While some farm equipment dealers have managed to attain 100%-plus parts and service absorption rates, the industry as a whole only achieves about a 62% rate, according to the 2014 Western Equipment Dealers Assn.’s Cost of Doing Business study. The industry’s benchmark for absorption is 80%-plus. At the same time, ag equipment dealers are often compared to construction equipment and other dealers who handle heavy equipment and typically achieve higher absorption rates.
According to Graham Drake, much of the challenge to increasing absorption is in the nature of the equipment’s use and possibly to regional differences, as well.
The2014 breakdown for parts sales as a percentage of total sales by segment is as follows: ag — 10.5%; construction and material handling: 18.5%; transportation (Peterbilt stores): 29.1%.
Drake is president and CEO of Cervus Equipment, John Deere’s largest Canadian farm equipment dealership group. In 2014, 68% of its revenues came from its ag segment. Cervus is also diversified into sales of transportation (Peterbilt trucks) where it got 19% of its revenue last year, as well as commercial and industrial (material handling) equipment, with 16% of total revenue. Both of these other segments have a higher parts ratio.
Drake explains, “The agricultural growing season in Canada is quite short, which results in lower usage and wear on equipment than U.S. dealers. However, our other segments see steady usage year round. This results in higher parts and service sales as a percentage of the total.
“The other factor is that, in many of these industries, the customers do not trade as often as on the ag side of the business. They accumulate more hours on the machines and spend more on service and parts. Also in the trucking and forklift dealerships there are consistent sales throughout the year, and very steady parts and service sales every month.Interestingly, our New Zealand JD stores have a higher ratio of parts and service sales. It is mostly tractor sales and they use them year round and trade less often than North American customers.
“On the trucking side of the business, we do more outside parts sales, going after more of the maintenance shops that our customers have and providing parts delivery direct. We do sell parts and service on the road in our Canadian ag stores, but again the volume does not match the other industries.
“We do not focus on the percentage of our total sales that parts and service comprises, but rather look to increase sales each year in these departments. In recent years, those departments have seen double-digit sales growth, so we have been pleased with our progress so far. But because equipment sales have grown dramatically, it does not show as increasing their share of our overall sales. As equipment sales slow down, we should have more capacity in our shops to do customer work, so reaching out to our customers will help to maintain and grow those sales.”