Kevin Thieneman, chairman of LiuGong North America and vice president of Guangxi LiuGong Machinery, sat down with RER at the World of Concrete Show in Las Vegas and talked about the company’s growth in the United States, supply chain challenges, effects of the labor shortage and teaching dealers about rental.
RER: How is LiuGong doing post-COVID?
Thieneman: Very very good. We had a record 2021, I’m very optimistic about 2022 and we’re excited to show the new products, Stage 5 machines that we think will be very well accepted.
Does it take a while for a Chinese manufacturer to be accepted in North America?
We find resistance is some parts of the country more than others, but generally when you talk to customers, or when they talk to the dealer, the bottom line is if you have a great machine and a lousy dealer, you’re not going to sell it. With a great dealer, you’ll sell the product. In the end we’re all after the same thing, which is good representation, somebody who loves the industry, who’s committed to the customer’s success. If they invest in service and invest in parts, they decide the difference between winning and losing to the customer. If the customer needs a spare machine, if his machine is down, if the service manager has to take a part out in the middle of the night, or first thing in the morning, it’s doing what it takes to keep that customer up and running. That’s really a big challenge in the U.S. with the labor scarcity, and everybody has always talked about the lack of mechanics. The talent shortage is really acute. It’s on salesmen as well, it’s hard to find salesmen.
COVID has seen a fair number of senior people leave the industry and I don’t think they’re coming back. A lot of industries have seen that. We have to use technologies to overcome that. It’s like a lot of industries are doing. They changed the processes in hotels, you don’t get your room cleaned every night. Or in some restaurants there’s only drive-through, there’s not enough staff. So there are things we need to look at. How do we get the same or more done with less labor?
Is it harder on the executive and sales level or on the mechanic level or across the board as far as finding good people?
It’s across the board. When dealers look at growth, the first response I get is, “I can find a facility. It’s finding the people.” That’s the number one inhibitor to growth, it’s having the labor and having the leadership. The leadership is maybe less of a problem than the technical talent and sales talent. The greatest shortage is in those two areas.
How is the supply chain issue, is it having a big impact on you?
It wasn’t that big of an impact most of last year. Because China being the biggest in the world, the supply base was there. It did start to have an impact in the latter part of the year, the chips and the engines, with some of the big engine OEMs not being able to get chips for their engines for Tier 4 Final and Stage V engines. This has started to impact us. We didn’t see as big an impact as some of our OEM competitors.
The other issue we saw was Europe, with European components. Suppliers had issues and there was a pretty big COVID impact in Europe. They took some extended time off and I’m not really sure if some suppliers really made it through the process.
And the last piece of it was in transportation. For all of 2021 we had to decide month to month what we would ship and there was limited space on ships because there’s not enough capacity. And then -- on components and machines -- there was the lack of visibility. Ships out at sea, not knowing when they were going to dock or when they could be unloaded. There’s been a lot spoken about that in Washington, about how to fix that, working more days, working 24 hours a day, so one would expect that to get sorted out. But the bigger problem is capacity. Ship capacity was taken up during COVID, there was container capacity taken up at the beginning of COVID. And it’s taking more time than anybody would like for that capacity to be put back in place.
I guess one component or just a chip could really hold up everything, right?
Yes, the engine is the biggest thing. You can build a machine. I remember early in my career in the wheel loader business, we had issues with counterweights and tires. You can build a machine and park it without those and then ship it when you get those components. But when you don’t have the engine, you’re dead in the water. You can’t start the machine. And so that has had a horrific impact in some parts of our industry.
What are some of the other main challenges that you face?
In this industry, it’s environmental issues, sustainability. It’s become obvious to us, based on what we hear from the larger industry, it’s the environmental impact of machines. Companies are under tremendous pressure because of the environmental footprint that they have with their mobile equipment fleet. So, in most regulated markets they are looking for regulated machines. We get asked about that a lot. I never in my career would have thought that to be an issue. But this is a social contract that we have, to be held accountable for that. There is a lot of interest in battery electric vehicles on the mobile equipment side, in the mid-range and bigger machines. I think most in the industry would have expected that more on the compact side and rental side.
As we talk to customers about their challenges, they have the same issues as us on labor. We just had a customer here complaining about that. Back to the issue of finding a solution, we had a customer in California who told me “two years before I never would have predicted this on a construction site” that he would have had eight excavators, 20- or 25-ton excavators working on a site when I visited him, and now he had four 36-ton and 50-ton, so he went down from eight operators to four and was able to accomplish the same amount of work with fewer machines and fewer operators and the reason he did that was he couldn’t find enough operators and he was forced to make that equipment change to get the work done.
