Wacker Neuson: Offering a new value proposition
04/08/2013

Merger helps Wacker Neuson expand equipment lineup

 

Editor’s note: Wacker Construction Equipment AG, based in Munich, and Neuson Kramer Baumaschinen AG, Linz, Austria, merged in late 2007 to form Wacker Neuson SE, including Wacker Neuson Sales Americas in Menomonee Falls, Wis. The Wacker family initially came to America in 1957 and started the U.S. operation in Hartford, Wis., with a sales office in Milwaukee. In 1986, they merged the plant and sales together in a new headquarters in Menomonee Falls and focused on the company’s key product, the rammer. Today, the company has an extensive line of products ranging from mini excavators and wheel loaders to rammers, compactors, trowels, generators, light towers, pumps, heating equipment and more. Johannes Schulze Vohren, vice president and managing director, Wacker Neuson Sales America, joined the company 18 years ago and is now responsible for U.S. sales. He recently spoke with Rental Management about the company’s strategy, the importance of the rental channel and the benefits of the merger. An edited transcript of that conversation follows:

RM: How does the equipment rental industry fit into the Wacker Neuson strategy?

Johannes Schulze Vohren: Wacker Neuson has a long history of actively participating in the equipment rental industry and we design products for the general rental industry. When we look at equipment rental, it is a vital part of a contractor’s or end user’s set of tools today to get the job done. Our line of both light and compact equipment is well structured to serve rental needs from both ends — the contractor as well as the rental channel. Rental to us also is the best way to introduce a new piece of equipment to the market. In short, the rental industry is extremely vital to us and it is a good foundation for us.

RM: Some categories of equipment, like aerial work platforms (AWPs), are mostly rented by end users. Is any of your equipment more geared to renting?

Schulze Vohren: That depends on the business goals of the contractors. Some contractors become more mobilized geographically, so where in the past they might have owned a rammer, these days they will not transport it from location to location and might rent it. Then you have other needs. Concrete contractors are very particular. If you make a mistake, it is costly. They like to own their equipment, but rent for overflow or if a piece of equipment breaks down. It really depends on the contractor, his business profile, his preferences and utilization of the equipment. Does it make more sense to rent or own? You see smaller tools gravitate to retail because the rental cost isn’t justified compared to price of the tools. You have to look at it from the contractor’s perspective and from the contractor’s economic value perspective. We pursue the rental option across all of our equipment categories. Rental is still the best way to introduce a piece of equipment into the market to get the users comfortable with it. That’s a key thing. If you do a demonstration, the potential buyer and/or operator gets 30 or maybe 60 minutes on the equipment. The larger the equipment, the larger the investment and the less likely someone will make a buying decision after using it for 30 or 60 minutes, so rental is still a very good and effective way to get equipment in people’s hands. The final decision of purchasing versus renting will be driven more or less by a contractor’s individual circumstances and preferences. Our strategy is to be present with our overall offering where contractors rent equipment, buy equipment, research equipment and exchange information about the equipment. Wherever the contractor comes in touch with our equipment, that’s where we need to be. That’s our “360” strategy.

RM: There are several reasons why rental is cost-effective these days, because contractors don’t always know where the next job is coming from and may not want to tie up the capital to buy equipment, have a mechanic on staff or plan to move the equipment. They can rent the equipment and have it delivered where and when they need it.

Schulze Vohren: After 2009, the financial model has changed somewhat for many contractors. Banks are much more careful and conservative with their lending practices and the risk exposure they are willing to commit to. Take bonding, for example, which still is a requirement for contractors on many jobs. Bonding has an impact on a contractor’s cash flow and available line of credit for other investments. Contractors have a choice: Tie up assets in a piece of equipment or make sure they have the cash to put the bond up for that job. Among other factors, these kinds of trade-offs in today’s environment will influence the decision between rental versus owning.

RM: Has the percentage of Wacker Neuson equipment sold into the rental channel been growing over the past few years?

Schulze Vohren: Absolutely. We have always had an excellent share of sales into the rental channel, which is a very important channel for Wacker Neuson. However, after the economic crisis, rental penetration has grown even further. The lingering economic uncertainty is to some extent a contributing factor. Also the rapid expansion of the oil and gas shale exploration contributed significantly to the growth of machines sold into rental, particularly mobile generators, light towers, and larger indirect fired and hydronic heaters. I would say that rental growth in certain equipment categories is not only driven by the type of equipment, but also by the contractor’s utilization of the equipment, geographic mobility and duration of the job as well as a contractor’s business and financial model.

