Losing the contract of their major supplier has spelled the end for a lot of farm equipment dealers over the years. For Valley Truck & Tractor just such an incident turned into “the” defining moment that has seen the business grow and prosper into a 9 store dealership group and to be named as Farm Equipment’s 2017 Dealership of the Year in the over $75 million in annual revenues category.

Henry Miller Sr. originally established the Northern California retailer of ag machinery as an International Harvester (IH) dealership in 1948. By the 1980s, agriculture was in turmoil, where falling commodity prices led many debt-ridden farmers to seek the shelter of bankruptcy and, in some cases, were forced to sell off their assets and give up farming. The farm crisis would also reshape the farm equipment business and Valley Truck & Tractor found itself in the middle of it.

The year 1985 saw the “demise of International Harvester,” one of the two largest manufacturers of farm equipment worldwide, and the “creation of Case IH,” as John Miller describes it.

Miller’s family owned Valley Truck & Tractor, the dealership his father helped to establish nearly 40 years earlier. The reference to “Truck” in the dealership’s name comes from the fact that they also sold Scouts, which some consider to be the first SUVs, and which were manufactured by IH. The line also included pickup trucks. “We didn’t sell many of the big over-the-road trucks, but we sold a few,” says Henry Miller Jr. “We specialized in the 2 ton trucks, pickups and Scouts.”

All of that changed in the mid-80s. “In 1985, Case management decided to keep its company store [in Yuba City] and gave us our walking papers,” says John. “They bought us out. So we walked across the street and bought the John Deere dealer out. This was the real defining moment in the history of Valley Truck & Tractor.

“As soon as we bought them out, we saw profitability and sales go like that,” says John, pointing up. “We were able to keep the John Deere customers and retain 60% of our old International customers. So even though we were still in a depression, we saw sales just really take off. It turned out to be very good for us and I think it turned it out well for John Deere too.”

Despite a sluggish ag economy, Valley Truck & Tractor has managed to demonstrate healthy revenue growth during the past 3 years.

Valley Truck & Tractor 2016 Revenue Breakdown

Valley Truck & Tractor’s revenue by business segment shows that sales of parts and services accounted for 39% of the total in 2016. According to the 2017 Cost of Doing Business study, the industry average was 33%.

Strong Overall Performance

In addition to strong scoring for its succession planning and customer service, other major accomplishments that led to Valley Truck & Tractor being selected as a Dealership of the Year was continued revenue growth during the past 3 years despite a difficult ag economy — 2014 vs. 2013 — +4.05%; 2015 vs. 2014 — +4.64%; 2016 vs. 2015 — +3.25%.

The independent panel of judges also cited the dealership for its outstanding return on assets, which for 2016 was 12.38%. According to the Western Equipment Dealers Assn.’s 2016 Cost of Doing Business (CODB) study, the average ROA for farm equipment dealers across the U.S. and Canada was 3.77%. The CODB benchmark for pre-tax ROA is 6%.

Valley also scored a 106% absorption rate during 2016. The average for all dealers, according to the WEDA study, was slightly less than 64% with a benchmark target of 80%-plus.

A Diverse Customer Base

The Millers believe that their business is blessed in a lot of ways, including a wide variety of crops and customers in their AOR. According to John, there are 300 different crops grown in California with dozens of those within Valley’s sales territory, which stretches from the Pacific Ocean to the west and Sierra Nevada mountain range to the east.

“In our area, which is essentially the Sacramento Valley, the major commodity crop is rice, by acres and dollar value,” says John. “This is followed by orchards of almonds, walnuts, peaches and prunes. Tomatoes used for canned products, including tomato paste and things like that are also big in this area.”

Other significant crops grown in Valley’s AOR include edible beans, melons, corn, sunflowers, kiwis and “a lot of grapes are grown in Northern California, including premium wine grapes in the Napa Valley,” adds John.

Valley Truck & Tractor’s management team includes (l-r): Jeremy Bivert, corporate parts, Chris Cardoza, COO, Ron Keyser, corporate sales, Matthew Miller, business development manager, John Miller, CEO, Henry Miller Jr., Marc Boomgaarden, president, Alan Bell, CFO, Dave Bartch, corporate parts (retiring after 48 years), Justin Murray, integrated solutions manager. Missing at the time of the photo, Matt Dixon, corporate service.

