JCB's Patterson talks about expansion and the rental industry
Editor’s note: John Patterson CBE, who rose through the ranks from field service engineer to group chief executive, has retired after 43 years of service to JCB, including most recently as chairman and CEO of JCB in North America, Savannah, Ga. Arjun Mirdha has been named president and CEO of JCB in North America, effective, Jan. 1, 2014, and will report directly to Graeme Macdonald, JCB Group chief executive. Patterson joined JCB in 1971 and went on to work in Canada and America before returning to the U.K. in 1988 as managing director of JCB Service. In 1993, he was appointed managing director of JCB Sales before becoming Group CEO — only the third person in the company’s history to hold the position. He went on to become the company’s second longest serving CEO, and in his 10 years in the role, sales broke the £1 billion mark ($1.56 billion) for the first time, eventually reaching more than £2 billion ($3.13 billion) by the time he stepped down in 2008. He then became chairman and CEO of JCB in North America. JCB Chairman Lord Bamford said, “During John’s time as chief executive, JCB achieved unprecedented sales growth and led the company’s transformation into a truly global company. I thank John for his contribution over the past 43 years and am delighted he will remain a director of the JCB Group and chairman of the board of the JCB USA companies.” Under Patterson’s leadership as Group CEO, JCB opened facilities in Savannah; São Paulo, Brazil; Pune, India; and Shanghai, China. In 2010 he oversaw a $40 million investment in a new range of skid-steer and compact track loaders, which went into production at JCB’s North American headquarters in Savannah. “I am proof that that there are no boundaries to career development at JCB and I have had an incredible time over the past 43 years. I am proud to have been part of a team which has seen JCB become the world’s third largest construction equipment manufacturer and achieve market leadership for many of its products,” Patterson said. He recently spoke with Rental Management about the equipment rental industry’s importance to the company, his outlook for the future and more. An edited version of that conversation follows.
RM: During your tenure with JCB, how did the equipment rental industry factor into the company’s sales strategy in North America?
John Patterson: In a sense, the equipment rental industry is fundamental to our business, particularly in the U.S. The percentage of the market that is rental is growing year on year. We all suffered through the deep recession and rental came out quicker than the contractor customer base. Customers today are reluctant to buy for a variety of reasons and they have tended to go to the rental route.
RM: In 2011 at CONEXPO, you talked about how the rental channel had become more important and how it had helped JCB’s performance during a tough economy. Has the company been selling more equipment into the rental channel than before? Do you think this trend will continue?
Patterson: That trend is there and will continue especially with so much uncertainty — political, fiscal and so forth. Europe and the U.S. are mature markets, unlike China, Brazil, India and others. If you look at rental in Europe, it is fair to say the American rental industry will continue on a path to be a bigger segment at about 40 to 50 percent of the market.
RM: You’ve also said that JCB now has a larger range of equipment available to rental stores. What types of machines are in the JCB product line for rental and what segments of a construction project can JCB equipment handle?
Patterson: If you look at the capital expenditures of the major national equipment rental companies, traditionally and typically about 50 percent of their spend is for aerial work platforms and ancillary equipment, and 50 percent for construction equipment, including backhoe loaders, excavators, telescopic handler, rough-terrain forklifts, wheel loaders and compaction equipment. All of these machines I just described for construction, we manufacture. One addition is that during the downturn, we decided to develop a range of skid-steers that we designed, engineered and manufactured. From our perspective, skid-steer loaders and track skid-steers fit in the equation. We also have a pretty substantial range of attachments for skid-steers. We have a power pack, capable of handling multiple applications and multiple attachments. With hydraulics and electro-hydraulics, it widens the possibilities of what you can do.
RM: Have JCB dealers also rented equipment? Are there any rental stores that also are JCB dealers?
