McConnellsburg, Pa.-based JLG Industries has gone through a significant transformation since chairman, CEO and president Bill Lasky — who served in several upper management positions at Dana Corp., in manufacturing, marketing, distribution, product development and more — appeared on the scene in 1999. Then a newcomer to the telehandler market, JLG is now positioned to be the world’s leading producer, as it is in aerial work platforms, thanks to a recently completed landmark agreement with Caterpillar. RER sat down with Lasky recently to get his take on the economy, on the rental industry and where JLG is headed next.
RER: How do you see the economy in the coming year?
Bill Lasky: Our fiscal year is a little different than most companies. We see the rest of our fiscal 2006, which ends in July, as continuing to be as robust as it is now. Our order board is very strong, so we're very bullish about the rest of fiscal '06, but we're equally as bullish about calendar '06. Quite honestly, we're not economists. We buy our crystal ball at the same place as our competitors, but we think '07 will be a good year. I think the next two calendar years, '06 and '07, look to be pretty good. We have inklings that '08 can be good, but that's a little far out to predict right now.
I'm not an economist, but my personal belief is that people are a little more skittish now about predicting the future. Every day we have some news that's good, and the next day we have some news that's bad. We're in a just-in-time information world today unlike 10 years ago or 20 years ago. Some years back, you had to wait until the quarterly releases from the government on numbers, on GDP, monthly numbers, quarterly numbers. Today we're getting numbers like that on a daily basis. So we have what I call just-in-time recessions. They happen, maybe they're for three hours, and then things turn around because the data comes like that.
My belief is that the return to good business, now about two years in the making, will run the same length of time as our normal good business recoveries. There's a demand for construction equipment, driven by infrastructural needs, such as highways, non-residential building and housing. And the recent strength of housing has generated projects such as hospitals, schools and shopping centers, so I think we can expect a strong period of growth.
But we also know that some time in the future there will be a slowdown in our business and when that happens we'll be prepared, as we were in the last one, to manage during that downturn. We don't expect the next downturn to be as challenging as the past one. From our perspective — aerial work platforms and telehandlers — the consolidation of the rental companies created a higher peak during the 1990s than there normally would have been. And therefore the climb was higher up and the fall was deeper. During that three-year period from '01 to '03, we had a 62.5-percent decline in the worldwide market for aerial work platforms and telehandlers. I don't think the next downturn will be anywhere near that because we didn't have that kind of buildup. We aren't having big consolidation; we're not seeing rental companies going from seven different vendors to one or two.
That's one reason I don't think the next recession will be as bad. Secondly, this past recession, in a strange sort of way, was very healthy for rental companies because it forced them — probably more quickly than they would have — to look into their internal operations and say, “Well, the fun of buying these locations is over, now let's get our houses in order, because if we don't we'll be out of business.” They have focused on their internal operations and they'll be better prepared to manage the next downturn.
Will rental companies keep their rates higher this time around?
I think rental rates will stay higher in the next downturn than the past one. Most rental companies grew up since then. They were a little unsophisticated, thinking that if they lowered the rental rates, they would be the only one to lower the rental rates and they would get all the business. Or if they lowered the rates, they thought they would put a few of their competitors out of business. But they found out that you don't put people out of business, they put themselves out of business. So therefore, there will be better sensibilities in the next downturn among rental companies.
And there are fewer manufacturers. You can rest assured I'm not going to be running to lower the selling price so I think it's going to be more of a soft landing on the next downturn for our products.
How much have you been affected by rising prices of oil, components, steel and other items?
As it affects construction equipment and construction projects, it affects us. Our equipment, although it uses fuel, is not on a highway going across the country under its own power. Our operators can turn the engine off of an aerial work platform instead of letting it idle for five hours while they're doing something else. So I think we're less affected in the operation of our product, but as it affects new projects, yes we're affected, everybody is.
What led you to divest the Gradall excavator line?
We recently divested from the Gradall excavators because as we said for quite a few years, it was not a core competency for us; we were not going to grow in the dirt business. We were not going to take on the likes of Caterpillar and John Deere or Komatsu in that segment. The only thing is we had some objectives that we wanted to meet in selling that business and first we wanted to separate the telehandlers from the excavators and we wanted to give our people who worked there the best assurance of a good future. So we wanted to find the right owner. And I certainly didn't want to sell it during the recession so I could lose money; I wanted to make sure we sold it for the reasonable market price that we did get. So, we're very happy that we did that, we're happy for the people there and for the future of that product line.
