“We were likely to have starved to death,” says Mike Kelly, recalling his first year owning a farm equipment dealership. It was 1985, in the midst of the farm crisis. It was a time when more dealers were getting out of the business than were getting into it.

He was still working at a thriving John Deere construction equipment dealership in Longview, Texas, where he managed its service operations. During his 10 years with Allen Machinery Co., it had grown into a 3-store dealership covering 29 counties in northeast Texas. In 1983, the owner crossed swords with John Deere brass and “they didn’t want him as a dealer anymore and they bagged and tagged him,” says Kelly.

When the owner, Sidney Allen, dissolved the business, he paid off the employees who were vested in the company’s retirement program. “None of us had put anything into the plan,” says Kelly. “Sidney had covered it all and now he was handing me the largest check I had ever seen in my life.”

The dealership was being sold and Allen called his 12 managers together and asked, “Who’s going to stay and who wants to partner with me in a new business?”

Kelly says he was the only one who raised his hand to be a partner with Allen. After working around Ford Tractor’s demand that the partners have $500,000 unencumbered available, Kelly says the man from Ford Credit “reaches over and tears off a piece of paper and writes a number down. He told us, ‘There’s your number. Go to work.’”

Having received his “magical Ford credit account number” on Jan. 31, he was allowed to open Kelly Ford Tractor on Feb. 1, 1986. “We had a blank building. We didn’t have a desk, we didn’t have a phone system, we didn’t have an air compressor, we didn’t have a workbench, we didn’t have a parts counter. We didn’t have anything. We started off with me, one guy in the shop, one guy in parts and a bookkeeper,” says Kelly.

And it was too late that year to place an ad in the yellow pages to tell potential customers they were in business. The next edition wouldn’t come out until the following December. In the interim, Kelly traveled around the area and every time he saw a blue tractor, he would put his card in the mailbox of the operator.

The following December, all four employees at the dealership took a pay cut. “The yellow pages came out around Dec. 20 and it was like somebody unlocked the door of the dealership,” says Kelly. (Related Video: Turning Around a Struggling Dealership) “People told me they were looking for us and didn’t know where we went. That next year we sold 28 tractors and started to see some light.”

By 2014, that light shined really bright for Kelly Tractor & Equipment as the dealership sold 206 Mahindra and 47 New Holland tractors, as well as 132 Bad Boy zero-turn mowers. “That was the best year we’ve ever had,” Kelly says. “That is our benchmark year.”

With a jump of nearly $3.5 million from 2013, Kelly Tractor’s revenues in 2014 approached $11 million for the year, or $685,500 per employee. This and other performance factors led Rural Lifestyle Dealer’s panel of judges to believe that it was indeed an outstanding year for the dealership. As a result, they named Kelly Tractor & Equipment the 2015 Single-Store Dealership of the Year.

Markets in Transition

The market for heavy equipment in east Texas has shifted dramatically over the decades that span Kelly’s experience as an equipment dealer. In the 1970s, dealers thrived on the oil and gas boom. Now, with the coal and gas market, there is some coal mining, according to Craig Maitland, sales manager for Kelly Tractor. “Southeast of Longview, we have coal mines. What happens is they buy up their base property in this area, strip the coal out and reclaim all this land. There are more trees in east Texas now than there ever was before they started mining because that’s how they replenish the ground when they’re done mining. Today everything is being put back into mainly pines with some hardwood.”

As far as pure agriculture, there used to be cotton and cattle. “But there’s no real crops in east Texas any more,” says Kelly.

Up until about 2011, it wasn’t unusual to see ranchers with 1,500 or 2,000 head of cattle, he says. And while cattle have been a bellwether around Longview for decades, they’re not nearly as prominent in the region as they had been even a few years ago.

“When it got dry, just about everybody sold out and left the business,” says Maitland. “A lot of them thought they could buy back in when things got better, but it hasn’t happened. The amount of cattle in east Texas right now is so dramatically diminished it’s unreal.”

He says some of the cattle people hung in there and are still buying and selling calves, but he doubts it will ever get back to the levels that were prevalent in the past.

Kelly and Maitland estimate that 60% of their customer base today is comprised of homeowners with acreage. Nearly all of the rest are construction contractors and municipalities. “A very small percentage of our customers are farmers and ranchers, because there are just very few left. The customer landscape has changed” says Maitland.

The dealership has also experienced growth with hunters and outdoors enthusiasts. “A lot of folks down here have a deer lease where they lease property from landowners so they can hunt,” says Maitland. “They put food plots in and roads in and out to their camps. Everybody wants a tractor to do it. They’ll spend $25,000 on this tractor and that’s just about all they’ll use it for.”

Game-Changing Decisions

Along with the changing market came the need for the dealership to transform itself to meet the needs of the new customers, which meant adding new equipment lines, and, just as importantly, new ways of reaching out to these new customers.

