Selling commercial off-road vehicles Key insights for OEMs, dealers and leasing companies - February 2018 - Roland Berger
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February 2018 Selling commercial off-road vehicles Key insights for OEMs, dealers and leasing companies.
2 Roland Berger Spotlight – Selling commercial off-road vehicles
ue to grow, with infrastructure investments rising and
Following strong growth in the past the US tax reform freeing up resources for construction
projects.
and a general market decline in 2016, With markets stagnating or growing only moderate-
sales of most off-road commercial ly, competition for market share between manufacturers
vehicles are now expected to grow in the US will become increasingly fierce. Improving
dealer performance will become more and more impor-
moderately until 2020. While the tant, and understanding the key success factors for deal-
agriculture segment is still at the ers will be critical.
Developments in the European market for off-road
bottom of a super-cycle, construction commercial vehicles are somewhat different. The mate-
equipment is seeing the first signs of rial handling equipment sector (forklifts and the like) is
expected to grow by more than three percent a year be-
recovery. Given these prospects, tween 2016 and 2020, driven in particular by the contin-
companies have rightly switched ued expansion of online retailing. Agricultural equip-
ment sales may have bottomed out in 2017 after falling
their focus from aggressive growth more than 8% p.a. from 2012 to 2016. Despite the ex-
strategies to making gains in pected slight increase in sales through 2020, we do not
expect the pre-financial crisis levels to be reached again.
process efficiency. Construction equipment is forecast to remain more or
But which specific areas should companies be focusing less flat through 2020.
their efforts on? What are the key success factors when
it comes to selling off-road commercial vehicles and how Key insights from the study
do they differ between the United States and Europe? In We asked people working in the industry – representa-
this paper we present the results of our recent investiga- tives of OEMs, dealers and leasing companies in the US
tion of this important topic and hear directly from those and Europe and experts in all three vehicle segments –
working in the industry. On the basis of this data we then about the current state of the off-road commercial vehi-
present our specific recommendations for OEMs, deal- cle market and where they thought things were headed.
ers and leasing companies operating in the off-road We were particularly interested in their insights in the
commercial vehicle market. key areas of selling, financing, leasing and renting.
Where, we asked them, were they focusing their energy
Market developments in the US and Europe when it came to improving process efficiency?
Our investigation focused on the three key segments of Many of the ideas they came up with will be familiar
the off-road commercial vehicle market: vehicles for ma- – ideas that your own company may have discussed in the
terial handling (such as forklift trucks), agricultural ma- past but not acted upon, perhaps fearing that they would
chinery (tractors, combines), and vehicles for the con- not deliver the expected gains. Here, a gradual approach
struction and mining industry (backhoe loaders, dozers, can be particularly successful. Rather than waiting until
excavators). The markets in the US and Europe differ, so you have identified one reengineering action that will
we treat them separately below. 01 bring above-average returns, it is possible to select be-
The US market for off-road commercial vehicles is tween six and eight smaller ways to improve sales and
growing only at slow rates. Annual growth in vehicles financing and bundle these together. Experience shows
for material handling is expected to be 3.4% in the pe- that in the crucial area of sales and financing, where mis-
riod 2016-2020, down from 4.5% in 2012-2016. Sales of takes can have serious consequences, combining smaller
agricultural equipment will remain largely flat until steps in this way may actually be more effective than go-
2020 as crop prices stay low and farm incomes stag- ing for a major overhaul in one fell swoop.
nate. The construction equipment market will contin-Selling commercial off-road vehicles – Roland Berger Spotlight 3
Figure 01: Market development by segment and region.
Commercial vehicle sales ['000].