Does that divestment free you to look for some new directions?
Yes, we have quite a few new directions. We made that decision to exit the dirt business, and now that allows us to take those resources and invest more in the two core products that we're in.
And we are always looking for a third core product, but it would be something that would be different from what we're doing now. Meaning that buying another telehandler product, or aerial work platform product, would be a bolt-on at this point in time. We're No. 1 in the world in aerial work platforms and our new relationship with Caterpillar positions us to be No. 1 in the world in telehandlers. But a third core product, which we have not announced or acquired yet, is something that would be a product that would give us the opportunity to do with it what we've done with telehandlers. If you look back on Jan. 1, 1999, JLG didn't make a telehandler. On June 19, my predecessor acquired Gradall, got into the telehandler business and then on Aug. 1, 2003, we acquired Omniquip, and then we acquired the assets and intellectual property of Atlas Weyhausen, which got us into European telehandler designs, and a company called Fadeur for the ag designs.
Now with the joint alliance of Caterpillar and the acquisition of its intellectual property for their telehandlers, we've gone from the middle of 1999 when we weren't in the telehandler business, to 2006 when we were positioned to be No. 1 in the world. So our objective with something that would be core, is that it be something that would give us the opportunity, in a reasonable period of time, to become No. 1 or No. 2 in marketshare on a global basis.
So our future core product, anything we would do, would have to fit that bill, it would have to give us that opportunity. It also has to have certain financial performance metrics.
Will you continue to develop your “Work-station in the Sky” concept?
This has been very successful. We have really transitioned from a machine not being just an aerial work platform, but rather a workstation in the sky for the whole procedure. Now 100 percent of our booms 60-feet and over are going out with at least the core generator, the power station, built in to the machine. We've had increasing percentages of Workstations on our machines year over year since we've introduced them.
Some areas of the country have a regional preference. In some areas they like the Sky Welder; in other areas they might like the Sky Cleaner for cleaning high rises and things like that. We're seeing that our rental company customers increase in their ability to get closer to customers and get the rates these machines deserve. There are companies out there getting double the rental rate for purchasing an option or an accessory for a machine that's one-tenth the price of the machine, but allows them to double their rental rate. You see out there on the jobsite all the time, people are jerry-rigging their own flip boxes, drilling holes, clamping stuff on. The workstation accomplishes it safely and far more economically. We have some customers that are buying 100 percent workstations in the sky. We're seeing year-over-year growth and it's very popular.
Remember our products are aerial work platforms; they only put a person in the air to do a job. It's not a car; it's not a truck. The operator who is 100 feet in the air is not an operator of aerial work platforms. He or she is a glazier, or welder, or carpenter or whatever their trade. They just have to do it in the air at a higher level. So therefore, we're trying to give them the tools to perform their task more cost-effectively and safely. The tools are for them and the rental companies have seen the value of that because of how they allowed them in certain cases to change the equation of their rental formula, plus interest the contractors to use this type of equipment to do their job faster in the air. That's all we do, make the product to put people in the air to do the job that they have the talent to do.
How do you feel about the progress of the ServicePLUS initiative?
ServicePLUS is doing well. We hired Joe Dixon to bring this project along. When we started this program a year and a half ago, when we kicked it off with the Houston facility, I stated to everybody, we're going to go at a rate that allows us to take this as a pilot operation and learn some of the things that are good and bad and what we need to do. We opened our second facility in McConnellsburg, Pa., a few months ago to serve the Mid-Atlantic region and we are ready now to open up a third location and then a fourth. We're very bullish on it. We've learned a lot, we've gotten the right software programs tailor-made for our kind of business, for the customer base that we're servicing. We're having good response.
Because each one of our locations will have at least one service truck with a crane on it, plus additional trucks, we'll be able to do a lot in the field and of course to bring in equipment to our operations to do more extensive repairs or refurbishments. We're committed to service. We believe that we should support the total lifecycle of our product.
Many rental companies keep their work platforms two or three years, but if you ask them their depreciation schedule, they tell you they are depreciating it over eight to 10 years. Well, try to get rid of a leased car in a year on a 3-year lease and you tell me how successful you are without writing a check along with that. Our product is made to last a lot longer, so all we're trying to do is maximize the opportunity to more closely match the depreciation and the life cycle of the product, using ServicePLUS as our refurbishing facility.