In terms of customers, John explains the dealership serves the full range, from hobby farmers in the foothills with 5 acres to those with 150 acres planting organics, to rice, tomato and tree growers with 10,000, 15,000, 25,000 acres. “A tree grower, because of the intensity, would be probably smaller acreage but as far as dollar value, it could be tremendous, too,” he explains.

Valley Truck & Tractor,
Yuba City, Calif.

Founded: 1948
Employees: 180
Owners: Miller Family
2016 Revenues: $96.2 Million
2016 Market Share: 42%
Return On Assets: 12.38%
2016 Parts & Service Absorption Rate: 106%
Major Line: John Deere
Shortlines: Brent, Curtis Industries, Domries, Exact, Flory, Freeman, Frontier, Gearmore, Great Plains, Honda Power, Honey Bee, J&M, Key Dollar Cab, Krone, Kuhn, Laforge, MacDon, Monosem, Nelson, Nikkel Iron Works, Porter’s Welding, Rome Equipment, Schmeiser Farm Equipment, Shelbourne Reynolds, SoucyTrack, Stihl, Unverferth, Walker Mowers

As a result, the dealerships sells tractors ranging from under 20 horsepower up to 550 horsepower, with the largest sales segment around 100 horsepower.

“We’ve seen a real shift here in the last 10 years, from row crops to permanent crops, with more and more trees being put in because the value of the crop itself is so much greater. For crops like walnuts and almonds, the price has been very good and pretty much sustainable, in most cases,” says John.

He adds that the permanent crops in the region aren’t quite as vulnerable to the often-dramatic price swings in commodities like corn and soybeans. “It seems in the areas that are heavily invested in row crops, one year, everybody plants the crop and then you have too much and the price drops and the next year they plant the other crop,” John says. “That’s not the case so much here.

“When you plant a walnut orchard or an almond orchard, you’re making a 30 year investment at least. It’s expensive to put it in and of course, you’re going to be looking at those trees producing hopefully for at least 25 years, but it takes 4 or 5 years really to get any production out of the trees,” he adds.

Specialized Equipment Challenges

Specialty crops like fruit and nuts require specialized equipment for planting, harvesting and upkeep. What this means is dealers in the region aren’t nearly as dependent on their major supplier as those in areas where row crops prevail.

“I’d say that probably our mix of wholegoods would be about 60% John Deere and 40% what we call ‘allied products’ or specialized products that Deere doesn’t make but our customers require,” John says.

The diversity of Northern California agriculture is shown in this overhead view. Within walking distance of each other, two orchards, a vineyard, a rice paddy and fields of wheat and alfalfa grow in very close proximity to each other.

But with specialty equipment comes the need for staff training in all departments on a wide range of very specialized equipment. “With the techs, the breadth of equipment that they have to work on is challenging. It isn’t just John Deere 7000 or 8000 series tractors. They might be working on a combine today, a John Deere tractor tomorrow, a Flory nut sweeper the day after that, and a Rear’s orchard sprayer the day after that. In some cases, we have tried to compartmentalize some of our people and have them specialize in certain types of equipment,” John says, but that’s not always possible.

And it’s not just the techs who need the proper knowledge of nut harvesters, orchard sprayers and specialty crop pickers. “We have to make sure everyone involved, including our parts people, have the proper knowledge and understanding of a very wide range of products,” John adds.

West Coast Challenges

Because of the diversity of crops and cropping practices, John also believes operating a farm equipment dealership in California, and probably the West Coast in general, is “just different.”

“A question we get regularly is ‘Why can’t you use that piece of equipment out in California? You guys always have to be a little bit different, don’t you?’” explains John.

For example, Valley’s biggest competition doesn’t come from the Case IH or AGCO, according to Henry. It’s the “orange tractors” and “yellow combines.” He adds, “We’re dealing with different kinds of dealerships and a whole different set of circumstances.”

John offers a specific instance with orchard tractors. “Deere wants to build a large volume of tractors, for example, because it’s more efficient for them. That doesn’t mean they fit the applications we need in California. A lot of times, we have to modify the machines to fit our areas and the needs of our customers.

