A senior consultant at ABCG, a US commercial vehicle and construction machinery consulting firm, believes that in order to adapt to the ongoing transformation of the construction industry, successful construction machinery dealers in 2034 will be very different from today’s dealers.
Although the end of the year began in 2024, the global construction machinery industry is still growing at an all-time high, and more growth is expected in the next few years.
This is good news for construction machinery manufacturers and their dealers. However, the future of the industry is definitely different from the past.
Although it needs to go through a slow start process, the era of widespread electrification of equipment is coming. At the same time, accompanied by the global trend of equipment digitization and intelligence, it means that the traditional relationship between construction machinery manufacturers and their customers-and manufacturers and dealers-is about to undergo a fundamental transformation.
- Electrification, digitalization and business model changes are coming
Dealers are part of the supply chain between manufacturers and customers. They play a key role not only in sales and spare parts, but also in repairing and maintaining equipment. However, the industry is changing in several aspects. US consulting firm ABCG calls it a “triple technology challenge”: electrification, digitalization and business model changes.
It will take years to fully take shape, but construction equipment is transitioning to full electrification. Many electric components have longer lifespans than current mechanical or hydraulic components. When equipment is powered by batteries and electric motors rather than internal combustion engines, this will have a profound impact not only on dealers’ revenue from parts sales, but also on revenue from engine overhaul and rebuild, among many other impacts.
Some manufacturers deal directly with end users by adding customer-facing software to their equipment, and dealers generally do not get a corresponding revenue stream from this software because they cannot add much value.
- Construction contractors want more digital information
As in all other aspects of our lives, customers are increasingly demanding more and more digital information in terms of technology. Not only large contractors, but also small and medium-sized enterprises want more digital information. For example, positioning, remote operation, remote monitoring, or equipment maintenance and rental needs. These can already be achieved through different platforms, and there is a risk of cutting off dealers (or at least further reducing the relationship between dealers and customers). The increasing use of BIM (Building Information Modeling) software by construction companies and contractors is a good example of how the industry is changing.
This revolution will not happen overnight, but it is likely to be an evolution that will last for a decade or more. In addition, some regions will move faster than others, and emissions regulations will drive the speed of transition. Therefore, dealers should act urgently to adapt to the changes brought about by the “triple technology challenge”. It is not just about training or hiring employees with new skills, which takes time. In addition, new investments need to be evaluated based on future needs.
- Dealers face many challenges
The key to the strategy is to determine which key functions dealers need to retain in the future, which functions to discard, and which functions need to be developed. But one thing is certain – dealers still need to maintain close contact and mutual trust with customers. Manufacturers and software suppliers may have closer contact with customers through information technology, but they will never be able to establish close personal relationships with customers like local dealers.
Dealers will still have the valuable function of feeding back the “voice of the customer” to manufacturers, and most manufacturers will never have a local “in-depth” understanding of customers and their needs.
Dealers need to develop the new skills needed to continue to gain a foothold in the future industry, and future changes may come faster than we think. The transformation of dealers requires new people and skills to develop new services and digital solutions that will enable dealers to compensate for the lower parts sales, higher labor costs and insufficient equipment profit margins that are inevitable due to the rapid changes in business models.
Better use of digital and artificial intelligence tools can also support sales processes and reduce costs. Providing efficient mobile office support to foreign personnel will become the norm. For example, by remotely monitoring equipment, dealers can arrange all equipment maintenance and repair work in advance.
Most dealers are aware of the challenges they will face. But equally, most companies have not started to develop strategies to ensure that they can remain profitable in the future. If dealers do not want to be eliminated by the business model changes brought about by electrification and digitalization, they must plan their change management plans now and implement them quickly.