And we understand that people aren't going to take a $100,000 boom and throw it away. People said when we started doing this, “Aren't you worried it's going to take away from your new sales?” The answer is not at all, because nobody is going to throw good used equipment away. Good used equipment is going to be there and somebody is going to use it. So therefore why should we not participate in giving the best value-added package to our customers and profiting on that side of the business? We think it's good for our customers and it's good for us.
Many rental companies have issues right now in terms of service mechanics, in terms of keeping up with demand. Utilization is at record levels. ServicePLUS provides them a solution for those pieces of equipment that are stuck along the back fence, they have machines going on and coming off rent every day. Rental companies barely have enough mechanics to get those in and out the door, and that's the lifeblood of their revenue stream. So they can take care of all those machines they just don't have time to get to. If they can add a few more machines back into that revenue stream during times of 80 to 90 percent utilization rates for access equipment, ServicePLUS will be seen as a great way to help them.
How about when that utilization slows down?
When times are slow, ServicePLUS becomes a mechanism to help them add value to a beat-up piece of machinery before they go and sell it off into the used market. Also, it's available when their mechanics are off doing major overhauls. ServicePLUS can actually make trips on behalf of our customers to user jobsites to keep end users up and running so you don't have to distract your core mechanic operation. So it can be versatile that way.
Also, a rental company has, let's say, 10 different types of products. So a mechanic has got to be an expert on everything, and that's not very practical. So there are two types of maintenance that I look at. The formula is about 50-50. Fifty percent of the business is repairing and replacing batteries and belts and hoses and fluids and filters, stuff that quite honestly they all should be prepared to do. But the rest of the stuff, the other 50 percent, which is deeper into the machine, everybody shouldn't be digging into. They would be better off spending their hours and time on some of the faster repairs and let somebody who is more intimately knowledgeable with more complex jobs do them. If something that should take five hours takes them 10 hours, that's not saving the rental company money. It's costing them money.
You were involved in the automobile industry in the past, an industry going through difficulties at the moment. Are there lessons we can learn from the problems of the automotive industry?
The challenges of the automotive industry that we're hearing about now stem from their failure to deal with their tough issues up front. Tough issues I look at were the legacy, health care and pension costs. Now they are supporting more retired people than working people. The lesson is you have to deal with the tough issues, not just the fun issues. And their attempt to grow marketshare — which none of them have done very successfully since the Japanese became so successful — is not the solution. You can't save yourself into profitability. And they can't grow themselves into profitability because they'll just add more and more of those types of expenses for the future.
They needed to deal with the tough issues. At JLG, we deal with the tough issues. When I joined this company, the first full week I was with the company, they had a lot of reviews of all the different departments, it was about a 3-day process. When it was over, I said, “You've had a wonderful seven years in this industry, how much longer do you think this good, robust market is going to last?” I said, “I'm not negative, and I'm not prophesizing a disaster, I'm saying that there's a cycle out there that keeps going up and down, you've had a long run up.”
I said, “The bottom line is our recovery from the '91 recession was probably a year or two longer than it should have been. Specifically it was fueled by the rollup of the consolidators, which was better for our business than it would have been had it not happened.” They all agreed. So, I said, “Tell me what does your downturn plan look like?”
I asked “How many of you were here in '91 in a key management position?” Well, five out of 11 people raised their hands. I said, “The rest of you didn't manage in a downturn, you weren't in key executive positions in 1990 and 1991, so I suggest we put a downturn plan in place. A downturn plan is simply, if the business is forecast next year to do $1 million, and we do $900,000, what do you do internally to stay profitable? And don't just say, “We're going to sell more.” If we can sell more, than we don't have to worry about going down to $900,000. We know you're going to try to sell as much as you can, but what do you do if the market goes down 10 percent, 20 percent, 30 percent?
Well, over the next matter of months we put that downturn plan in place. And the sad part is we had to use it in less than a year. It started faster with telehandlers, which it always does, leading into other equipment. Then that softens. We had a downturn plan in place, so the team did not scratch their heads and say, “What are we going to do?” and as a result of that, we are the only aerial work platform company that got through that recession without ever losing money, and we didn't lose control of our company, and we didn't go bankrupt.