+3.9%
+5.7%
733.91
630.9 1
504.71
+3.4%
+4.5% MATERIAL
221.2 HANDLING
162.1 193.6
+1.4% -8.4%
+1.0% +2.7%
348.1
AGRICULTURE 271.9
224.5 233.2 246.3 244.9
+5.5%
+3.9% CONSTRUCTION +1.0%
+3.0%
164.8 204.3
141.6 108.4
92.7 104,1
2012 2016 2020 2012 2016 2020
US EU
1 Electric rider trucks and internal combustion engine trucks only
Source: Yengst; AEM; Roland Berger
Sales:
Aftersales support and service are key
Cover photo: William Andrew / Getty Images
Off-road commercial vehicles are sold through a num- Our research found that the key customer purchasing cri-
ber of different channels: directly from OEMs, through teria differ between the US and Europe. 02 However,
independent dealers, or via used equipment dealers. In superior service and availability of spare parts are impor-
each of these channels, sales approaches vary widely tant everywhere and vital for developing and maintaining
depending on whether the sales are carried out by the customer loyalty. Price is important but not decisive, as
OEM's own sales force, a single-brand dealer or a multi- the market is generally moving toward a total cost of own-
brand dealer. ership (TCO) model and full-service offerings.4 Roland Berger Spotlight – Selling commercial off-road vehicles
Figure 02: Indicative profiles of customer purchasing behavior by segment and region.
Customer purchasing criteria for new equipment.
MATERIAL HANDLING AGRICULTURE CONSTRUCTION
US
Criteria Importance Importance Importance
Low High Low High Low High
Price
Brand
Customization
Quality/reliability
Services/aftersales support
Maintenance cost
Product range
Equipment productivity
Financing offers
Trade-in options
MATERIAL HANDLING AGRICULTURE CONSTRUCTION
EU
Criteria Importance Importance Importance
Low High Low High Low High
Price
Brand
Customization
Quality/reliability
Services/aftersales support
Maintenance cost
Product range
Equipment productivity
Financing offers
Trade-in options
Source: Roland BergerSelling commercial off-road vehicles – Roland Berger Spotlight 5
Our investigation revealed that salespeople need to de- addition to developing a personal touch, sales staff
velop a personal touch. They require a deep understand- should be encouraged to think like entrepreneurs, and
ing of customers and technology, and need to be able to be rewarded when they do so. On the front line with cus-
deliver tailored solutions based on their understanding tomers, it is salespeople who have the greatest potential
of the different niche segments and markets. This, com- to come up with new ideas about how to increase reve-
bined with the right data and sales training, will help nues such as providing a new aftermarket service or im-
them build a compelling product and service offer based proving delivery of spare parts.
on the company's portfolio and the customer's needs. In
"A longstanding and trusting "Digitization cannot replace the personal
relationship between the sales person- relationship between a customer and a
nel and the customer is key." sales employee."
Head of sales at a material handling manufacturer Owner of a local construction dealer
Financing:
A growing factor in the world of commercial vehicles
For many buyers, financing options are a decisive factor When the OEM is actually the provider of the financing,
in the purchase decision. This is particularly true in the it benefits directly from the ongoing relationship with
construction and material handling equipment sectors. the end customer. This can lead to future revenues, for
If OEMs do not provide a competitive financing offer, instance from service contracts and remarketing. OEMs
dealers act themselves. At the same time, customers ex- can also provide complementary financing offerings be-
pect a growing level of flexibility for financial service yond vehicle sales and aftersales in this way.
products. Ideally, they want their lease payments to be OEMs typically choose their model based on their
linked to their own cashflows. analysis of the volumes they can achieve and perceptions
In general, European customers are still more inter- about the profitability and risks of the financial services
ested in buying, while US customers prefer to use finan- business. A majority of OEMs have a financial services
cing or leasing for their purchases to a much larger ex- unit. Often it comes down to whether the OEM sees itself
tent. The US preference for financing has to do with a as a producer of machines or a provider of integrated
desire to hold asset-light balance sheets in the aftermath solutions for customers.
of the financial crisis. In Europe the figures varied by One benefit of the captive model for OEMs is that
country in our investigation: 90 percent of buyers in the they can then offer risk-adjusted pricing, if they get their
United Kingdom wanted financing compared to 65 to 85 algorithms right. Customers with higher ratings can be
percent in Germany and just 50 percent in Austria. offered better prices than those that pose a greater risk.
