Apparatus Purchasing: Factory Direct

By Bill Adams

Most fire apparatus manufacturers have Web sites enabling prospective purchasers to locate their closest authorized dealer.

In some instances, the manufacturer itself is listed as the primary sales contact. Little known and seldom advertised is the fact the majority of apparatus manufacturers sell rigs “factory direct” albeit for varied, valid, and understandable reasons. When a fire department inquires about whether it can purchase factory direct or demands to, a quandary can develop, putting apparatus manufacturers in an uncomfortable position and dealers in a precarious one. The topic can be as volatile as boiling gasoline in an open container on a campfire. The intent of this article is to address the subject in a manner understandable to purchasers yet fair and equitable for dealers and manufacturers.

Purchasers’ perceptions of apparatus manufacturers and their distribution networks are based on a “right now” assessment and may not be entirely objective. Almost all manufacturers, including the larger ones and those in business for generations, all started out small. Access their histories. Most founders were blacksmiths, fabricators, or operated repair shops. Usually the owner/sole-proprietor started out fixing someone’s broken fire truck, then built one for the local fire department, then one for a neighboring department. Have you ever heard of Don Smeal, Sam Saulsbury, Chris Ferrara, Elmer Abrahamson, Carlton Maxim, Harold Boer, or John Kovatch Jr.? When these people started in business, they did not inherit large, well-established distribution networks (dealers and dealerships). They started out selling factory direct. As their businesses expanded into statewide, regional, national, and international markets, so did their marketing and sales strategies. Along the way they established personal relationships with some of their first customers and some of their original dealers. Those relationships can be as strong now as when forged.

Today, most large and midsize apparatus manufacturers sell via dealers. Smaller and regional manufacturers don’t always do so. Caution-it could be by choice. It’s not fair to compare the distribution networks and sales policies of manufacturers building 30 rigs per year with those building 300 rigs per year. Purchasers should be cognizant of the fact that many regional and smaller builders are very comfortable with their size, their annual sales, and their methods of marketing. The number of employees, size of their facilities, and how they sell are not necessarily reflective of the quality of their finished product.

The particulars of the business relationships between manufacturers and their dealers are personal, usually contractually binding, and bluntly none of a fire department’s business. Purchasers shouldn’t ask. Apparatus dealerships are unlike automobile dealerships where there may be multiple dealers in one city. Apparatus manufacturers have one dealership per territory. A dealership’s customer base remains constant-only those fire departments within its territory.

Direct Sales

My interpretation of a direct sale, sometimes called a house account, is a sale that is not handled by a local dealer. It can be by the manufacturer’s owner himself, through in-house sales staff, a regional sales manager, or a factory store. Several manufacturers own and operate regional service centers, which may employ local sales staffs.

The primary reason for selling direct is not having a local dealer in a territory. The military, cooperative purchasing consortiums, the federal government, and export sales are usually administered from single locations. It makes sense for a direct factory relationship to manage those types of accounts. Occasionally, there are very technical, highly complex vehicles requiring such an inordinate amount of factory involvement that it’s logical for the manufacturer to handle the entire project.

A sensitive matter for smaller fire departments is to accept the fact that there are high-profile (prominent) customers whose business may be of such strategic value to a manufacturer that a direct sales relationship is warranted. Fire chiefs should not get their bunker pants in a twist over a calculated marketing strategy. It’s not a personal slam, nor is it intended to be disparaging to not-so-well-known fire departments. It is a long-term business decision. Get over it.

As an apparatus manufacturer expands, so do its relationships with customers. Bear in mind, the aforementioned personal and business relationships between manufacturers and original customers may be generations old. If a manufacturer chooses to continue those relationships, it is its business alone and not that of a potential new customer.

Lastly, there could be a personal dislike or animosity between the local dealer and the fire department. It’s happened before and it’ll happen again. Buyers should exercise caution. They should not believe they can fabricate bogus claims against a local dealer in hopes of “getting a better financial deal” from the manufacturer. It doesn’t work like that. Most formal manufacturer and dealer agreements have provisions in place to handle such scenarios as well as any bona fide incident of incompatibility between buyer and seller. In today’s depressed apparatus market, every sale is important. Every customer is important, but purchasers should not push the envelope. Business relationships between dealers and manufacturers are equally important-some lasting for many decades. And, they are confidential. Some dealers and manufacturers are fiercely protective of each other’s interests. Tread lightly. Don’t tell them how to run their businesses.