“Deere doesn’t build the small, tight cab that is used in orchards because the volume just isn’t there for them. They tell us, ‘You’ve got plenty of suppliers.’ And they’re right, but it makes it a lot more expensive,” explains Henry. He just shakes his head when someone mentions the environmental restrictions placed on agriculture in California. That pretty much says it all.

On Call, On the Road

At 106% aftermarket absorption, Valley Truck & Tractor easily outdistances most dealerships operating in the ag machinery space, with service accounting for 46.09% of total absorption, according to John. Overall in 2016, revenue from the sale of parts and services accounted for 39% of Valley’s total sales.

Comparatively, the industry average for aftermarket sales was about 33% of revenues and 29.05% of aftermarket absorption, according to the 2016 WEDA study.

Service accounted for 11% of Valley’s revenues last year, while the service portion of North American dealer revenues in 2016 averaged a little less than 7%.

According to Marc Boomgaarden, dealership president, Valley’s longevity plays a significant role in its success in its parts and service business. “We’ve had long term, multi-generational relationships that continue today. Our people are ‘out there,’“ he adds. “Our technicians are the face of our company. I believe by having our people out there, there’s a sense of trust that we’ll be there for you when you need us.”

He adds that the dealership’s services have continued to evolve as the industry has changed. Mobile service is a good example of how it has adapted as farmers’ needs have changed. “For one thing, we’re on-call 24 hours a day,” says Boomgaarden, which is critical considering the intensive, year-round nature of agriculture in California.

“It’s becoming more of a common practice in this industry, but we’ve been doing it for 30 years,” says John.

With 25-30 “mobile shops,” Valley has made the investments that demonstrate its commitment to servicing its customers regardless if it’s in a dealership’s shop or customer’s field. “We just bought three new ones at about $175,000 apiece,” says John. “These are big trucks with cranes on them and welders. You also have oil recovery systems and compressors. That’s why we call them mobile shops.”

“Investment in mobile service, taking that service out to the farm, really drives a lot of business and it’s a lot more convenient for the customer,” adds Boomgaarden. “The upside for us is we don’t have to have huge shops to do all of the service work. So the investment that Valley Truck & Tractor has made in mobile service trucks has really been worth it for us and our customers.”

The Other ‘Part’ of Absorption

Of course, parts represent a large portion of the aftermarket absorption equation, and Valley excels in this area. Parts sales accounted for 28% of the dealership’s total revenues in 2016. The industry average, on the other hand, was slightly over 16%, according to the CODB study. And when it comes to absorption, the dealership’s parts business accounts for 59.84% vs. the industry average of 34.9%.

Valley Truck & Tractor Video Interviews

Visit www.FarmDealerOfTheYear.com to watch exclusive videos with Valley Truck & Tractor executives. Filmed on Location by Farm Equipment editors, these videos are sponsored by CDK Global Heavy Equipment.

 

 

Sometimes it’s the little things that make the difference, says Henry. “At the Yuba City store, we put the service manager and parts manager offices right next to each other with a sliding glass door between the them. This really helped them to communicate with each other, which really improved how we maintained our parts inventory.”

Boomgaarden adds, “Over the last 5-7 years, the independent departments are much more collaborative than they have been over time. We believe a lot of this has to do with the people we’ve placed in leadership positions wanting to work with each other and being focused on the health and well being of Valley Truck & Tractor, not their individual departments. To me, this has been a huge win for this company.”

A key player is Valley’s corporate parts manager, Dave Bartch, who is retiring after 48 years of service. “We’re pretty fortunate,” he says. “We’re only an hour and 45 minutes from Lathrop, Calif., so we can get parts pretty quickly,” he says, referring to Deere’s regional distribution center.

“We have a transfer system that runs every day and every night, between all 10 locations, which includes corporate headquarters and the other retail stores. We’re transferring between stores as well as receiving the John Deere freight every morning. So we’re able to give very good service parts-wise,” says Bartch.

“We utilize what I call ‘corporate stocking’, which is the John Deere system for stock parts (DPM). We also use JD Prism, where we can fine tune by factory codes. And we’ll do this store by store. We’re always working to fine tune it.”

