By Amy Campbell

For more than two years, dealers from around the country have been battered by increased costs. The mounting prices for raw material— steel, oil, lumber, copper—has many companies struggling to keep their businesses afloat.

It all began with steel. In late 2003, prices began to creep up. The increases were swift and frequent. By the spring of 2004, the cost of steel jumped 60 percent or more. The unprecedented highs rocked many industries. Door manufacturers attempted to absorb some of the costs, but soon had to pass on the increases to dealers. For their part, dealers struggled with raising their own prices. Some were locked into long-term contracts with homebuilders. Others found it difficult for homeowners to accept the higher prices. Oftentimes, jobs went to the lowest bidder. Some companies did not survive.

While steel prices eventually leveled somewhat in mid-2005, other increases, namely petroleum, have taken center stage. For the door industry, it was more bad news. “Our product is a petroleum-based product,” notes Scot Anderson, vice president of commercial sales for Broten Garage Door in Pompano Beach, Fla. “The costs are not just in gasoline. There’s the manufacturing and the steel. All the products we sell have so much association with the petroleum industry.”

That includes getting the product, also. “Any time oil goes up it causes everything to go up because the materials have to be transported,” says Ken Martin, president of Salt Lake City-based Martin Door Manufacturing. “It’s causing instability and uncertainty in pricing. You have to stay on top of it like never before. If you don’t, you get burned.”

Guzzling Gas

Crude oil prices surged in April and have almost doubled over the past two years, according to the Energy Information Administration, a statistical agency of the U.S. Department of Energy. While rising crude oil prices have slowed world petroleum demand growth, world consumption nevertheless rose by 3.8 million barrels per day over this period. What does this mean to you? This time last year, most of us were paying an average of .75 cents less at the pump. (See sidebar, Gas Prices Around the Nation.)

When Hurricanes Rita and Katrina pummeled the Gulf Coast last year, the crude oil supply took a substantial hit. While production is slowly improving, the bottom line is crude oil prices will remain high through 2007.

For an industry that relies heavily on fuel—from receiving product to servicing doors—paying more at the pump can cause a huge impact on a company’s profits and losses. Most manufacturers upped their fuel surcharges for freight deliveries. It’s a move many door dealers are also making. “As our prices have increased, obviously, we have to stay profitable but still competitive,” Anderson says. “We have certain margins we need to maintain. If we’re socked with a fuel surcharge from a vendor, then we have to pass that along to the customer.”

Broten added an itemized “per-trip fuel charge” on the company’s standard contract. So far, they’ve had few complaints or even questions regarding the new surcharge. “Everyone around the country understands gas prices are going up and we’re all paying more for fuel,” Anderson notes. “In business and the private sector, people generally understand.”

Some dealers are also downsizing. “As we’re replacing our vehicles, especially our service trucks, which are typically larger and are on the road the most, we’re looking at smaller trucks,” says Chris Cunningham, owner of Cunningham Overhead Door in Louisville, Ky. Cunningham also suggests purchasing diesel trucks whenever possible because diesel fuel costs typically 1 to 2 percent less than regular fuel.

Another way Cunningham cuts costs is by stocking his fleet with a variety of parts so the techs in the field can complete repairs on the first visit. “As an industry, parts have become more standardized and we haven’t had to carry as much inventory on the trucks,” Cunningham says.

Many manufacturers have also taken this approach. “We’ve tried to round out our catalog so we’re a one-stop shop for our dealers,” says Craig Radabaugh of Millbury, Ohio-based Service Spring Corp. The spring manufacturer also offers same-day shipping, which can further reduce dealer costs.

Fewer New Homes

As if being hit with increases in raw materials isn’t enough, dealers are now also facing a slow-down in the homebuilding market. “New construction is coming down, but it’s still coming down from an all-time high and is still extremely strong,” says Tom Sojak, vice president of marketing for residential and commercial door manufacturer Ankmar based in Denver.

After historical lows, interest rates are slowly inching up, as are the costs of raw materials. “Everything associated with building homes is going up, from the concrete to lumber,” Martin notes.

Total housing starts dipped 7.4 percent in April to a seasonally adjusted annual rate of 1.849 million units, according to figures released by the U.S. Commerce Department. Yearto- date, new home construction for the first four months of the year was down 0.8 percent compared to the first four months of 2005.

The National Association of Home Builders’ forecast continues to show a 6.1 percent decline in total housing starts for 2006 as a whole, following an equivalent increase last year.

For door dealers who have depended heavily on new construction, the slowdown could mean fewer jobs—and less profit. Although 34 percent of Cunningham Overhead Door’s total sales come from new residential and commercial construction, Cunningham says he’s always been “sensitive to not letting new construction be a huge part of our business. It can be very volatile.”