Dozens of dealers and manufacturers were offered the opportunity to comment on the factory-direct topic. Dealers, caught between a rock and a hard place, almost universally declined to comment on the record. It is understandable. Off-the-record comments are not included. The larger manufacturers who responded are highly supportive of their dealer networks and the importance of after-the-sale service and support they provide. In my opinion, they wouldn’t want to say anything that will alienate dealers-they are essentially their lifeline. Several manufacturers promote factory-direct sales; one uses that technique exclusively. Numerous manufacturers declined to comment, citing the delicate nature of the topic. Their wishes are respected, and any off-the-record commentary is not included. Regardless, the subject is valid, and in my opinion it will continue to be relevant in the future.

What are the financial considerations?

Philip Gerace, director of sales and marketing, KME: “For the fire department, oftentimes there is a perceived financial advantage. But in reality, the factory-direct sale goes through the same processes and has similar expenses as a truck sold by a sales representative organization.”

Bill Bruns, a retired industry insider and former president of an apparatus manufacturing company: “Certain customers prefer to buy direct, thinking they are saving money.”

Bobby J. Williams, vice president, sales and marketing, Pierce Manufacturing: “Depending on how it’s structured, pricing could be one perceived advantage. Some manufacturers have a different pricing level if there’s no dealer involved. I would submit that the costs are still there. They just get pushed to the customer, such as managing warranty and repairs.”

Sarah Atchison, president and CEO of Midwest Fire, which only sells factory direct: “Some fire departments see the value in doing business direct, particularly when the cost or the value proposition is a key component in the buying decision. We also believe selling direct allows us to offer more options, additions, and important details on our apparatus as a result of not having additional dealer and distributor commissions or costs to pass onto our customers.”

Joe Messmer, president, Summit Fire Apparatus, which sells direct in some areas: “In most cases, lower price because there is no cost associated with a factory-direct sale.”

What are the reasons manufacturers sell factory direct?

Mike Watts, national sales manager, Toyne: “Manufacturers will usually sell direct in areas that are not covered by a dealer.”

Mark MacDonald, Greenwood Emergency Vehicles, an E-ONE dealer: “Usually only if they have not found or don’t currently have a qualified dealer in the area/region.”

Messmer: “When there is no local salesperson or sales group in the locality of the customer.”

Williams: “Generally, apparatus builders who are trying to make a push-domestically or internationally-in a particular geographic area try first to sign up a dealer. If unsuccessful in doing that, they may hire a factory representative in the region and attempt to sell direct.”

Mitch Willoughby, national sales and marketing director, HME-Ahrens Fox: “Although many factors are involved, typically the main reason is because of the inability to find a suitable dealership that shares your company philosophy in order to take care of your customers’ needs or has the ability to represent you in the manner you require to achieve the target sales and or service for that particular territory.”

Gerace: “Certain types of products or customers dictate a factory-direct relationship. For example, many federal agencies and the military often purchase using federal schedules for multiple end-user locations around the globe. This sort of purchasing method dictates a factory-direct relationship. Also, certain sales territories are covered by salespeople working out of a factory sales and service center because that particular region is best served by a manufacturer’s location.”

Atchison: “I can’t speak for other manufacturers, but since its founding in 1987, Midwest Fire has worked diligently to develop and maintain one-on-one personal relationships with the departments it serves. It can be difficult to find a dealer or distributor that can offer consistent service and add significant value to each relationship. As such, we have decided to maintain control of those critically important relationships.”

What are the advantages of selling factory direct?

Greg Stone, East/West Fire Apparatus Consultants: “Oftentimes, a sales representative working for a dealer becomes an advocate for the purchaser. They become the liaison between the factory and the customer, and a good sales representative will have a good understanding of the customer’s operational needs.”

Gerace: “For the supplier, a benefit might be a direct line of communication with the end user and a unique insight that enables the manufacturer to double check the efficiency of its sales and order entry processes and procedures normally performed by the sales representative organization.”

Messmer: “The customers who deal directly with the factory also develop a direct association with the people who actually construct their unit. Most of the time, it will give the customers a quicker response and sometimes a much more informed answer to questions. Some local salespeople are better versed with what can and cannot be done; however, many are not. Certainly the factory people will provide clarity to their product. We find there are those customers out there who prefer to deal directly. They like to work closer with the factory and like to feel they contribute more or feel more directly in control. They also feel their ideas are better expressed in person, so to speak. The other thing we find is simplicity, which eliminates potential mistakes.”

Watts: “I don’t know that there is any significant advantage to selling factory direct. A sale is a sale, and all are welcome.”

MacDonald: “It simply gives the OEM a chance to sell a truck in a territory where they don’t have a dealer presence.”

Bruns: “Higher price since you protect the dealer pricing, so the margin is greater.”

Atchison: “Consistency of and control over the customer experience are the main advantages we realize at Midwest Fire. Our company operates with family ownership and a neighborly style of doing business.”

Willoughby: “The main advantage is a closer relationship with the customer-dealing directly with anybody allows for better communication as well as quicker response time.”