RM: You have a network of dealers now. Are they renting equipment to end users or selling to rental stores? How does that model work?

Schulze Vohren: Since the merger between Wacker and Neuson, we have two categories of equipment. We had the traditional light construction equipment and, since 2008, we also have compact equipment. For the traditional light construction equipment, our channel partners are rental houses, including large national and regional rental chains, or other dealers to get the equipment in the hands of contractors. We are now building a network of 300 to 350 locations with assigned areas of responsibilities for compact equipment. These locations are a network of independent dealers, which will offer our full line of light equipment. A majority of them have multiple locations and offer equipment for rental as well as sales with full service and aftermarket support. We encourage them to do both. The same holds true for rammers, wheel loaders, mini excavators or dumpers. Many want to rent it before making a buying decision.

RM: How has the merger with Neuson changed the company? Has it made anything different?

Schulze Vohren: What it has offered us is a unique opportunity to unite both compact and light equipment under one brand from one global supplier. That now allows us to build this distribution network of compact equipment dealers and also rental houses. Once you get into compact equipment, you have more investment in your facilities. A Wacker Neuson dealer can offer broad support to customers for their bread and butter equipment from one organization, not only in terms of renting or purchasing a piece of equipment, but for our value proposition with application support and how to best utilize a piece of equipment in a given application or process. When we offer training, we can tailor training to an entire process rather than just a piece of that process or piece of equipment. That’s where a relationship starts. That’s where we want to create value for contractors. We don’t want to just put a pound of iron out there. We want to get to know how they can best drive their profits or their revenue with what we offer them. We want to understand their business. We want to help them in the process of applying the equipment.

RM: What applications would contractors look to use Wacker Neuson equipment? What steps in a job do they start to use your equipment and when do they stop?

Schulze Vohren: It can go from start to finish. You have an excavator, so you can dig a foundation or trench. Next you put in fill and have to compact it. That’s where our rammer comes in. Now we have the excavator and rammer. In the middle, we have the wheel loader to put the backfill in. We have the compaction and the compact equipment. Next, almost every job site employs some form of concrete, so you need a vibrator. If it is a building structure flat floor, you will need a trowel. We have that equipment, too. Then you’re going to need a cut off saw to cut piping and other things. We have that. If you need to chip or break something off, we can give you the breakers. If you are working in cold temperatures, we can put heat on the job site to keep workers comfortable. For curing concrete on a flat surface, we have hydronic heaters and can help with that process. Every job site also needs power. We can provide portable and mobile generators. If you have to work at night, we can light the place. We can provide the equipment a contractor needs from start to finish. The key here is we don’t just have equipment. You can come to us for application support in critical areas. We can help train people on how to set up the power or do concrete consolidation and vibration. We have solution specialists who can help them with that. We can help them with how to effectively dig a trench. That’s our proposition now from the dealer or rental channel. You can call one number for all of this, whether you have pumping needs, you have power generation needs or you have concrete needs, you call Wacker Neuson. We can bring a team to a dealer or a rental house, if they have training needs, and train to all pieces of equipment. You don’t have to bring in multiple suppliers.

RM: What are the chief concerns for Wacker Neuson today? Is there anything that keeps you up at night?

Schulze Vohren: I think I speak for many in the industry when I say that the uncertainty with the economic and political environment impacts our industry. Small and mid-size companies are affected as many projects are delayed, downsized or even cancelled. Large infrastructure and energy projects are going on, but small shopping malls, housing and multifamily and commercial construction are not yet at the level we all would like to see. There is a hesitancy to invest. The other thing that “keeps me up at night” is the increase in regulatory mandates. While we support these regulations as they promote a greener and safer environment, they have an impact on cost and resource allocation. For example, the transition to Tier 4 engines poses challenges for manufactures in terms of engineering resource allocations as well as challenges in the supply chain to meet our channel’s demand.

RM: How have Tier 4 regulations impacted your business?

Schulze Vohren: Tier 4, of course, has and will continue to have an impact in terms of cost and service. Just as with the transportation industry for class A trucks, there will be some temporary disruption until we reach a manageable equilibrium.

RM: There also is an opportunity here for rental companies to be the “Tier 4 experts” that can train customers and employees, and sell customers on why Tier 4 is better for them to use and why the added cost is justified.