So we start every year with our normal business plan, and a downturn plan. The correlation between the automotive industry and our industry is that you have to address the hard issues, you have to do what's important. I'm sure if the automotive industry played a little tougher with the union, they would have had some strikes, it would have been longer, they maybe would have lost a little marketshare, but if they were in 40 percent marketshare and they lost 2 points then, it would be a hell of a lot better than it will be now when they're at 30 percent marketshare and they lose 2 points, wouldn't it?
It's always nice to go in and say, “We're going to give you some additional responsibility, and along with that we're going to give you a 10-percent increase.” It's never nice to go in and say, “You need to improve certain things and we can't give you such a big raise this year.” We all like, as managers, to give the good news, none of us like to deliver the bad. But if you don't do that, you're not going to be able to improve. So we need to be prepared for the tough times as well as the good times and we have to make those hard decisions.
What were some of the changes you made at JLG as a result of this downturn plan?
We closed down a significant amount of our manufacturing facilities over this tough time, but on a parallel basis we increased our capacity. We didn't reduce our capacity, we changed our process. So today, we have 30 percent less brick and mortar than we had when we were a billion-dollar company, and we'll be able to do $3 billion in manufacturing. It's because we changed our process.
The automotive companies needed to change their processes, but they didn't want to do it. You can't pay people $100 benefits packages an hour for a job that's worth $15 an hour. So at JLG and in this industry, they just have to do what's right. Although it was painful and, remember, most medicine that we take is distasteful, the best thing that happened was the recession. As I look back, it's easier to say now, I'm glad it happened in '01, '02 and '03. If these rental companies, who are such a big portion of our business, hadn't been forced to look at their internal operations and they kept buying companies and not creating synergies and not putting in common systems, if they kept doing that and they didn't extract the costs out of the business, so that they could pay back for the goodwill and make their business model work, they may have actually made our industry a lot sicker and maybe JLG would have been sicker.
So therefore the recession was good. Not fun, but it was good for our industry. And I think they have learned a lot and I think the next downturn will be a lot healthier.
Internationally JLG has grown. Can you paint a picture of your international presence?
We're on six continents, we manufacture in Europe, in France and in Belgium. We do not have manufacturing in China, but our supply chain basis is working there on developing better resources for components and we may make some systems there. We see the need to be able to source from competitive markets, but we don't see the volume yet substantial enough to support our doing any assembly of a complete unit over there at this point in time. But from our market brand equity position we're in China, we're in India, we are where we need to be so that as the demand for our products starts to become more desirable, where productivity and safety become more important — those are the drivers of our business, productivity and safety. When those drivers become more important, we will do what we did in Europe, we'll put a manufacturing base in when it's appropriate.
To ship a big aerial work platform all the way from China because your labor content is less is an inefficient use of air and space right now. With the weight of the machines, production needs to be somewhat regional for cost-effectiveness. But we see big opportunity. One of the things I like about the positions of China and India right now — since our two core products are somewhat in their infancy in those regions compared to in Europe and North America — is the potential for growth. It doesn't happen very often with products. We look at North America as the most mature for aerial work platforms; Europe is not as mature for aerial work platforms as North America, but they are with telehandlers.
But there is such a lack of maturity in the Asian markets right now, it's nice to know that whether it be five years, 10 years, or 15 years down the line, there will be regions that will be growing and needing our product and wanting our product, and those regions actually have a greater population than Europe and North America together. And their infrastructural needs are endless. So it's a burgeoning opportunity for JLG in the future. I'm sure I'll be long retired before it hits its heyday over there, but it will be there and it is a future opportunity for our products and our company in those regions.
Tell us about your new distribution deal with Caterpillar.
As you know, we recently signed a global alliance with Caterpillar to design and produce a full line of Caterpillar-branded telehandlers for CAT dealers. The product we will make for them is exclusive to them and will not interfere with production of our other telehandler brands. This alliance gives us a much closer working relationship with Caterpillar than we ever had before and can provide JLG the opportunity to sell aerials to their extensive global network.
We are very honored to have this alliance with them. You know, you could not buy the endorsement Caterpillar gave to JLG, you can only earn it and they've never done this kind of relationship with anybody in the world. A 20-year agreement, is almost like a marriage forever, and we're excited about it.
We're going to continue to grow. We have a great team here and that's what makes the difference.