OEMs – and many dealers, too – have three basic In this area many OEMs with a captive model have room
options for offering financing: a captive business that for improvement, as they are still using a digital "yes/no"
offers financing through their own company with a algorithm to decide whether to make an offer. This
banking license or their own standalone financing com- means that the rate offered is the same, no matter how
pany; a collaboration with external banks or leasing good or bad the customer's credit rating. Ultimately, this
companies in the form of a joint venture or with white-la- can lead to poor risk selection compared to non-captive
bel financial products; or an exclusive partnership with banks and independent leasing companies that use
an external provider of financing. more sophisticated algorithms for pricing.6 Roland Berger Spotlight – Selling commercial off-road vehicles
How the financial offering is marketed is also of critical sociated with their own financing arm, as well as how
importance. To achieve more captive financing, OEMs they will incentivize and train dealers to use their finan-
with an in-house function can emphasize the relevant cing offers. OEMs must also keep in mind that many
products in their marketing and push their offerings via dealerships have their own financing capability and will
dealers. Companies that choose to bring the function actively avoid OEM financing so they don't erode their
in-house should first consider the refinancing costs as- own business.
"A tailor-made financing solution "Highly customized financing products
can only be identified together with are requested by customers, especially
the sales force." for specialized vehicles."
CEO of an independent leasing provider CEO of an independent leasing provider
Leasing:
Next-generation business models required
Our investigation found that OEMs are demanding more ing white-label partnerships with Asian brands that are
flexibility to offer clients tailored financing packages – entering the European market and growing the leasing
integrated solutions branded by the OEM. Leasing com- pool by helping OEMs offload products that might be
panies serving OEMs should consider setting up online risky to hold, such as machinery linked to a commodity
platforms that they can use to offer cost-efficient with low prices. OEMs may also be interested in reduc-
white-label solutions customized to the OEM's specific ing inventory via sales to leasing companies, given the
requirements. The offering must be deeply integrated credit impact of holding high inventory levels.
into the OEM's IT system and work processes to be com- Another key issue for leasing highlighted by our study
petitive. FinTechs and startups are already offering cli- was the upcoming implementation of the international
ents the ability to directly compare prices. accounting standard IFRS 16. This will eliminate the dis-
When it comes to highly customized vehicles, such as tinction between "operating" and "financing" leases.
tree harvesters and horse lorries, leasing companies still When the regulation comes into force, leased assets will
have the edge. For horse lorries, for instance, leasing com- have to appear on the customer's balance sheet, except
panies buy specialized vehicles not from OEMs but from for contracts of less than EUR 5,000 or lasting less than
niche market players that have converted vehicles for this 12 months. Given that one of the things that makes leas-
specific purpose. For such vehicles, financing is not usu- ing attractive is the ability of financial services compa-
ally available, creating a niche for leasing companies. nies to carry leases on their books rather than them ap-
Going forward, leasing companies have various op- pearing on the customer's balance sheet, this could have
tions to grow their businesses. Strategies include seek- a negative impact on the leasing market.
"Customers increasingly consider only "Products with matching cashflows are
the total cost of ownership instead of very popular – a substantial leasing
purchase prices." payment is due after the harvest season."
CEO of a bank-affiliated leasing company CEO of a captive financing function at an agricultural
equipment manufacturerSelling commercial off-road vehicles – Roland Berger Spotlight 7
Renting:
Customer proximity is key
The rental business for material handling and construc- tion, having a rental pool allows OEMs and dealers to
tion equipment vehicles is all about the immediate avail- sell used and refurbished vehicles.
ability of machines within a reasonable physical dis- Re-importing, which is commonly practiced by
tance of the customer. Accordingly, companies entering OEMs in some parts of the automotive sector, could also
the rental business must invest in large fleets and exten- be an option for commercial vehicles. However, compa-
sive service infrastructure. For many OEMs and dealers, nies will have to weigh up the benefits of re-importing
the rental business makes sense because customers are against the costs of transporting heavy vehicles such as
willing to pay a premium for short-term rentals. In addi- tractors and bulldozers.
