 Consolidations teach valuable lessons .
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By Tom Andel, Contributing Editor
The forklift industry has seen its share of "marriages of convenience". Toyota and Raymond; MCFA and Jungheinrich; Hyster and Yale. One could argue these are alliances, not marriages, and that all these brands have maintained their individual identities in the eyes of the customers.
Is that true? Do customers get anything out of these deals? And what about the equipment dealers? Some are bound to suffer significant losses as industry consolidation leads to survival of the fittest.
This complex situation was the topic of Forkliftaction.com News' final question in its industry survey series. Members of the Material Handling Equipment Distributors Association (MHEDA) and the Industrial Truck Association (ITA) were asked how consolidations and partnerships will reshape the industry and influence forklift innovations. We’ll present three sides of the story: the positive, the negative and those who anticipate a mix.
A sweet blend
Brett Wood, president of Toyota Material Handling USA, heads the leader in this market. In 2000, when it acquired the BT and Raymond brands, Toyota started learning some valuable lessons from these new alliances.
"Consolidations and partnerships bring the benefit of more minds to the table," Wood says. "More brainpower and combined efforts should result in lift truck innovations being sped up and brought to the market sooner."
Tim Hilton, chief executive officer of Carolina Handling, LLC, agrees consolidations will enhance innovations, but the speed will depend on the successful integration of these businesses from both a technological and cultural basis.
"The industry will also become even more competitive with these integrations," he predicts.
However, it would be a mistake to limit the scope of these effects to the US market alone. Duncan Murphy, president of Riekes Equipment Company in Sioux Falls, SD, notes that this is a global industry, and even if continued consolidation results in fewer suppliers and distributors, the world market will expand application ideas.
"The general quality of forklifts has improved immensely in the past 10 years, but there is still a strong motivation to differentiate a brand to improve margins," he maintains. "That will continue to drive innovation in products and services away from a commodity perspective."
In fact Kenneth MacDonald, president of M&G Materials Handling Co., East Providence, RI, says consolidation and partnership yield synergistic benefits for research and development.
"The cost of R&D can be spread over a greater number of products and thus give a better return to the manufacturer that embraces that model," he says. "This might give the CFOs of those manufacturers more security to invest in R&D."
Just as Wood envisions consolidations speeding innovations to market, Stu Jacover, president of R&J Midwest Equipment, Inc. in Chicago, sees the economy speeding up consolidations.
"This market experienced a 50% decline in new unit sales over the past year," he says. "An equal driver in this transformation of the marketplace is unprecedented competition from low-cost overseas forklift manufacturers that are producing high-quality, low-cost products. The competitive pressure being applied by Heli, EP, Hytsu and numerous other upstart companies will collectively force old guard manufacturers to continue to provide their customers with innovations or risk losing these customers to the upstarts."
A bitter brew
Several respondents to our question of the week believe innovation must - and will – happen, regardless of consolidation. Mark Milovich, president of Lift Atlanta, Inc., cites the improvement of electric technologies and fuel cell advances as priorities. He also believes major players will drop out, and that’s to be expected, but not desired.
"I think we are yet to see a large, main player in the material handling industry fall out of play, either through consolidation or liquidation," he says. "Somewhere in our industry is the Oldsmobile or Pontiac—a brand that will cease to be marketed. Distribution networks will be affected, long-time dealerships will be gone, and there will be one less choice for consumers."
Bill Rowan, president of Sunbelt Industrial Trucks of Dallas, TX, believes those improvements Milovich mentioned will come slowly until the industry returns to profitability.
"All manufacturers are struggling," he says. "I believe the biggest innovations come during an ‘up’ market, when some of the profits can be targeted toward research and developing new innovations. Right now, everyone is in a survival mode and research is a luxury most cannot afford and will not invest in."
John Faulkner, president of Denver-based FMH Material Handling Solutions, Inc., puts it simply: "There will be fewer dealers and only the financially strong ones will make it."
A bittersweet mix
James Malvaso, president and CEO of The Raymond Corporation, is putting his chips on red and black, seeing the possibility for one of two scenarios:
Scenario A: Consolidation will result in the merging of technology, components and products, resulting in platforms that are compromises for various market requirements but ignore market specific needs. Innovation will suffer because the objective becomes one of commonality, not invention.
Scenario B: The combined resources of merging companies will bring innovations to market quicker because knowledge is shared across a broader base. This would result in less duplication of initiatives and more resources being focused on specific innovations, thereby improving time to market.
Jerry Weidmann, president of Wisconsin Lift Truck Corp., says consolidation is a natural reaction to our economic climate. By consolidating, companies improve their financial performance. With improved financial performance, companies are better able to maintain investments in innovation and product development at a lower level of industry sales.
"There may be less innovation in the long term due to fewer players," he says. "But without consolidation, the profitability of the industry will deteriorate, making it increasingly difficult for all players to maintain research and development."
But let’s not forget the "upstart" effect that R&J’s Jacover mentioned. Bruce Pelynio has tied his wagon to the leading upstart. He’s president and CEO of Memphis-based Heli Americas, which distributes and supports the products of China-based Anuhi Heli. He believes the market flux and pricing pressures are helping push dealers his way.
"I understand the desire of Jungheinrich to shut down operations and accessing Cat’s dealer network, saving 60 head count, but to just arbitrarily cancel your existing dealer network—and how do you cancel six of the top ten dealers without expecting a strong response from those dealers cancelled? Then there’s the situation with Komatsu."
Earlier this year, Crown Equipment announced it would distribute Komatsu-built internal combustion forklifts through its 40 dealers in the US and Canada. The forklifts are marketed under the Hamech brand and are based on Komatsu’s current model range. This deal gave Crown’s 62 independent dealers in North America the option to offer Hamech in their product lines.
"The consensus among Komatsu dealers is (that) when April comes around, they seriously doubt whether Komatsu will re-establish North American manufacturing," Pelynio concludes. "They’ll lose the Crown contract for the Hamech truck and that will add fuel to that fire. We’re starting to get inquiries from Komatsu dealers."
A lot will happen in the next six months. Don’t be surprised if there are more unexpected pairings and product line developments. If forklift purchasers share in the benefits from these deals, 2010 may be a happy new year for the industry.
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