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Ask a MHEDA-NET Group: Economic Trends

“2019 Material Handling Business Trend Number 6 says: While there has been an unprecedented run of positive economic growth and business optimism is at a peak, members must be prepared and plan for a softening of the economy and pay attention to economic forecasts as to its timing. What are the benchmarks you’re using within your company to monitor any possible softening in the economy? How is the economy right now similar to 2007 before the recession? How is it different? What are you doing to prepare?”
al boston ceo business

Al Boston, CEO, Business Development, AK Material Handling Systems, Maple Grove, MN – Storage & Handling Integrators Group

We keep track of just about every activity indicator and compare it to a number of previous year’s results. Items like leads generated, customer touches, quotes, orders, sales totals, and then break these all down as related to different areas of our business. Although we look at month to month or month to prior year month I do not consider a trend until I compare quarter to quarter results. We do take into consideration ITR forecasts and MHEDA member survey reports on sales prediction but in the end we are more focused on our own economics. I feel that there are some similarities to 2007 but that our company is in good financial position just like in 2007 to take advantage of a downturn. My rule has always been budget and spend as if it will be an average year and not budget and spend as if it’s going to be a great year, that’s when you get in trouble. If you do get in a deep recession cycle, remember to keep spending like an average year so you do not cut spending that will hurt you in the recovery.
van clarkson president

Van Clarkson, President, Fairchild Equipment, Menomonee Falls, WI – Large Dealers Group

We’re actually budgeting for a mild market retraction in 2019. In perspective, we’re still expecting a very strong year. Labor costs are picking up higher than expected with a dwindling pool of workers, interest rates are expecting to climb .25 points, business investment has begun to slow, which is all somewhat similar to 2007. However there are also many reasons for continued optimism. Tax changes have provided support for corporate profits and consumer spending, and the budget deal will boost government spending through 2019. I also make it a point to discuss this with our customers who, for the most part, feel cautiously optimistic about 2019 as well.
scott mills cfo forklifts

Scott Mills, CFO, Forklifts of Des Moines, Des Moines, IA – Von Ryan’s Express Group

What are the benchmarks you’re using within your company to monitor any possible softening in the economy?

ITA

What are you doing to prepare for a softening?

We are adding sales and service staff. We are reducing poor and underutilized assets and reducing inventory.
mike vaughan cfo

Mike Vaughan, CFO, Liftech Equipment Companies, East Syracuse, NY – CFO Group

I have found that economic metrics and their interrelationships are difficult for someone without an economics background to make sense of. Typically we have followed new housing starts, GDP, CPI and employment data to get a feel for the economy. Certainly with the swift changes being driven by Washington it is difficult to get a true sense of the economy. As a result Liftech typically relies on the guidance provided by ITR Economics and Cyclcast for direction on where the economy is heading.

I think that the general positive mood about the economy feels similar to 2007-2008. However I believe that members are paying attention to the Material Handling Business Trends and recognize that the period of prosperity will eventually pull back to correct. Accordingly when I speak with other members about their thoughts, there is an air of caution and many have been taking steps to improve their organization’s ability to thrive in a downturn.

Liftech has been working to improve the quality of our balance sheet, primarily to work to reduce the value of aged inventories. In addition we have reviewed and tightened our credit policies and practices to improve our days sales outstanding and cash flow.
roger troost chairman

Roger Troost, Chairman, Morrison Industrial Equipment Company, Grand Rapids, OH – Large Dealers Group

What are the benchmarks you’re using within your company to monitor any possible softening in the economy?

We look at unemployment rates.

We look at lift truck utilization from our PM customers.

We talk with our bank and major customers.

The things we monitor is what the ITA in our territory is doing.

How is the economy right now like 2007 before the recession?

The economy continues to remain strong. Most companies are at maximum capacity. The economy grew by 4.9% between July and October 2007.

People are spoiled, it’s been easy for the last eight years.

Stock market is setting record highs.

Labor market was tight and we had strong job growth.

How is it different?

We did not have tariff issues which is going to cause disruption in our industry.

I don’t think that we have a bursting housing bubble that will create a housing crash.

