Survival of the fittest

The general construction excavator market is generally an overtraded market in southern Africa

The general construction excavator market is generally an overtraded market in southern Africa.

Tough market conditions continue to put both original equipment manufacturers (OEMs) and their dealers under severe pressure to meet their targeted sales targets. While mining focused OEMs and dealers have, for some time, felt the full brunt of the slowing market, construction driven OEMs and their dealers have stuttered along with not so sufficient sales.

When times are this tough, dealers are very much under pressure to meet the principal’s expected targets. Recent developments in the local market have blatantly heralded the kind of pressure local representatives are under, especially for those whose bread is buttered by the general construction equipment range. This comes on the back of recent developments, which are still unofficial at this stage, that a Japanese general construction excavator maker has parted ways with its aftermarket support partner, having recently announced a strategic alliance to gain a share of this market.

While there might be service-related concerns, the fact of the matter is that the targeted numbers are just out of reach. This is also worsened by the fact that the general construction is, by its nature, an overtraded market in southern Africa. This class size excavator market is the biggest, but most competitive market segment with over 14 competitors vying for a share. It constitutes about 60% of all excavator sales in the region. For example, in the10 months to October 2015, of the total 946 excavators sold, 526 units belonged to the 18-25t class size.

We have recently seen the dire need for good local dealers as international OEMs continue to pull out all the stops to establish a much needed African presence. However, the goal posts seemed to have significantly shifted as far as the screening process for eligible local agents is concerned. Previously, OEMs didn’t hesitate to go into bed with smaller, up-and-coming representatives who would eventually develop together with the principal in the market. Today, both newcomers and established OEMs are in no mood to experiment with novice, upcoming dealers. Previously we have seen big users of equipment turning into dealers. Despite their limited knowledge of supporting machines in the market, they have been given the opportunity to learn on the job and succeeded together with the OEM.

Names such as Burgers Equipment & Sales, LiuGong’s local dealer, a contract miner-turned-dealer, Global Railway Engineering, former XCMG dealer and previously a user of the equipment, as well as Dougall Equipment, SANY’s previous dealer in South Africa, come to mind when this trend comes into question. They successfully transformed from being either mere users of equipment or novice representatives to become strong dealers that successfully became the spines of turning their principals’ fortunes in the local market.

But, a lot has changed. Apart from upholding the name of the brand through quality parts and service support, the OEM is driving larger volumes and is therefore looking for a dealer with an extended footprint, especially across the region. A one-man owned dealer lacks the financial capacity, aftermarket competence and the ability to drive the envisaged big volumes. Casualties abound as far as this is concerned. Global Railway Engineering lost the XCMG agency because it lacked the capacity to grow into southern Africa, and more recently, Dougall Equipment has also lost its SANY agency to a more financially sound Goscor Group.

Simple reasoning tells me it’s all about the capacity to drive volumes into the rest of southern Africa. This is where prospects for growth are greener, but because of the lack of capacity, footprint and financial muscle, smaller sized representatives are in no position to meet the principal’s growth targets into these markets.

At this rate, we will see further consolidation by a few established dealers who will continue swelling their stables fuelled by a multi-brand approach. During this time, smaller dealers will continue to fade into the background. It has all turned out to be a survival of the fittest.

Thina Bhebhe

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