Those are examples of some of the challenges that we face in the industry, and we have to figure out how to make it work.
I image there won’t be easy solutions any time soon.
It’s figuring out the art of cost, the art of what it costs to get the job done.
It seems LiuGong has grown a lot in the rental market?
Yes, rental is the biggest growth area last year. We had a lot of discussions at ARA with rental companies. The number one issue for that segment is equipment availability, machine availability with some being quoted a year-plus out. So, we have done deals at ARA because of that. From what we understood, we got better availability than most in the industry and that’s wind in our sails. And obviously we hope that can continue but it’s a challenge. It’s a challenge that provides opportunity and the challenge on top of that is once you’ve provided them with machines that you can support them. And that comes down to the dealer equation, making sure that the dealer is there to support the customer. We’ve been pretty successful so far.
You’ve grown the dealer network quite a bit in the U.S.?
Yes, although we still have white spaces. In the U.S. we’re looking to fill some of that this year. We’ve got plans in place to complete that. Our dealers that are around today want to expand, we have several dealers doing that, either in adjacent states or in markets that they see as very attractive. So obviously it’s less risky for us to do more business with people we know, with whom we’ve established good relationships with than going out and finding someone new.
Are you manufacturing in the U.S. now?
We manufacture one product line in the U.S. now, the rest is imported.
Primarily excavators?
It’s a mix between wheel loaders and excavators, those are the two large product lines for us.
Are you regularly shipping product these days?
Yes, we’re shipping product, availability depends on the model. We have instant availability on some models, some are a little further out. On the compact side, on smaller machines we have longer periods of [waiting], and that’s because of chip issues from the engine suppliers.
How soon do you expect that chip issue to be resolved?
I’ve heard some say six months, some say two years, it’s all over the place. Some of my colleagues are very frustrated by it but that’s such a critical component of the machine, what are you going to do, go switch engines? That’s not the answer! I’ve got responsibility for global aftermarket, the last thing I want to see is more complexity in the product. I want less complexity in the product, I want more component commonality, so the dealers have a fighting chance to support the customer in the field. And that’s that constant battle. I have a hard time thinking that there’s one engine supplier that’s got it solved on chips. That’s probably an industrywide problem unless one engine manufacturer makes their own chips, but I don’t think anybody does. We really are beholden to those suppliers.
Are all your machines using the same engines?
We have a mix of engines. Yanmar typically on the smaller side and Cummins for the rest. They both have had some impact. We’ve been more impacted on the compact machines.
Buying a new car now is complicated too, isn’t it?
Yeah, it’s a little scary driving down the highway and you look at some of these car dealers and they have very little inventory. You wonder how these car salesmen keep their jobs.
With all these issues are you optimistic about the economy over the next few years?
I’m very optimistic. What we see is that the industry is still coming to us in terms of our focus on the total cost of ownership. We feel like we’re at a lower price point than some of the majors while keeping high levels of machine availability. Customers are looking for 90-percent availability and we’ve been able to demonstrate that to some of the majors in this industry. We’ve gotten feedback from them on fuel efficiency, we’re in the competitive zone. Lower price point, high levels of machine availability, competitive fuel efficiency, we feel pretty good that the industry is in our favor. Put the infrastructure piece on top of that, with some growth and the environmental impact, we have hundreds of machines, these wheel loaders with battery electric operating in production applications in China. We’re very well-positioned to respond to this industry’s needs over the next several years. We’re very excited.
And on the rental side, specifically, I think the availability problem right now is going to help us penetrate some accounts that we otherwise might not have had the opportunity to do so. The challenge right now is to make sure we keep those customers happy.
If an operator is using a LiuGong machine for the first time, is there a learning curve or is it pretty much the same as other machines?
Pretty much the same. These machines, controls, hydraulics, it’s the same as the industry standards right now.
Are there other complications now when it comes to shipping?
Sometimes ships, they’re supposed to come in to one port, let’s say
Baltimore, and they pull up at Savannah and unload and say, “Come pick up your stuff there.” We’ve had situations where our equipment lands at a port where we weren’t even expecting it. That is a rarity, but it has happened. And the reason is the shipping companies want to get the ship back to where it came from, so they can load up and bring more. It gets back to that capacity issue. I don’t think that’s the solution, the solution is they need to put back in place the ships that came out of service during COVID, but for whatever reason people aren’t looking at that issue. I think in the second half of this year, certainly into 2023, that issue should resolve itself. I’ve not seen anything like it in 30 years, it’s crazy, just crazy.