Oil prices, even though they have increased, have not soared like they did in 2007.

Inflation pressure seems higher than it was in 2007.

Federal Reserve cut the interest rate four times versus increasing the interest rate.

What are you doing to prepare?

Have a plan and be ready to move forward.

Convey the plan to employees and do it often.

Make sure we stay realistic (not optimistic or pessimistic).

Be ready for right-sizing.

Make sure we are protecting cash flow/profitability.

I think we need to find new ways to improve our team work.

One thing I believe is the greater our team work the economy and competition will have less effect on our success.
hal ingram dvp gregory

Hal Ingram, DVP, Gregory Poole Equipment Company, Raleigh, NC – Large Dealers Group

What are the benchmarks you’re using within your company to monitor any possible softening in the economy?

I really like this question since even an Economist will tell you they cannot foretell we are in a recession until after it has already started. For most Millennials, the next economic downturn will be their first since entering the workforce. My first introduction to a “recession” was 1981-1982, and there have been three more official recessions since; the last being The Great Recession of 2008-2009. Our industry and company have survived each challenge. So, based on our experience in 2007 to 2009, what are we monitoring:

  • ITR Economic Forecast (offered by MHEDA)
  • Machine hours dropping between scheduled PM’s/requested skips on PM’s.
  • Residential and Commercial building permit declining trends.
  • The National and your local ITA Industry order rate trend.
  • Rental fleet utilization dropping
  • Increased inflation

How is the economy right now similar to 2007 before the recession?

In 2007 the new lift truck market began to soften; Parts, Service and Rental remained strong. In 2008 the new lift truck market continued to soften, and Parts, Service and Rental continued strong – until the third quarter. We saw indicators earlier than some dealers/areas of the country. I attended a regional dealer meeting in February 2009 and many dealers attending said their business was strong until December 2008 or January 2009, when the business levels fell off a cliff.

How is the economy right now different from 2007 before the recession?

Currently the ITA industry market has shown growth in 2018 to another record level. ITA predictions for 2019 are flat to down from 2018. However, we are not seeing a drop in Parts, Service or Rental activity. Also, the “inflation” word is starting to be used in economic discussion. As well as Residential Construction rising at a slower pace, but Commercial construction is predicted to continue to grow due to Warehouse Building construction.

The October ITR Economics View as presented to MHEDA shows a slowing of business later in 2019 going into 2020 with growth coming back in 2020.

What are we doing today looking at 2019 – 2020.

  • We are dusting off the plan we created in 2008.
  • Looking at four to eight areas of expense that the dealership can impact substantially and quickly.
  • Monitoring changing business activity and any headcount adjustments needed.

In conclusion, having a plan ready to go that was put together with a strategic thought process will be more effective than a reactive decision process done under pressure with emotion.
jerry weidmann president

Jerry Weidmann, President, Wisconsin Lift Truck Corp, Brookfield, WI – Von Ryan’s Express Group

What benchmarks are you using to monitor softening in the economy?

  • Discussions with Peers
    • Meet with best practices group 3 times per year. We discuss members’ perception of market trends.
    • Participate in a dealer principal MHEDANet group. We discuss general business conditions.
    • Participate in conference call with investment firm – provide my view of the economy and receive input from their surveys of many firms on trends in revenue, gross profit, used pricing, etc.
  • Economic Reports.
    • Review ITR Economic reports for longer term guidance on the economy.
    • Review our banks’ economic reports.
  • Market Review
    • Review the interest rate trend lines. When short rates exceed long rates – view it as a one year warning of economic slowdown.
    • Monitor the stock market. When industrial stocks have sustained decline – view it as a warning of a slowdown.
  • Own experience.
    • Rental utilization decline.
    • Lead times from factories on orders.
    • Percentage of overtime our technicians need to work.
    • Revenue per day declines in aftermarket.
  • Take all of this data and look for correlation suggesting a decline.

joshua smith corporate

Joshua Smith, Corporate Rental Manager, Toyota Forklifts of Atlanta, Scottsdale, GA – Large Dealers Group

What are the benchmarks you’re using within your company to monitor any possible softening in the economy?