Bartch agrees that the working relationship between parts and service is also playing a significant role in operating a more efficient and profitable operation. “I attribute the service department’s input as to how we keep a pretty healthy stock order percentage because we have their buy-in. We go out of our way during busy times, like planting season and harvest season. We know they can’t wait, so there are many times during harvest where we have guys on the road to Lathrop, sometimes twice a day.”

According to John, Valley has been actively working to centralize as many operations as possible — from billing, accounts receivable, payables, payroll, to ordering of wholegoods. We’re now centralizing parts in the service end of it. It all flows smoother when we can do this out of our headquarters, and it helps us reduce costs.”

John adds that collaboration between parts and service has been critical in improving their parts operations. “Let’s face it,” he says, “If your service manager and service writers take the attitude that they just want it at any cost and they’re not working with the parts department to order the stuff on a stocking order, it just destroys your numbers. Where if you’ve got them working together and collaborating, and it’s part of their incentive programs, we’ve found they can raise those numbers. Then they’re rewarded along with the company, too.”

Measuring Parts Performance

Bartch says zero sales inventory, or stock order percentage, is a key measurement for him. “These are parts that haven’t moved over a set period of time,” he explains. “Deere’s criteria is based on 12 months, but I feel here in California, 12 months is not enough. So we aim for 18 months. If it hasn’t moved in that period of time, we return it or actively look to move it to where it has a better chance of getting sold.”

Parts sales accounted for 28% of Valley Truck & Tractor’s total revenues in 2016. In terms of the absorption rate, the dealership’s parts business accounted for nearly 60% vs. the industry average of 35%.

He says, year-round, the dealership is averaging between 80-85%. “So we do pretty well in this area. And again, I attribute that just to communication and collaboration.”

Batch adds that vendor parts, or those not coming from Deere, can be tough to deal with because of returnability. “You have to work a little harder with your [shortline] vendors. “

Bartch says that Valley’s fill rate for parts is about 76%. “It’s not quite where we want it but it’s improving.” And currently they’re hitting 2.6 turns with their parts, but aim for at least 3x. “I’ve seen when it gets too high, then you find that you get complaints that you don’t have the right parts.”

Focus on Transparency

Alongside of the dealership’s efforts to improve communication and collaboration among departments, Boomgaarden says he’s also focusing on transparency. “We’re working to get financial and operating information down to the people who can utilize it to improve their efficiency and figure out where they’re at. We need for them to better understand how their decisions impact the company.”

He wants Valley’s managers to “ask questions that are important and to be able to answer the important questions.” Boomgaarden explains that the goal is for those in charge of day-to-day operations to push information up, rather than top management pushing it down.

“I don’t know that we were really there 5 or 10 years ago. I think a lot of that was really closely held. And so trying to open that up a little bit and to, you know, improve the information flow to the people that need it. We need to improve the quality and timeliness of the numbers so they’re useful for making good decisions.”

A part of Valley Truck & Tractor’s strong absorption rate of 106% came from its service department, which accounted for about 46% of total absorption. Service also accounted for 11% of the dealership’s total revenue in 2016.

Gradual Move to Precision

Because of its diverse crops and workforce, the emergence of precision farming in Northern California has been gradual, but it’s well on its way, says Justin Murray, Valley Truck & Tractor’s Integrated Solutions manager. But like most other things in California agriculture, it’s not without its special issues.

Murray grew up farming and started his career in the Midwest using the full package of John Deere integrated solutions. Since moving to the West Coast, he’s had to learn to adapt the technology to match the different crops and cropping methods.

For example, rice, the region’s major field crop, is often planted by air, as is the application of chemicals and liquid fertilizer. “We use a rate controller for that,” he says. “We typically use a John Deere 690 with guidance, yield mapping and collecting data for harvesting.”

He says they also used 5000 series tractors with 3-point, 90 foot booms and 500 gallon tanks for spraying. “We’re getting into some prescription and variable rate application with this, but it’s still very limited. We only have about a half dozen customers doing this,” says Murray.

Another big difference between agriculture in the Midwest and California, he says, is the fact that there are only 2 corn planters (1790s) in his territory.

