresee in the industry as a whole?

I think there will be further consolidation taking place. But “mom and pops” will not go out of business. They will not be on every street corner, they will be in certain regions, on more of a local basis. In relationships between manufacturers and rental companies, and rental companies and their customers, there will be more of a partnership. The fleets of many rental companies are aging longer than normal from 42 to 48 months. If in fact an upturn is coming, some of that aging fleet must be replaced.

That brings up a question — why must the fleet always be replaced in peak periods? Why not in other periods when it's easier to balance production? We have had some discussions with a few of these companies searching for a more balanced way.

You are an astute observer of the rental market in the United States. What changes and trends do you foresee over the next few years that will affect the rental market?

Rental companies need to think of themselves as solution providers rather than just renting equipment. If a guy wants a backhoe, there is a reason. Maybe there is a different solution. Be more close to what the customer needs. And provide full service and packages to particular industries. Rent everything that the industry needs, be a provider to that industry, be aware of the requirements in that industry, and offer complete solutions. I think that's the future — being a solutions provider to the customer.

Customers are becoming more sophisticated. They get information through the Internet. It used to be that you'd have power because you have more information, but now everybody has access to more information so you have to differentiate through the products and the quality you offer.

Today a certain quality is expected. It's just a given that you can provide a certain level of quality. Anything less is unacceptable.

Narrowing that question down a bit more specifically, is there any advice you'd give to rental company owners about how they should approach their businesses over the next few years?

Concentrate on developing partnerships with suppliers and customers. Become partners with manufacturers, become partners with customers.

Let's talk a bit about JCB. What are some of the primary plans for the company over the next few years — in terms of product emphasis and your approach to U.S. and international markets?

We continue to expand our product offerings. We offered a full line of new products at ConExpo. We are a full line company now. We continue to grow our market share, locally and internationally. Recently we opened up in China and we continue to grow in that market. In North America we made a considerable investment, building a state-of-the-art factory in Savannah, with a significant investment. It was a signal to North America that we are here to stay and that we're not just a backhoe company; we have a full range of products.

We have changed nearly a third of our dealer network to strengthen our distribution. We've signed many new dealers. Our direction is toward smaller dealers, entrepreneurs covering smaller regions. Our product lends itself to smaller dealers in smaller regions. We want our dealers to focus on our product. That doesn't say they should be offering only JCB, but we don't want competitors' lines in the same dealer network, competing in the same organization.

Margins have diminished for manufacturers in recent years. How is this affecting product design, marketing, research and development?

Margins have been squeezed, and there is a lot of surplus inventory in the market. Everybody wants to market in North America, and they put pressure on the manufacturer, which forces you to be more cost-effective in business, and in design of products as well. We have to be clear on what the customers' needs are and develop products for customers' real needs. It's important to not over-design.

We have product specialists, working on a day-to-day basis with customers and dealers. They are in close contact with engineers and they give feedback to our research and development people in the U.K.

What kinds of trends and improvements are we likely to see in your type of equipment over the next few years — not only in JCB products, but in the industry as a whole?

Quality will improve across the board for all manufacturers. There is already a certain standard, and it will improve. Electronics will become more important in the future. Onboard computers will make products easier to service, and diagnostics capabilities will develop and improve. That applies to all manufacturers.

The trend in North America is the growth of the compact equipment side of the business. In Europe it has been stronger, and now a lot of manufacturers are pushing compact equipment. We are coming from the compact side, while some other manufacturers are coming from the heavy end to the compact end. For example, the mini-excavator is one of the fastest growing equipment segments, growing fast even during the recession.

Do you anticipate a wider use of GPS technology in the coming years? Is this something that JCB has put a lot of effort into?

This technology is already available in the market, and eventually will become standard, just as some new cars offer GPS systems as standard. It's coming into our industry. We have various systems in development. It will have a big impact.

What kind of e-commerce initiatives has JCB made? What kinds of emphasis do you expect to see industrywide in this area?

We are working toward having both parts and technical service literature available online in the near future. Currently, we offer a used equipment locator online for our dealer network. We have started initiating online training programs and product solutions.

We're all amateur economists to a degree. How do you see the economy developing over the next few of years?

That's the million-dollar question. We've been in a recession since the beginning of 2001. The market has now turned, and next year should be stronger in this industry because of replacing aged fleet. If the economy continues to improve, there will be significant replacement. We expect improvement in the market next year, but that also requires there won't be any incidents beyond our control such as another war.

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