What are the disadvantages of selling factory direct?

Messmer: “Some customers need a local connection, a trust level that they have built over the years with a local representative. Sometimes you encounter departments where communication between the factory becomes strained because of misinterpretation or dialect. A local salesperson often comes with the skill to provide clarity and control the sale where the factory would not be aware of terminology or dialect differences.”

Watts: “Most sales are done on a person-to-person basis. The local salesperson has the best handle on the pulse of the departments and is also available for quicker response because of geographic location. The factory can provide fantastic support via electronic means but usually does not have the capacity to have the face time that is usually required.

Gerace: “With the exception of sales through factory sales and service branches, many factory-direct sales don’t include the benefit of a sales representative that manages the process from start to finish. Having a rep that travels with the customer to the factory for meetings and inspections, keeps an eye on the engineering and build process, brings the apparatus to their location for final prep and delivery, and then does apparatus orientation holds a tremendous amount of value. And, of course, having a rep familiar with the apparatus ready to offer local maintenance, service, and parts for the life of the vehicle is also quite important.”

Atchison: “Some buyers are driven by the desire to have a dealer or distributor in close proximity, and that creates a challenge for factory-direct sellers like Midwest Fire when our facility is not geographically close to the buyer.”

MacDonald: “Getting the truck worked on in a timely manner by a qualified service facility (dealership) when there is a problem. Having a local sales group being able to service the vehicle they sell is a huge motivator to some departments.”

Willoughby: “There are numerous. However, the main two reasons are obviously the overhead costs and the inability to provide factory-supported local service for the customer.”

Wayde Kirvida, factory sales for CustomFIRE: “Many customers wish to work with ‘local reps’ who can call on them regularly in person and possibly offer closer service presence and complementary goods like hose, tools, etc. It is difficult to maintain a robust sales presence and follow up when you are remotely located-especially against manufacturers with local representation.”

Bruns: “Usually it is a more difficult sale since you are selling to a customer not used to buying the product, and the process takes longer, as you must educate them.”

Stone: “When purchasing direct, the customer is dealing directly with the factory, and, as I’ve experienced, the factory rep can be spread thin and working numerous projects. The customer may lose a little of the personal touch that the dealer rep should provide, and most often does.”

How would you respond to a potential customer who asks to purchase factory direct in a territory covered by one of your dealers?

Williams: “We are very protective of our dealer relationships because these companies play a vitally important role in our success. Pierce dealers have invested their careers, resources, and reputations to be there for fire departments, offering a wide range of services and follow-up after the sale. Pierce is in the manufacturing business and not in the distribution business; distribution is not our core competency. Likewise, our dealers perform distribution and after-sales support very well.”

Willoughby: “This occurs on a regular basis, and my answer to the customer is always the same: The dealer of any particular area it is contracted to sell and service is going to get the same commission whether you deal with it or not. I always inform the customer that it’s in their best interest to work with the dealership because they are much closer to take care of their needs-especially the service after the sale. If the reason the customer gives is of a personal nature, then I notify the dealer and we determine the best method of taking care of the customer’s concerns and needs. I have rekindled several relationships between customers and dealers this way.”

Atchison: “Because we have no dealer or distributor network, we service all inquiries factory direct.”

Watts: “Those cases are handled with kid gloves. All dealers that I know of have binding contracts with their manufacturers, and it would be a breach of contract to sell outside of that contract unless there is a provision made in that contract to allow for such.”

Gerace: “KME offers a great deal of flexibility in both our products and processes, so each case is unique. Our likely response would be to explain the critical importance of local sales and service support and balance that with a sincere effort to understand the customer’s requirements and develop a plan to accommodate it effectively.”

Messmer: “We encourage them to contact the dealer. If they have a problem with the dealer but still want to purchase our product, we will work out a compromise between the two of them. Ultimately, salespeople understand that there are some people out there who will not like you.”

Do you think factory-direct sales will increase or decrease?

Kirvida: “I have no idea. Dealer reductions may come through lack of necessary business to support a dealer. The industry has been way down for a few years now. Do the math-how do you support the overhead on fewer truck commissions? A successful dealer may need to become more versatile by going after service work, refurb work, and representation of other equipment where people are still buying. But, this is the case regardless of the business environment. If you look at the large manufacturers, many, if not most of them, have moved toward factory-direct or ‘factory-dealer’ models. That said, some states such as Texas and Virginia require that sales occur through dealers. And, the Virginia law was cowritten by a former fire apparatus dealer.”

Bob Milnes, Fire-Fighting Innovations, a Rosenbauer dealer: “Here in Florida, dealers are required to have a ‘License for a Dealer in Franchised Motor Vehicles’ and, for manufacturers selling direct, a ‘License for a Manufacturer of Motor Vehicles’ is required.”

