Editor’s note: Takeuchi Manufacturing (U.S.), Pendergrass, Ga., started in 1979, and currently has a 250,000-sq.-ft. facility used as a distribution and parts center. Clay Eubanks, president, joined the company in 1983, sweeping floors part time in the parts department while he was a student at Georgia Tech studying business. “There were about six of us working here when I started,” he says. After graduation, he took on sales in the central U.S., moving to Texas for eight years before coming back and advancing through the sales ranks to eventually become the head of the U.S. operations. The company moved to the current location in 2005 with an eye toward local manufacturing. “We built it in 2005 with a plan to bring production over here. Then the market collapsed and put a stop to it. It was all built with manufacturing in mind, so it will be easier to start ramping up. By October, I expect we will run the assembly of track loaders here,” Eubanks says. The building also has a service training area and a classroom for when the company brings in rental stores and dealers from around the country. Eubanks recently discussed the current market, the importance of rental to his business and more with Rental Management during a recent visit to the company’s North American headquarters. An edited version of that conversation follows.
RM: How important is the rental channel for Takeuchi and are you selling more equipment into the rental channel in North America now than you used to?
Clay Eubanks: The rental channel is really where our company got its start. We started in 1979 and we were the first to introduce compact excavators to North America. To introduce a new product, people want to try before they buy, so what better way to do that than through the rental channel? We immediately went into rental and it not only grew our business, but rental grew as an industry. Compact excavators have grown into a 35,000-unit market, plus or minus depending on the year. The compact track loader did the same thing. We were first to introduce it to the market and again it was a new product. Rental helps introduce product to the market, so our roots go back to rental. The dealer segment of our business started taking off 10 to 15 years after the introductions. Dealers saw the opportunity in the market and it grew. Probably 65 percent of all compact excavators go through the rental channel in their first use, whether that is dealer-owned rental fleet, the independent rental channel or a rental purchase option. It’s the predominant means to get compact equipment to market.
RM: Does that mean that most of your dealers also rent equipment, not just sell?
Eubanks: Pretty much all of them rent equipment. It’s almost a requirement as a dealer to have a rental fleet today. Our philosophy has been to ask the customer how they want to buy or use equipment and try to accommodate that. The rental channel can buy multiple ways. They can buy direct from us, they can buy through the dealer channel and we just put together a relationship with Lew Hudson as an independent manufacturer representative group to get more direct to the rental channel as well. Some dealers look at a rental store as a competitor and the rental store is just as capable of buying, selling and servicing product. The lines are very blurred, but everybody understands it and knows the game. Dealers have accepted it, because they would much rather see the rental store renting their brand as opposed to Brand X. The problem now comes with the Environmental Protection Agency (EPA) regulations, new engines and servicing of product. That will be the big unknown of what happens to that relationship between dealers and rental stores.
RM: In some ways, rental stores have an opportunity to position themselves as the “Tier 4 expert” and help customers. As a manufacturer, how are you helping rental stores and what do you think rental stores should be doing when it comes to Tier 4 equipment?
Eubanks: It’s going to be a challenge for everyone. For the smaller rental store, the challenge is going to be the cost of maintaining Tier 4 equipment. It is no longer as simple as sending someone to training school. It is buying the service tools you have to have. You’re going to have to deal with cleaning diesel particulate filters (DPFs) and having those in stock. The cost to maintain equipment has gone up exponentially. It will be an opportunity for regional stores that can afford to have people trained up and buy the service tools, but for the smaller independent, they are going to have to rely on the dealer to do that. The way machine manufacturers are set up, many are using the same diesel engine in compact equipment. Kubota is probably the most popular diesel engine in compact equipment. We have it as do others. You would think that one service tool would be needed for that family of engines, but you have to have a service tool for each manufacturer, because the engine is dialed into the hydraulic system of the machine as well. I can’t hook into a Bobcat machine that has same engine with my service tool. That means instead of one $1,500 tool, now you need to buy maybe four of them for $6,000. Not everyone will be able to afford that.
RM: At The Rental Show in Las Vegas this year, it seemed like several manufacturers were promoting no maintenance for Tier 4 on some models. They were saying that the machine didn’t need a filter or the filter would last for the life of the machine. What’s happening here? Have there been advances to make Tier 4 easier for manufacturers to comply? Some have reduced the horsepower or found other ways to meet emission requirements without having all these extra maintenance burdens.
Eubanks: You can de-rate your product to a lower horsepower, so you don’t hit that Tier requirement for maybe another two years. At some point in time, probably by the end of 2015, all will be in the same boat. This might be delaying the inevitable. Some people may have new technology that you don’t need a DPF to meet the requirement. My guess is that they are computer controlled and you need service controls. There also are injection system controls and a computer that controls that and all the other functions of the machine.
RM: How is Takeuchi meeting these regulations?
