A Time to Build Up, A Time to Tear Down
Updated: May 3, 2022
As the line goes from the ‘60’s song by the Byrds, “Turn! Turn! Turn!” - this may be the time for dealers to “Build Up”. We’re talking brick and mortar here. Maybe it’s as minor as a load of gravel in the lot, maybe it’s a complete new “green field” dealership complex, or maybe it’s somewhere in between.
First, a casual observation (not based on any real hard facts) of historic periods of dealership facility builds or remodels:
Early-mid 1970’s. You don’t have to drive too far in any direction to find a farm implement dealership building built in the ‘70’s. Big pushes by John Deere and International Harvester for dealer upgrades to match the newer technology of product offerings drove many forward-thinking dealers to build new stores. From the need to get a tractor with a cab inside the shop, to developing separate spaces for parts, sales, and service, a new building was a logical move. Unfortunately, a decade and a half later many of these new dealer facilities became boat or grain storage with the downturn in the 80’s market.
Early-mid 1990’s. Prosperity returns to the farm economy, especially in the mid-west corn belt. Once again bigger and better product introductions of wider tires, larger combines, and bigger planters and tillage dominate the need for larger shops. Service departments utilizing expensive service vehicles start to flourish and with that came the need for a bigger shop with more doors.
2011-2012. Super economy in our industry. Reasonable construction costs. Lots of idle construction trades due to the downturn in the rest of the building economy. We implement dealers are quietly making good profits while our friends in other industries are facing lay-offs. Again, the profitability of our ag industry drives the ability to upgrade facilities. Dealer consolidations grow, driving a shift of upgrading two to three old stores into one bigger and better store.
How about today? We have just passed the two-year anniversary of Covid and all the uncertainty that came with it. Covid is not over, but our position on the learning curve on how to deal with it has certainly improved. One thing that is certain is that our industry has had two very strong back-to-back years. Many dealers have enough equipment pre-sold for 2022 to predict a third year of good sales.
We’ve all heard of Maslow’s hierarchy of needs taught in Psychology 101. His hierarchy from bottom to top: physiological needs, safety needs, love needs, esteem needs, and self-actualization at the top. Leo’s hierarchy of dealership cash needs goes like this from bottom to top: people costs, debt costs, operating costs, tool and vehicle costs, inventory costs, and at the top, building costs. Some of you may re-arrange this a little, but the point is when all the other costs have been reasonably taken care of through profit, it’s time to look at your building.
If you are a manager, dealer principal, or CFO reading this, and you know your profit for 2020 and 2021 exceeded 5% of total revenue…. plus, your cash position is strong due to elevated inventory turns, you should at least be having the conversation of facility upgrades. Is it a good time to build? Of course not, based on high material costs and labor shortages. Will there be a better time to build? Probably not in the near future. My brother and I were “over our skis” four years ago when we planned a new facility for one of our locations. We started with planning a new storefront and office area remodel on the existing store. That evolved to adding plans for an upgraded new shop. We then scrapped that whole idea for a completely new facility on a busy Interstate two miles away. The first load of steel showed up April 2020 - the same week we had our first “covid scare” at the dealership. I guarantee you that back then we were nervous. Today we are very happy with the building.
If we go back to the Byrds’ song, there’s nothing wrong with “Tearing Down” that perfectly good building that Dad or Grandpa built in the same decade that the song was recorded. If you need some help or just want to talk through some ideas, give me a call.
Note: Leo Johnson retired after 44 years with Johnson Tractor and has transitioned from Dealer Principal to Advisor and Coach for Machinery Advisors Consortium. He can be reached at firstname.lastname@example.org or 608-751-0829.