With the changing demographics, tractors in the 40-50 horsepower range became Kelly’s best sellers. It was the difficulty in getting enough utility tractors in this range that led the dealership to take a hard look at picking up another tractor line.

Kelly Tractor & Equipment credits much of its success to adding Mahindra tractors and Bad Boy mowers to its lineup in 2009, along with innovative marketing that includes television ads. The ads consistently push equipment packages that include a tractor, loader, cutter, disc and a trailer (left), which also turned out to be a good move, according to owner Mike Kelly.

In 2009, they started looking around. “As much as we wanted to stay true blue, I don’t know what we would have done if we had kept the status quo,” says Kelly. “That was a tough decision to make. Craig and I talked about it and brought Josh [Miller, salesperson] into the conversation. I told them, ‘We can’t continue to do what we’re doing just with the blue line. We’ve got to look at another line.’ It really came down to deciding that we’re in business to stay in business and not to just survive. We’re in business to make money, so how are we going to do that?”

During the dealership’s research into other tractors, Kelly says they found that most manufacturers are pushing the wrong things. “The manufacturers always want to sell on features. It’s got the best this and that and has everything on it. Customers would like to have it, but they can’t afford it. They want a good tractor that will go forward, back up, turn left and right, and the 3-point lift works. They want a good functional tractor. For a lot of them, it’s the first tractor they’ve ever bought and they want something that’s robust and will do the job.”

Their search ultimately led them to choose Mahindra. “We picked it up to fill in the gaps that New Holland couldn’t supply,” says Kelly. He tried to keep the blue tractors the most prominent on the lot, but ultimately customers’ interest grew in the Mahindra line.

After 6 or 7 months, Kelly noticed that more and more customers would look at the Mahindras first. “They weren’t even sure how to pronounce the name, but they’d say give me a price on that red one. The 4025 model was a no-frills tractor and only had 2-wheel drive, but with a loader it could pick up almost anything.”

Kelly says at some point Mahindra asked them what else they needed. “So we told them. We need a 4025 4WD but don’t change the transmission. We need power steering on it and big fat balloon R4 tires, and we want a loader that will work great with this tractor. The tractor and loader should sell for under $20,000. Don’t bring it out here and tell us it’s going to sell for $25,000 because it won’t sell. If you get it to us for under $20,000, we can sell it.”

In January of this year, Kelly Tractor had nearly 50 of the units they asked Mahindra to develop sitting on its lot. “We ran out of 4025s on the last weekend of May, they’re gone. I wish we had 150 more of them, but we just can’t get that model at that price,” says Kelly.

Almost by happenstance, the dealership also picked up another zero-turn mower line that’s turned out to be a big hit with its customers. While the dealership already had a zero-turn line that was producing satisfactory results, selling between 15-18 units in a good year, a cold call from a manufacturer’s rep gave them a reason to check out Bad Boy mowers.

Kelly says it was 2009 and he overheard a guy in Maitland’s office pitching him on a new mower line. “He looked up at me and I told him, ‘I don’t want another mower line, but go ahead and look at what he’s got. I’ll give you 5 minutes.’ It wasn’t but 3-4 minutes and he’s back saying, ‘You need to look at this. We can sell this unit for less than what we’re paying now for our zero turn and it’s a good looking unit.’”

While Kelly wasn’t quite sold on the unit, the rep left it at the dealership for a few days. During that time, the shop checked it out and found it was easy to work on, so they parked it in the back. The following day one of Kelly’s good customers came in looking for a zero turn for his wife and the orange Bad Boy got his attention. Kelly explained it was only a demo unit and he didn’t even have a price yet. The customer told him, “You’re my dealer. Call somebody and find out what it’s going to sell for.”

He returned the next day with his wife and Kelly told him the price was $8,695. The dealership delivered the new unit to them later that afternoon. Kelly Tractor signed on to be a dealer shortly thereafter. They sold 25 Bad Boys the first year and in its best year since then with the new zero turn, they moved between 135-140 units.

Getting to the Customer

Mike Kelly, center, owns Kelly Tractor & Equipment, Longview, Texas. His team includes Josh Miller (left), salesperson, and Craig Maitland (right), sales manager.

While the yellow pages worked well in the dealership’s early days, as the customer base changed, it became obvious to Kelly and Maitland that they needed new ways to get the new breed of buyers in the doors of the dealership. The decision to deliver their message via television turned out to be another game changer. (Related Video: Seeing the Benefits of TV Advertising for the Dealership)

“We started an advertising campaign about 3-3.5 years ago and I have to give Craig all the credit,” says Kelly. “We knew the advertising dollars we were spending just weren’t working, and we tried everything, including the Thrifty Nickel Shopper. It had no editorial whatsoever, just all ads. We tried a little radio. We did the American Classifieds and the yellow pages. We were spending as much as $10,000 a year in the yellow pages and not getting much from it.”