Patterson: Absolutely not. Because Boeing makes aircraft, it doesn’t have to be in the airline industry. They don’t operate the planes, they manufacture them. If you follow our roots into Europe, we have been selling equipment to the rental industry for almost 60 years. Our company has grown up with rental. We understand the rental industry and design equipment to meet the needs of that market. Our dealers — and it is a priority to increase the size of our dealer network — sell, service and deal in used equipment. Time to time, some dealers who are well-capitalized, will choose to rent equipment to sell, but the transaction is not the typical rent-to-rent business. We are supportive of our dealers renting equipment to sell, but if we are not careful, our dealers will become competition for their customers.
RM: You were with JCB for many years. What do you think makes JCB equipment different?
Patterson: JCB is a private company and does not have external shareholders. The foundations and roots of JCB go back to product development. That is a high priority for JCB. This is part of the company’s DNA and the reason I raise the fact JCB is a private company. We make our own engines. I cannot think of too many equipment manufacturers then or now that would make a decision to invest in a brand-new engine. We are driven by the fact that not too many companies independently design an engine that is purposely designed and built for our applications and off-highway equipment. The origins of most engines come from on-highway machines that are then adapted for off-highway, which means you end up with a compromise.
RM: What is the sales pitch for JCB? Why should a rental store carry JCB equipment versus a competitor’s equipment?
Patterson: Our design philosophy is one and durability is another. We also focus on operator comfort and safety with ease of use. For example, our skid-steers have a side door. Our telescopic handlers have a single boom and a cab off to the side because this gives better visibility. When you overlay that onto a skid-steer in technology and design, it becomes safer with better visibility.
RM: What do you see as the key business concerns for a company like JCB in the future?
Patterson: First and foremost, from my perspective, it is workforce development. That’s the buzzword being used. There is a lack of skilled people. Over the years, children have been encouraged to go to university in America. As a result, where are tomorrow’s engineers, welders and machine operators coming from? Not enough has been has been done to address that issue. JCB has taken on an apprenticeship scheme from the U.K. and Germany, hiring high school graduates and putting them through manufacturing skills programs to help us to address tomorrow’s problem. This same comment applies to equipment. Machines are quite complex, so how do we make machines easier to operate and more intuitive? Many skilled people have departed or are ready to retire and that will leave a big vacuum. Manufacturing and operating equipment is not as “sexy” as working with computers or Google, so we have do a better job of promoting our industry to the general public, so that they see the opportunities and that it is not all grease and dirt.
RM: How do you see rental expanding globally?
Patterson: The U.S. and Europe are mature markets that have developed over many, many years and have infrastructure in place, for the most part, although you can argue about how good the infrastructure is. India, China and Brazil are countries with large populations and they are creating infrastructure. Every customer is an entrepreneur in an emerging, evolving market. However, those markets are not at the same place to embrace rental. Having said that, as time passes, the concept of rental will take root.
RM: While you have changed your role at the company, what is your outlook for JCB? How do you see the marketplace evolving over the next few years?
Patterson: No doubt, the world has been through the worst in 2008 to where we are today. I’m quite positive that over the next few years we will not have the build and bust cycle, but we will have slow economic growth in the U.S. and in Europe. We are seeing slowdowns in emerging markets like China, India and Brazil, but that is for the short term. The forecast for next year is flat to small growth. From JCB’s perspective, we have an opportunity to grow irrespective of markets, whether that is with rental or in offering a wider range of products. We want to expand our dealer network in the U.S. and there is a direct correlation to the outlets you have and the products you sell. There also are two opportunities to sell more into the rental channel and into the private sector. Those markets will grow and we need to be a part of that growth.
RM: What do you consider to be JCB’s greatest accomplishments over the last few years?
Patterson: There are several things. First, we survived the recession. JCB never lost money as a private business. I think the development of our own engine is a major milestone. The engine is now fitted in almost 70 percent of our machines. I think the establishment of a manufacturing footprint around the world made JCB a truly global company and JCB has become a global player. To me, those accomplishments are the most satisfying.