Facing a Downturn

Dec. 4, 2006

Well, it’s official: The red-hot economy of the last few years is slowing; it had to happen eventually. Unemployment rates are rising, interest is up, and housing sales are slowing down. The era of demand so great that dealers could make a living by waiting for the phone to ring may be ending. We believe, however, that no matter how much the economy changes, dealers who usually do well will continue to do so, and the same applies for dealers who usually do poorly. In fact, we have noted over time that the well-organized dealers who stick to the basics seem to handle changes in the economy better than dealers who fly by the seat of their pants.


Dealers who have been unable to attract great employees will continue to do about the same unless they change. Sure, there will be more candidates looking for jobs if the economy slows, but dealers with 20-year-old pay programs and no support or supervision will continue to attract the bottom of the candidate pool with the same results. Dealers with full-time professional sales managers, great pay programs and a complete sales system will attract the best and get the most out of them. This superior sales pool will more than make up for any downturn in buyers, and we predict these dealers will expand and prosper despite any slowing of the economy.


Dealers who rely on call-ins will be adversely affected as the economy slows and there are less newly built homes and resales to generate call-ins. Dealers with good prospecting and lead generation plans will be unaffected or even prosper as they draw from the largest market of all—the people who don’t know they need our help until we call them.

Municipal Water Markets

Almost every area of the country has a very large and almost untapped market with people who use municipally treated water. This market allows dealers who seek it to hire and train new sales staff because it takes very little time to learn enough to sell on municipal water. Finally, over the next few years, the municipal market will continue to grow, and well or rural water use will continue to decline, making it tough for dealers who only sell on wells to expand and prosper.

As the market moves to municipally treated water, doing a demonstration that addresses taste will be an important issue. Taste is what motivates the municipal market, and dealers still focused on technology and savings will be hard-pressed to sell to this market segment.


In the next five years, dealers will find that the old closing techniques of discount, pressure or scare tactics will only work on a small segment of the market. As the economy slows, the people who will be affected least will be the better-educated and upwardly mobile professionals who can be led but not pushed to the sale.


The industry has experienced widespread consolidation, and this trend will continue over the next five years with dealers and manufacturers. The public has become increasingly attracted to national brands and less to local merchants. Brand identity will become very important, and independents will begin to fade or link with national brands.

In addition, manufacturers appear to be offering the best markets in the nation as second locations to dealers who have shown sales skills and business acumen in their original markets. This means that the reality of “get big or get out” has arrived in our industry. The dealers that will pull ahead as the economy slows will be dealers with sales managers and sales forces with professional systems in place. This parallels the automobile industry during the slowdown of 1929 to 1939, when manufacturers became fewer and the corner garage became extinct as an auto dealer in favor of larger and more professional organizations.

Government Intrusion

Finally, the effects of government intrusion will become even more critical over the next few years. Some dealers who pay staff as 1099s are already reporting huge fines from the authorities. One of our clients was recently fined $27,800 for failure to have workers’ compensation insurance in place. Another client unknowingly violated OSHA regulations by not having regular safety meetings and by having the fuse panel blocked by boxes in a storage room. These infractions, which many dealers would consider small, have resulted in very large fines—so large a dealership may have to close. The government will continue to enforce laws that many dealers don’t know about and don’t follow. Only the dealers with professional advisors, systems in place to follow the laws, and the capital to comply will prosper.


As dealers realize they need more money to expand, to comply with government regulations, and to have the kind of facilities, training and inventories the public demands, dealers who want to stay will have to charge a fair price for their goods and services. We believe in the next few years, the deep discounters will begin to fall away. The water guy who works alone may be going the way of the cowboy or the traveling salesperson.


All this may sound gloomy to some, but it is better to face the facts than put our heads in the sand until the world has changed without us. The fact is that any dealer who sticks to business basics, complies with the law and continues to change with the market will prosper as the economy slows or recovers.

It is wise to realize that “get big or get out” is on our doorstep as we face the next few years. We recommend that all dealers think about where they want to be in five years and what steps they need to take now in order to get there.

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