Another major change for him is that many of the growers have a lot of people, 20, 50 or 60, working for them. “Trying to figure out how to help them manage their equipment or who the go-to person is can be difficult,” Murray explains. “Who’s the tractor driver? Who’s the equipment operator?”

Then there’s the bilingual element. “Communicating so they understand how to operate the equipment to get the maximum efficiency from it, you’re not always sure your message is being understood.”

According to Henry, “Laser leveling of rice fields has been one of the major applications for precision technology. “They virtually re-level every year to make sure they use the minimum amount of water in their rice fields. This can really affect their yields.”

Murray adds that leveling their fields is critical for rice growers, so precision is imperative. “They need a uniform field. As we go through a leveled out field, they build in a slight slope that may only make a tenth of an inch difference from one end of the field to the other. The precision in that is very key in managing their water levels across the ranch.”

The demand for precision technology is starting to expand. “We order every single one of our large ag machines with a display, premium activation and usually with a receiver. So when that machine goes out, that customer is getting Auto Track guidance, they’re getting the receiver in there, they’re getting the premium subscription that Deere offers for that machine,” Murray explains.

“I’m not seeing that recognized through Integrated Solutions, but we are getting that portion through the sales department and it’s put into a deferred account. When my guys go out and meet with a customer and train them on that machine, we get some part of that money based upon the hours they’re with that customer. I’ve designed this department to make sure that we’re not selling customers something they’re not utilizing. We’re out there to make sure they’re getting the value that they’ve purchased.”

Currently, Murray has 2 integration solutions consultants and recently hired a certified crop advisor. “We’re getting busier. Our consultants are running day and night.”

Challenges & Opportunities

Valley Truck & Tractor has plans to be around for a long time and they plan to grow. At the moment they’re not saying what route expansion may take them, but they see plenty of opportunities. “I can’t tell you that we know right now what we’re going to do, but it’s something that’s top of mind,” says Boomgaarden. “As a company, we’re taking a long, hard look at succession planning. We need to make sure we have the right people in the seats and the right people preparing to be in those seats in the next 3-5 years, whether we’re at the same size or whether we grow. I believe the organizational structure is poised and ready to grow if an opportunity does present itself. I think we are structured appropriately.”

John adds that Valley Truck & Tractor has every intention of growing with John Deere, but won’t ignore the possibility of adding new lines if they complement the business and help it grow. He believes precision farming technologies hold a lot of potential for ongoing growth.

Henry sees big changes coming to the Sacramento Valley. “We’re seeing more and more growers going to permanent crops. They get a much higher return per acre than they do off of the open land crops like rice. By going from rice to orchard, you get five, six times the return per acre that you do off of rice,” he says.

Ron Keyser, corporate sales manager, also see possibilities in the rural lifestyle market. “We have a lot of people moving into the country, buying large properties within the suburbs that can use the compact tractors on their properties. We’ll need to make ourselves more consumer-friendly,” he says.

That may or may not require new facilities. But John wonders about the future of brick and mortar retail. “Will we have to operate like Amazon.com?”

Internet sales is an area that is top of mind for Valley’s top management. “It’s beginning to creep into our business now in regards to parts,” says Boomgaarden. “Customers can order parts and get them in two days and they don’t have to bother coming into a brick and mortar store.

“If a consultant had experience in starting up and establishing internet part sales, I think you would see a lot of dealers lining to buy those services,” he adds.

And, of course, doing business in California remains a huge deal. “We’re in one of the most difficult places not only to do business, but also to farm. We hear this consistently from our customers. The stuff they have to do to put their crop in the ground and pull it out and follow it from farm to market is difficult to believe. I think these things are going to have a tremendous effect on us, on the entire industry, in 3-5 years,” Boomgaarden says.

But first and foremost, adds John, “We need to continue to be profitable, because you can’t do a thing if you’re not making money. We’ve done very well at this and we plan on continuing to. And the only way that we can really do it is have the people, the employees, who can deliver the services for our customers. You have to have a good area, a good customer base and a good manufacturer. But, above all the most important thing is you’ve got to have good people.”

READ ABOUT ELLENS EQUPIMENT 

DEALERSHIP OF THE YEAR ALUMNI GROUP

Nominate a dealer for The 2018 Dealership of the Year

July/August 2017 Issue Contents