Eubanks: All of our products are using a DPF system and common rail injection fuel systems. All have a computer-controlled module to monitor and control. It seems like you are going to need an IT degree to work on machines now. These regulations could destroy the mechanic with a garage in the backyard. We have met with our senator and local congressman to talk about how these regulations are job killers and will put that group of mechanics out of business. The other problem with Tier 4 is that you can’t expect to be able to export these machines, as is, to South America, Latin America, the Middle East or Southeast Asia countries because their fuels won’t work in the Tier 4 systems.
RM: Some manufacturers have announced kits to retrofit a Tier 4 machine, so that it can run on those fuels in other countries. Do you plan to do that?
Eubanks: We’ll be dependent on engine manufacturers. At the end of the day, it will come down to the cost value of that. I haven’t seen kits from Kubota and Yanmar yet. Those are the engines we use. The question is who will pay that cost to make it happen.
RM: Hasn’t Takeuchi developed a full electric-powered excavator?
Eubanks: Yes, we have a battery powered machine. We will be talking about whether we will launch that in North America next year. It has been introduced in limited markets in Europe. That type of machine obviously solves all those emissions problems and more.
RM: What type of technological advances have happened so that Takeuchi is able to manufacture an electric-powered excavator?
Eubanks: It’s all in the battery technology with lithium-ion batteries. The cost, the size and the ability to recharge the batteries have all improved enough that it makes sense to put it in construction equipment.
RM: Your company also now has a deal with Terex to manufacture skid-steers for Takeuchi. How does that work and what are the benefits for Takeuchi?
Eubanks: We have an OEM agreement. They are building skid-steer loaders for us to our specifications with our brand on it and then we sell and support that product through our distribution networks, both direct rental and direct dealer networks. It’s somewhat commonplace in the equipment world to have these arrangements. It’s an easier way to expand product lines. Again I will point back to EPA regulations and the jobs that it has killed here. You can’t afford the design and tooling costs to design and build a new product line that you will have to change in two years to put a new engine in it. That’s why you’ve seen so many partnerships among folks. Others have done it because you can’t afford to do it on your own until the final regulations are in place.
RM: With the Terex deal, you have expanded into skid-steers. What is your product line today? What applications or jobs can people accomplish with Takeuchi machines?
Eubanks: With our product range now, we have skid-steers, track loaders, conventional excavators, zero swing excavators and compact wheel loaders. We have a wide range. There’s not a job in construction someone can’t do with our product and all the attachments involved, excluding big mining. For general construction, we have some big machines that we don’t take to The Rental Show. Overall, we have a versatile lineup when you add the attachment line to the products. Our base market is utility and landscape contractor type of applications. About 65 to 70 percent of that is residential construction and the rest nonresidential. We are enjoying the uptick in residential construction. Last month was our second biggest month in company history and we have had several months in a row of that. The business has been good. If you look at the total industry, it is down to flat, but because of the rental market and home building market, we’re enjoying nice growth this year as we did last year.
RM: What keeps you up at night and what are your chief concerns?
Eubanks: Our customer base is the small contractor who cannot raise his price to his customer and, because of the EPA engine regulations, we’ve added 10 percent to the cost of the equipment. We say it all the time. We’re selling a hole. That’s all. If the cost of the hole went up 10 percent for the contractor, there’s nothing he can do about it to pass it on. It really squeezes our customer and it drives us nuts. There’s nothing we can do about it from a government regulatory standpoint. That’s our biggest frustration right now.
RM: What other trends are there in earthmoving equipment? Have there been other changes to machines and where is this business headed?
Eubanks: Most of the advances have been around the engines because that is where everybody has had to put their time and resources. You’re seeing continued improvements in hydraulic systems and machines. You are getting more performance out of hydraulic systems. We’re seeing a huge ramp up in the use of attachments. Skid-steer loaders and track loaders have always been a tool carrier type of base, but mini excavators are looked at as tool carriers as well. It’s a way to increase utilization on the products, so we’ve seen that quite a bit. There is some movement to more electronics. We have stayed away from things like the electronic joysticks that control the hydraulic systems. Folks that have gone that direction are having some issues. The problem we see is that if there is a $40,000 mini excavator at an independent rental store and a $2,000 controller goes out, how many months does that store have to rent that product to pay for the controller and what kind of technician does the rental store have to have to change that controller? Unless there is a major breakthrough, we’ve been of the opinion that simple is probably better. We don’t need to overcomplicate the machine, but stay with tried-and-true, proven products. There are some minor changes in the machines that are helpful, depending on the application, because of computer control of the engine and hydraulic system. For example, you can select a mode for the auxiliary hydraulic circuit. If you run a hammer, you push a hammer button and it will automatically adjust flow and pressure for that. If you run an auger, it will adjust pressure of the system for that. There are some interesting things you can do with Tier 4 technology.