They also found the co-op advertising they were doing with New Holland to be quite restrictive, plus they needed to make an up-front payment whether or not they took advantage of the program.

Maitland had attended a seminar at a local television station, setting the tone for the dealership’s new approach to getting its message out. In addition, Mahindra offered a very generous support program that encouraged Kelly Tractor to advertise. With the help of a gentleman who had previously worked in television, and who would write and produce the TV spots, Kelly Tractor embarked on an ad campaign Kelly says was “maybe a little bit of a homerun.”

The salespeople, Maitland and Miller, and on occasion Mike Kelly, appeared in the ads that featured Mahindra products. The ads consistently pushed equipment packages that included a tractor, loader, cutter, disc and a trailer. Because everything, except the trailer, were “red products,” Mahindra would finance the entire deal, including the trailer.

Kelly says that almost immediately the phone started ringing with people saying, “Hey, I saw you on TV this morning,” or “Hey Mike, how come you’re not in more of the commercials.” Kelly adds, “It got to the point that our pastor called out Craig in the congregation; ‘This morning we have a movie star amongst us.’

“They work!” says Kelly. “Yeah, they’re goofy as all get-out, but that’s what works. It stops the people, they back up and look at the TV and say, ‘Honey look, there’s Kelly on TV again.’ I’ve heard someone say, ‘40% of my advertising dollars work. We just don’t know which 40%.’”

The dealership’s television ads along with its website have also expanded Kelly Tractor’s sales area. “We’ve sold equipment as far away as southern Illinois, Georgia and Florida,” says Maitland. In fact, he says, what they thought was “a little gravy on the side, turned out to be plateful.”

Kelly Tractor & Equipment has 7 employees in the service department and 3 in the parts department. Shown is Anthony Leachman, one of the service techs. Mike Kelly, owner, says his rural lifestyle customers prefer a robust, functional tractor and are not looking for extra features.

Being only 60 miles from the Louisiana border, he estimates that as much as 40% of the dealership’s business in recent years has come from out of state, at least in part due to Texas not charging a sales tax to out-of-state buyers. “Due to state and parish taxes over there, they can come to Texas, buy the equipment, have us deliver it across state line, and they don’t have to pay any sales tax,” Maitland says.

Monitoring Cashflow

Kelly says when it comes to financial and business metrics, he keeps it simple; cashflow is key. “I look at my checking account every morning, every day. I check the books 5, 6 or maybe 7 times a day. As soon as a deal is posted, I can see if it’s the manufacturer’s money or the finance company’s money. Anything beyond that is my money,” say Kelly.

“I want to see that it’s moved around as it should be. What’s going out to where and who, and what’s left. I don’t want Mahindra finance or New Holland to come in here and find out that we didn’t pay off a unit.”

As far as monitoring where the money’s coming from, Kelly says he measures everything on a year-to-date basis. “If today is Oct. 9, I check to see what’s happened between Jan. 1 and now and compare it to the previous year. I check to see where we’re down and why. Right now I can tell you we’re down in wholegood sales compared to last year. My part sales are there, my service sales are there. I can go down on each one of my lists and find out what each department is doing and analyze expenses,” he explains.

“With QuickBooks, I can drill down on each one of those categories and find out what we did, where we paid quarterly taxes or made a tax deposit, and I understand why this is higher this month than it was a year ago. If things are in line with the previous year, I’m good with that. But if it’s way up or way down, I’m going to find out why.”

According to Kelly, gross sales and margins are the other areas that the highly experienced Kelly Tractor sales team pays particular attention to. “We all work off of invoice and I don’t tell Craig or Josh what they can sell a piece of equipment for. Both of them know what it takes to turn a profit on wholegoods. We aim for 11.5-12% and generally average 10% on new wholegoods.”

For service, the goal is 28-30% margins and 32% on parts.

A Good Transition

The move away from the production ag equipment market to the rural lifestyle customer has not only been profitable for Kelly Tractor & Equipment, but it’s also been a personally satisfying one for Kelly and Maitland.

“It really has been a joy selling a tractor to a guy who was raised on the farm, but hasn’t sat on a tractor for 25 or 30 years,” says Kelly. “It’s also been a joy to sell one and watch the wife close the sale. Her husband came just wanting to buy a tractor and loader, and she turns around slaps him on the arm and says, ‘If you going to get it, get everything you want now because we’re not coming back later.’”

Maitland agrees. “Yeah, it’s like a kid at Christmas,” he says. “‘It’s ‘I want one of these and one of those. I want that, too. Give me the package.’ Those are the fun days.”

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