Another factor, Louisville is not a “boom or bust” market like in some other areas of the country, especially the West Coast. Cunningham also shies away from track homes. “They’re more susceptible to peaks and valleys,” he says. “If you do more in the custom builder market or work with smaller builders, you’ll be more insulated.”

Door dealers who have heavily relied on new construction to feed their coffers are opening themselves up to risk, Martin says. “If more than 10 percent of your business is coming from a single customer, that’s dangerous. If more than 40 percent is coming from a single category —like new construction— that’s dangerous,” he says. “If new construction goes into a slump, you can lose 20 percent of your business.”

Instead, dealers need to find niches within the various business categories. In the residential market alone, there are many, Martin says, including million-dollar homes, custom homes, track housing, low-income housing, multifamily town-homes, sheds and garages. “There are all these sources of business inside that one category,” he points out. “If you’re focusing on just one of those segments, like track housing, you’re really risking it. You need to spread yourself among the various markets, and inside each market, spread yourself among the various categories inside that market.”

Finding a niche has proven successful for Cunningham, who started a window division four years ago. The tremendous growth led him to take it to another level, entering a sub category in windows— new residential construction. “We’re not working with high-end builders. Instead, we concentrate on custom jobs,” he says.

Dollars and Sense

New housing is down. Costs are up. So what’s a dealer to do? First, be realistic about your expenses and potential profits. “We understand our profit margins can’t be as high as they used to be,” says Kelli Patton, who owns Columbia Station, Ohio-based Potter Overhead Door Inc. along with her husband, Bob.

The Pattons have relied on two key components to help pull them through the rough times—an outstanding reputation spanning 26 years in the community, and keen business sense. “I’m very detailed about all my bids and contracts,” Bob says. “I recently did a bid where we were practically giving the doors away and still lost the job to a lower bidder.”

“We know we’re supporting eight families and we need to keep moving forward,” Kelli adds.

A cornerstone of Cunningham Overhead Door is great customer service. “Everyone says it, but not everyone does it,” Cunningham says. Most of his customers don’t even realize the quality of the company’s customer service because it’s been rooted for more than 60 years.

Another vital factor to surviving is to take a hard look at your business. “Like in any business, when times get tough, you need to look at all your expenses and make sure you’re hitting your targets,” says Bill Earnest, marketing director for Wayne-Dalton, a Mount Hope, Ohio, manufacturer of residential doors and commercial doors and openers. “As you look at your business, make sure your revenue mix is where you want it; that you’re still making money.”

You also have to manage your percentages, Earnest says. “That’s where a lot of small-business owners miss. You’ve got to manage your margin percentages. If you don’t keep the percents up there, your business will deteriorate over time.”

Despite the rough waters behind—and still ahead— Earnest hopes dealers will maintain a positive attitude. “It will be interesting year,” Earnest says. “We still have concerns about steel in the future. Frankly, it seems like every month there’s news on some commodity that’s going to be ‘doom and gloom.’ Sometimes something happens, and sometimes it doesn’t. You need to be prepared for that. Look at the leading indicators and take appropriate measures.”

Gas Prices Around the Nation

Wonder what other dealers pay to fill up? Here’s a breakdown from the This Week in Petroleum, an online weekly analysis from the Energy Information Administration.

The U.S. average retail price for regular gasoline decreased by 2.5 cents to 286.7 cents per gallon as of May 29. While it was the second week in a row that prices had fallen, the price is still 77 cents higher than last year. West Coast dealers pay more than Midwest dealers, $3.20 vs. $2.76. Dealers living near the Gulf Coast or Eastern part of the United States pay nearly the same prices, which typically hovers in the $2.75 to $2.85 range. California dealers pay the most, averaging $3.26 per gallon.

Driving More Efficiently

Slowing down could save $

It’s true—going the speed limit can save gas. Here’s some easy ways drivers can cut down on the amount of fuel they burn.

Fuel Economy Benefit: 5-33 percent 
Equivalent Gasoline Savings: $.15-$.96/gallon 

Observe the speed limit. While each vehicle reaches its optimal fuel economy at a different speed (or range of speeds), gas mileage usually decreases rapidly at speeds above 60 mph. As a rule of thumb, you can assume that each 5 mph you drive over 60 mph is like paying an additional $.20 per gallon for gas.

Observing the speed limit is also safer.

Fuel Economy Benefit: 7-23 percent 
Equivalent Gasoline Savings: $.20-$.67/gallon 

Remove excess weight. Avoid keeping unnecessary items in your vehicle, especially heavy ones. An extra 100 pounds in your vehicle could reduce your MPG by up to 2 percent. The reduction is based on the percentage of extra weight relative to the vehicle’s weight and affects smaller vehicles more than larger ones.

Fuel Economy Benefit: 1-2 percent/100 lbs 
Equivalent Gasoline Savings: $.03-$.06/gallon 

Avoid excessive idling. Idling gets 0 miles per gallon. Cars with larger engines typically waste more gas at idle than do cars with smaller engines.

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