Currently at Toyota Forklifts of Atlanta we evaluate the current level of Rental volume and utilization as our leading indicators. Throughout the growth season out of the recession we have grown our rental fleet and it has prospered. Seeing a decline in rental utilization by customers indicates a slowdown in the marketplace.

We are also monitoring the buying habits of our current customer base. We have become accustomed to our current customer base purchasing habits. As those habits change, we monitor for what reasons they may be changing. When customer business begins to slow and purchasing slows, we will see that as an indicator of a slowing market.

How is the economy right now similar to 2007 before the recession?

The local economy was strong within our customer base. Our customer growth was growing at a rapid rate that we benefitted from.

Healthy growth in all departments due to the increase in our local customer base similar to today.

Unemployment was low, which made our hiring pool lower and more competitive. In today’s terms technicians being the highest commodity.

Wages were increasing as a direct result of the low unemployment.

How is it different?

Like our first question our Rental volume was flat, and utilization was weakening causing profitability to drop. An excess of rental assets not being able to sell created an inventory burden for our dealership. Today we have learned to operate on a leaner budget with concern to expenses and monitor utilization much closer to account for excess assets.

What are you doing to prepare?

We keep a close watch on volume in each department, with a primary focus in rental. We are prepared to shift course if a negative trend appears (i.e. 3 consecutive months of rental revenue reduction will trigger liquidation action). More importantly we have placed a large emphasis on reducing expenses and managing our spending as if we were currently in a recession so that when one does come, we already have the practice of tightening the budget belt and growing through a recession. Practically speaking we inflated our personnel, expenses, and other spending habits Pre-Recession and have ensured that we do not follow those same pitfalls as we manage our current growth.
mike huisman vice president

Mike Huisman, Vice President Morrison Industrial Equipment Company, Grand Rapids, MI – Von Ryan’s Express Group

What benchmarks are you using to monitor softening in the economy?

  • West Michigan is home to a large number of automotive industry suppliers. As a result, a high percentage of our customer base is tied to the overall health of the automotive industry. The national automotive forecast projected a healthy year for 2018, and our customers have been busier than ever. Early projections for 2019 indicate consistent demand for the next 12-24 months so we are factoring that into our planning. We also keep close watch on the agricultural forecast. We are fortunate to have a great group of growers and producers as Customers. A productive growing season is a great indicator that all facets of our business will be busy – Parts, Service, Rental, and Equipment.Internally, we monitor utilization of our rental fleet as a measure of economic health. Typically, high rental fleet utilization means our Customers are expanding, and their core fleet needs supplemental equipment to keep up with their business demands.

How is the current business climate similar to how it was in 2007?

  • My responsibilities have evolved over the last decade, but I recognize a pattern of steady service and aftermarket activity. The pace of doing business now feels more accelerated – Customers expect everything to happen faster. As we meet with Customers, there is an optimism about the current business climate. Overwhelmingly, they are responding to demand and planning for growth.

How are they different?

  • Finding and retaining skilled technicians has always been a challenge. With customer expectations higher than ever, today’s technical labor force is a crucial key to delivering exceptional service. Customers recognize they need a trusted partner to handle their equipment. We consider our technicians to be the face of our organization, and we put a lot of faith in their ability to help manage client relations. We are fortunate to have attracted a younger group of technicians, but experience can be thin. As we recruit and interview, we find technicians are deeply interested in how our training program benefits their professional development. Despite the busy pace of day-to-day, our commitment to technician training is greater than ever. Moreover, we are aggressively planning for the retirement of older current staff.

What are you doing to prepare for a softening?

  • As an organization, we strive for a culture of efficiency. Systems are in place to keep us in line with best practices and Customer expectations. Each month, managers receive reports on key performance metrics to help with staff accountability. We find frequent conversations to discuss planning, execution, and results are necessary to keep everyone on the same page. Solidifying the disciplines and best practices ahead of time minimizes the drama of an eventual softening.

MHEDA-NET is a free networking service designed for members to meet via conference call with others from noncompeting markets to discuss common industry business issues. To learn more about MHEDA-NET visit www.mheda.org/mhedanet