Schulze Vohren: Absolutely, there is an opportunity. At Wacker Neuson, we have prepared ourselves. We have spent a great deal of resources to have the best support to our channel partners and customers to minimize that impact. When you look at opportunities, there are some sectors and areas where they need to use Tier 4 machines. When you look at regulations like this, some can be a burden and others create opportunity. There are “green” initiatives today. Companies look for greener building processes and gain tax credits with Leadership in Energy and Environmental Design (LEED) buildings. You also can get credit for employing or deploying during construction environmentally friendly pieces of equipment. There may be tax benefits at the end of the day. That can create opportunities and it is up to us, the rental channel and dealer network to figure out where we can take advantage of this.

RM: What do you see as the short-term and long-term outlook for the company?

Schulze Vohren: We continue to grow rapidly within the North American market and global markets. There are so many opportunities, not only in construction, but over the last three to four years, we have expanded rapidly in the industrial application segment, particularly in oil and gas where we offer primarily mobile generators, heating equipment with indirect fired and hydronic heat in any size, and the same in light towers. In heating, we have worked with contractors and energy services companies to get the best out of the heating applications to apply heat most cost-effectively. Every heater creates heat, but you should look at which heater delivers heat in the most cost-effective and safest way. When looking at cost-effectiveness we do not only want to look at the primary output of the machine — heat — but also at the cost to service the equipment in the field, particularly in remote locations. Since the introduction of our compact line in North America we have had an overwhelming positive response from the market and our dealers, which has allowed us tremendous growth in compact equipment sales and will provide significant future growth opportunities. With that said, we want to focus on long-term partnerships, not just short-term transactional relationships. One of our dealers said what makes us unique is we ask, “What can we do for you to grow your business?” rather than “What will you buy from me today?” That attitude is ingrained in our DNA and that is what will keep driving us for future growth. We emphasize this concept of value creation selling. We emphasize to dealer sales forces and our people, don’t go in with a brochure and rattle off features and benefits of the product. Go in and ask some questions about what drives the customer’s business because not all businesses are the same. We see this with our compact equipment. We have dealers who are finding niche markets, such as the use of dumpers and wheeled excavators in cemeteries and wheel loaders for golf course maintenance or snow removal. You have to ask what drives revenue, what drives profits and what their goals are. Then you figure out how your equipment, application knowledge, products and service offerings can help your customers in achieving those goals.

RM: The construction industry recovery has been slow. Do you see this changing in 2013 and 2014?

Schulze Vohren: Cautiously optimistic is probably the best way to look at the recovery in 2013. How some of the country’s economic issues are resolved will impact our industry. We are confident that as many economists say, 2014, 2015 and 2016 will be better years for construction. If you look at housing prices — peak to trough to the recovery — there is reason for optimism. Take California and Florida, for example, two markets hit very hard in the financial crisis that are seeing nice upswings. The same is happening in Arizona where we see new housing starts again in Phoenix. There are some signs for positive growth.

RM: What’s your sales pitch. Why use Wacker Neuson equipment versus your competitors?

Schulze Vohren: Premium quality equipment is just the entry in today’s market. To grow your market share, you have to build long-term successful business relationships. We want to go beyond offering the best equipment. We want to engage with our distribution partners and to create value beyond selling the equipment to help drive business results for customers. A couple of years ago I heard one participant of a contractor panel at an AED Executive forum say, “Don’t send me another sales guy with a brochure. Send me someone who knows what drives my business and what makes me successful. That’s the one I want to talk to.” That is our business proposition. That’s how we build our sales teams. We have product solution specialists and metro job-site specialists. Their primary role is not selling, but working with distributors and contractors on solving problems on the job site. It might sound mundane, but many times, for example, we get calls about how to compact something and we are there to help them. We are creating value, not just selling the next piece of equipment.

RM: What might be considered Wacker Neuson’s greatest achievement or innovation?

Schulze Vohren: The merger was a great achievement. In this case, one plus one equals three, not two. The merger has put us in a unique position in the industry. A mini excavator is rarely used by itself. There’s a need for a rammer, a pump, a generator, lighting and all of those things to do the job. If you focus on one range of equipment, when you have questions and need help, you have to go to several people. With us, you get answers from one source. One person can find a solution. For a contractor, it is not very cost-effective to deal with several suppliers, so that is our unique value proposition with this merger. We don’t necessarily offer specialty equipment, but what we offer is a wide range of everyday staple equipment that the contractor and distribution channel needs to drive revenue. When it comes to equipment innovation, Wacker Neuson has a long successful history. From the beginning, the rammer was the company’s original product and revolutionized how soil was compacted. Since then, our innovations include, but are not limited to the infrared remote controlled trench roller to the vertical digging system (VDS) excavator. We make it a priority to design and produce equipment with the latest technology that dealers and contractors can trust to be more productive, safer and environmentally friendly.