Williams: “I see it as flatlining. I don’t see a trend to go direct. I would submit that selling direct is more because of an inability to develop a dealer in a certain geographic area. If a manufacturer doesn’t have coverage in an area, and if it can’t find a dealer, it tries to cover the territory by putting in a factory-direct salesperson to get it covered. Plus, many states have dealer laws prohibiting a manufacturer from selling direct. Our industry needs not lend itself to a direct sales force model. There have been some limited areas of success but, as a whole, we’ve determined that the full service dealer model that provides sales, service, and after-the-sale support is ideal.”

Watts: “Unless the American fire service totally rolls over, there will always be a need for the personal contact and follow-up. With approximately 30,000 fire departments in the United States, it would be impossible to cover them all with direct sales. Therefore, I do not see a large rise in direct sales.”

Gerace: “As a percent of domestic municipal business, decrease. As KME has continued to grow over the past several years, we’ve added new sales representative organizations to our network that do an outstanding job of sales and service support in their territories. They’ve proven and will continue to prove their value to departments in their regions.”

Messmer: “I think it will depend on how long the slowdown in the industry lasts. Since a large number of our sales are factory direct, it would be hard for us to gauge. Whenever there is an economic downturn, cities and communities tighten up spending, and often fire departments will look toward factory direct as an answer to their budget woes. I think this climate breeds factory sales.”

Bruns: “I don’t see a shift happening in the near future. There is no reason to drive the dealer or distributor network out of the sales process. They provide information locally and service, which the factory cannot do. What will grow are Internet sales.”

Atchison: “I don’t see significant changes moving the needle in one direction or the other. It does seem that Web-based and mobile applications have made the comparison shopping process easier for fire departments, and that is a good thing.”

Do you have any words of wisdom on the topic you care to share?

Williams: “Because of their industry knowledge and understanding of local markets, Pierce dealers play a vital role during the entire specifying and purchasing process. It’s a team effort, with the ultimate goal of providing the best possible vehicle to meet a department’s unique requirements.”

Watts: “I feel that the best way to cover a select territory is to have a strong dealer network. The select territory could be regional or national in scope. But regardless, it can be best covered by feet on the street.”

Gerace: “No matter where the point of sale may happen, the overriding factors and successful ingredients are safety, quality, affordability, and responsiveness at the local and factory level. It’s also important to keep in mind that while much of the focus is often on the initial sale, it is only a small portion of the life cycle of a vehicle. One of the areas that should also be looked at closely is the long-term cost of the apparatus.”

Messmer: “I would encourage customers to not shy away from factory-direct sales, but do your due diligence in checking out the reputation of the company, the quality of the product, and after-the-sale service. Most importantly, does the company do what it says it will do?”

Atchison: “Buyers are well served to do their homework and to make sure they get the fire apparatus that is right for them at the best price with warranty, service, and support after the sale.”

Bruns: “Offering many channels to sell from factory direct to a local dealer will continue because of the varied needs of the customer and the impact of Internet sales. All markets are down, and manufacturers will not turn down any distribution channel these days-sales are too precious.”

Kirvida: “Part of the answer lies in the transformation taking place in people’s buying behaviors. Look at Amazon vs. Wal-Mart. The future is with the Amazon model, which is more like a factory-direct model. You are going to see the brick-and-mortar retailers moving to a smaller store model and more online presence. Is that really any different from the factory-direct model vs. dealer-distribution model? The millennial purchasers are less reliant on tire kicking and door slamming when they make a purchase. They’ll make a purchase decision based on whether something is ‘liked’ on social media. Fire apparatus, for the most part, are more custom and complex than a stick of deodorant or a toaster oven. So, the eventual distribution model will always require some local service and support.”

Dealers and Service

Service after a sale is a topic unto itself and one I will address in depth in a later issue. Because of the importance many contributors place on dealers providing it, comments by Williams are relevant. “Remotely delivering after-the-sale support and service-from a factory location, for example-is very difficult,” he says. “Fixing trucks or doing follow-up warranty work and repairs has to be done locally to be effective. Moreover, Pierce and its network of dealers devote a tremendous amount of resources to train service personnel.”

This article will not delve any further into service or take sides as to who, why, or how after-the-sale service is provided. It is important to point out that there is a big difference between fulfilling warranty obligations and performing nonwarranty service. The decision to only purchase through a dealership or to consider a factory-direct sales relationship can be a difficult one. It’s a choice left to the apparatus purchasing committee and the authority having jurisdiction. Investigate, research, network, and ask questions-then choose wisely.

BILL ADAMS is a former fire apparatus salesman and a past chief of the East Rochester (NY) Fire Department. He has 50 years of experience in the volunteer fire service.

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