Ron DeFeo discusses the outlook for 2015

Running a public company is a delicate balance of knowing when to be shrewd and knowing when to tread lightly. In his 22 years with Terex Corp., Chairman and CEO Ron DeFeo has learned to be tough as nails and to be a servant leader.

“I think I have an attitude that I guess can be captured in this expression: The best way to get power is to give it up,” he said. “If you expect people to do well you have to empower them to do well. Give them a chance. Create an environment where great people can do great things. Over the years I’ve been successful by living that and I’ve been unsuccessful by not living that.”

One of the really good things about the crane industry is that the upper echelon of leadership generally does not operate from ivory towers. Such is the case for DeFeo, who runs the company from a modest office in Westport, CT.

While I have met DeFeo before at industry events through the years, this was the first time I had ever talked with him one on one to get his views on topics important and interesting to the crane industry. I found him to be easy to talk to and knowledgeable. He is passionate about construction equipment and especially cranes, and he is extremely interested in politics and getting a new Highway Bill passed and the funding for it increased.

When it comes to his business philosophy, DeFeo said it has evolved through the years. His business philosophy is now woven into the fabric of the Terex value system, which he said represents “how we think.” He named the six values as improvement, respect, courage, integrity, citizenship and servant leadership. The term servant leadership caught my attention.

“My job is to help answer the question, ‘how can I help you?’” he explained in defining servant leadership. “It’s about empowerment. My job is a span of support not a span of control. I’m at the bottom of the pyramid, not at the top. Our customers and our team are at the top.”

He said that the industry may not understand him. “They may think of me as the guy who made all the acquisitions, the tough as nails financial guy,” he said. “But if they don’t understand this, they have missed this about me.”

Through servant leadership and its value system, DeFeo said Terex is evolving into a company that is strong and a special place to work. He cited the company’s low turnover and employee satisfaction as a big accomplishment.

IN TERMS OF THE CRANE MARKET, WHY DO YOU THINK 2014 DID NOT TURN OUT AS WELL AS WAS ORIGINALLY FORECAST?

Of course, we are all business people and we are optimists at heart. Sometimes our optimism runs ahead of realism. I think the end markets aren’t really growing. There is sufficient work to keep the current level of equipment well utilized but non-residential construction, which is a primary driver of crane use, remains at a fairly low level. Non-residential construction usually follows housing improvement and housing improvement is still somewhat muted. And with the lack of government highway funding, people are still cautious. Cautiousness contributes to confidence concerns, and you don’t buy large capital assets when you have concerns about the future. The good news is that our customers are smart. Their equipment is highly utilized, values are increasing and eventually they will need more equipment. So those of us who have been in the business as long as me recognize that patience is a virtue.

The alternate driver of growth is age and cranes last a long time. Replacement can be postponed but not forgotten. It’s our view that we will see a better market in 2015 and an even stronger market in 2016. But it’s best for all of us to plan for the more conservative case, which is little or no growth.

WHAT NEEDS TO HAPPEN FOR THE CONSTRUCTION MARKET, AND SPECIFICALLY THE CRANE MARKET, TO REALLY TAKE OFF IN NORTH AMERICA AND OTHER PARTS OF THE WORLD?

We need greater GDP growth, which drives all investment decisions. I’m hopeful the current price of oil will act as a tax cut and a stimulus for the economy. Even though I’m in manufacturing, we need to remember that more than two-thirds of the economy is service and consumer based. With money in their pockets, the evidence usually suggests that spending will increase.

That will eventually show up in the economy and GDP will increase, which will increase people’s desire to invest in appliances, housing, and the like. It’s historic and predictable and without 3 to 4 percent GDP growth the economy will languish and middle class incomes will remain threatened. [Middle class incomes] ultimately drive GDP growth.

More precisely as it relates to our industry, we need a longer term vision, coupled with some political courage.