So if you have to go to Savannah instead of Baltimore to pick up your stuff, how do you deal with it?
Dealers go with their trucks and pick up machines. If they’ve got a sold machine, they’ll go overnight to get the machine and get it back to the customer, so dealers are very motivated to help us and we’ve very thankful for that support. But it’s a challenge and it obviously stresses the organization because it’s an unexpected issue. It’s difficult to move a machine, you’ve got to get permits and make sure you’ve got the height and the clearance you need to move it.
I’ve heard of cases where the chassis comes in one container, it’s driven somewhere, the container goes back to a stockyard, in other words, the supply chain is all over the place.
Yeah, I talked with someone from one of the bigger shipping companies, he lives in my neighborhood and I was beating him up about the price of a container. I said I don’t mind paying a little bit more I just wish there were enough of them. That’s where I’ve gotten the consistent story that because of COVID they basically took one year out of the capacity, because they didn’t think they were needed, and they haven’t been replenished. It’s going to take time to replenish them.
Can you pass some of these costs on to your dealers? You’d have to, right?
Yes, we have to. That’s part of the inflationary impact that we’ve seen in our industry, which, generally, OEMs have forecast. I’ve seen a range somewhere between 6 and 14 percent. That’s a pretty big range. I’ve not seen anything like that in my career, that’s extraordinary to hear those types of prices increases, not for new products, but just inflationary. That’s another big challenge for the industry, for customers to work within those price increases. They don’t have the room to absorb it.
It's the same problem for rental companies. Speaking of which, LiuGong owns a rental company in China. Can you tell us about it?
Yes, we own our own rental company in China that we acquired from Herc Rentals. That’s been re-branded. When we acquired the company, we had use of the name for a year and then we had to change the name. It’s branded “Herda”; it has kept the same Chinese characters for the first name and a different character for the second name.
That business has done very well for us. It provides many unique opportunities to see rental as that business reports to me. I’ve got a general manager who looks after that and just to understand the dynamics of that industry helps me with serving rental customers. I feel like I’m uniquely positioned compared to maybe some of the other OEMs who don’t have those issues to understand about machine utilization and the major impact that has upon rental company profitability. One point of utilization moving down or up has a major impact. So that’s been a good learning experience in my career, first time I’ve ever had that opportunity. I look forward to sharing that knowledge and help our rental customers here to be more successful.
How big is the Chinese rental company?
The fleet size is in the 5,000- to 6,000-unit range. It’s a pretty good size company. It has about a dozen branches. It’s a very big country and the rental industry there is growing tremendously fast. I would say the challenge there is we’re advocating for a focused association like what we see in Japan, Europe and North America. It doesn’t exist today, so we think the industry is not really sustainable. There are some folks there that don’t understand the way the rental industry should be run, so we’d like to get a little more focus in that space.
They are really just learning about rental, it’s a fairly new concept.
It is. The crane business there is largely a rental industry, but certainly for the dirt side, you’re absolutely right, this is new ground, it’s different. Rental rates, how you manage rates, that’s not a static issue. How you manage your rental business as a dealer. When I got into this, the dealers were using sales spread sheets. When we did the acquisition, this was a big lift for us because we suddenly had this expertise that we could share with our dealers on how you need to manage rental fleet. That was very helpful for us to draw a baseline, if you will, for our dealer body.
We’ve done this to help you! It’s obviously helping us, but we’ve done this to help you. If LiuGong is going to be a leader in 10 years in China in earthmoving, we have to be a leader in rental. You look at North America and you look at Europe, who the industry leaders are in those regions, they’re also leaders in rental. Not that they’re following the same recipe, they’ve each chosen their own path, but you don’t have a prayer of being a leader if you haven’t figured out a way to be successful in rental. So that was really our bet, and that bet is paying off handsomely.
I guess getting them to understand that concept is critical.
Yes, and there’s a lot to learn and I’m sure the industries here and in Europe have learned over decades, we’re just trying to do it a lot faster. The clock speed over there is a lot faster. Here there are established recipes for success.
And you have the benefit of learning what’s been established.
Yes. And it’s also helped us maintain a relationship with Herc and they’ve been very good to work with to continue to help our folks. Whatever segment you serve, you want your salesmen and the dealers to understand the challenges. What does it take to be successful and if you’ve walked in the shoes of that customer, obviously you’re going to be able to communicate a lot better.