"You can't offer competitive rental and "New products and billing systems are
service offerings if you don't have critical becoming more important. In the con-
mass and regional coverage." struction industry, some want billing
Head of sales at a construction equipment dealer
per working hour."
CEO of a captive financing function at a construction equipment
manufacturer
Act now!
Based on our analysis of market developments and the ate profitably. Like OEMs, you should consider enlarging
insights gathered from the industry representatives and your product and service offering to provide a one-stop
experts we interviewed, we can now make a number of shopping experience for customers. You can establish
recommendations for action to be taken by the three joint digital rental platforms to push your rental business.
major types of players in the market: OEMs, dealers and We also recommend developing ways to provide consult-
leasing companies. Of course, our recommendations ing services for clients along your value chain.
will not apply to every player in every segment of the Our advice for leasing companies is to become fully in-
market in the US and in Europe. You should choose tegrated into the sales processes of the OEMs and dealers
which actions are appropriate – and feasible – for you, that you work with. This will help you avoid price compe-
given your own particular situation and strategic goals. tition and maintain direct access to clients. You can fi-
If you are an OEM, consider enlarging your product nance complete business solutions by bringing together
and service offering so you can provide customers with assets from different OEMs. Developing risk assessment
a "one-stop shop". You should aim to develop regional expertise in niches to avoid competitive pressure from
scale so that you are in a position to provide superior captives and regular banks will pay dividends. Another
services and secure sales of new vehicles. Strengthening possible strategy is to set up a white-label online platform
your key account management (KAM) capabilities will be to win business via partnerships with smaller OEMs.
beneficial for meeting the needs of larger clients. At the The market for commercial vehicles is in a process of
same time, you should take a stronger vehicle lifetime consolidation, and companies that do not grow their
perspective and use remarketing to drive profits. We also share of this shrinking pie may find themselves going
recommend offering risk-adjusted pricing to sell more hungry. In previous decades, players could rely on market
vehicles, and declining fewer financing requests. growth for their own growth. Now the focus must change
Dealers would be well advised to offer full-service to improving process efficiency – by means of decisive ac-
solutions. This will help you retain clients as well as oper- tion in the areas of selling, financing, leasing and renting.WE WELCOME YOUR QUESTIONS, COMMENTS
AND SUGGESTIONS
AUTHORS PUBLISHER
Dominik Löber Roland Berger GmbH
Senior Partner, Frankfurt Sederanger 1
Financial Services Competence Center 80538 Munich
+49 69 29924-6105 Germany
dominik.loeber@rolandberger.com +49 89 9230-0
www.rolandberger.com
Frank Pietras
Principal, Munich
Automotive Competence Center
+49 89 9230-8498 We are grateful to co-authors Martin Höft and
frank.pietras@rolandberger.com Simon Kuhn for their contribution to this study.
Walter Rentzsch
Principal, Detroit
Automotive Competence Center
+1 248 729-5128
walter.rentzsch@rolandberger.com
Carsten Küst
Project Manager, Munich
Financial Services Competence Center
+49 89 9230-8643
carsten.kuest@rolandberger.com
More information to be found here:
www.rolandberger.com
Disclaimer
This publication has been prepared for general guidance only.
The reader should not act according to any information provided
in this publication without receiving specific professional advice.
Roland Berger GmbH shall not be liable for any damages resulting
from any use of the information contained in the publication.
© 2018 ROLAND BERGER GMBH. ALL RIGHTS RESERVED.You can also read