Regarding our infrastructure, domestically, I’m not convinced we will see a lot of either. But we need it. The Highway Bill that has been in place for a couple of years is way underfunded. The gasoline tax, or user fee, of 18.4 cents a gallon hasn’t increased since 1993. That’s the federal tax. So its effective rate is more like 10 cents a gallon. When you have virtually all major constituents supporting an increase in that user fee – including truckers’ associations, manufacturing associations, the U.S. Chamber of Commerce and others, [yet Congress] is unwilling to act. It’s only because there’s a lack of political courage and creativity to find the source of funding required.

The lower gas prices present an opportunity. Prices are down a dollar a gallon and one might hope that this is a great time to ask the customer, you and me, to pay 15 cents [a gallon] to contribute to better highways, bridges and overall infrastructure. There is no better time to do it than now, but yet, there’s a real lack of leadership within both parties to figure this out. The Highway Bill has historically been a bi-partisan initiative, so I’m hopeful the new Congress will deal with this issue. But I’ve been hopeful and disappointed before.

SO WHAT WILL IT TAKE?

We have to help articulate the vision for the future and talk about the need in terms people can understand. Jobs, transportation delays, increased costs to the economy and safety concerns. Everyone in the industry needs to step up and be counted. You know we talk about traffic and the weather on the news. But we can do something about the traffic. We are not able to do anything about the weather, and yet we fail to remember that changing outcomes with infrastructure planning is something our forefathers did with creativity and vision.

What we need is a better vision of tomorrow because, as I have said before, I feel like I’m part of a user generation and we’ve used it all up. We are not using [our infrastructure] with a vision of what 2050 should look like. Do I have a vested interest in seeing that happen? Absolutely, and where vested interests and improvements come together, improvement should be created.

We only need to look to other countries and our history to see evidence that infrastructure investment equals economic prosperity. It’s time tested and works in every country. In history, you can see evidence that infrastructure investment equals improvement in economic activity.

DO YOU THINK THE NEW U.S. CONGRESS WILL CREATE THE LEGISLATION NEEDED TO ADDRESS INFRASTRUCTURE NEEDS?

Like any patient that’s been wounded, we need to get the patient healthy again. We need to repair and maintain our existing infrastructure. You know the grades on bridges in this country; over 60,000 bridges aren’t making the grade. What we need to get the Highway Bill funded is a user fee increase, probably 15 cents a gallon. So the total would go to 33.4 cents a gallon. That gets the funding to get infrastructure maintained. We need a six-year bill, and simultaneously we need to look to the states that are testing different approaches that are less gasoline dependent. The amount of gasoline consumed is going down. We are seeing the preponderance of alternative fuel cars. We need to find other funding alternatives. We can’t continue to sacrifice today’s infrastructure funding until we come up with those funding alternatives. That’s Job One.

Job Two is not the Highway Bill’s responsibility, but it is leadership to articulate a better vision for America in 2050 and beyond; we are working on that at AEM. The U.S. is a collection of economic zones and those zones cross state boundaries. There are clear economic zones around the country, and those zones require transportation infrastructure planning. It’s a people moving goods movement. Our ability to transport goods is archaic in this country. Our ports need upgrading and our ability to connect our key producing locations with our ports is outdated. So we need to plan those things and planning requires a collaboration with the government. We sometimes forget that collaboration drives prosperity, not conflict. Many other developing countries understand to facilitate jobs and commerce you need collaboration. In this country we believe business isn’t always a force for good, but for the most part it is, and we need a government that understands and helps achieve this, not stand in our way. We are now on the verge of having an economic competitive advantage through low energy costs. Our government needs to lean into that, not control it and regulate it. These are the kinds of things that will drive our infrastructure investment.

Ports are a huge part of this. What we need is to articulate what the country is going to look like. What should our airports look like? What should rail systems for people and freight look like? We have to articulate what we want to be as a nation. Infrastructure should support our vision, not develop it.

TEREX HAS EVOLVED ORGANIZATIONALLY OVER THE PAST FEW YEARS. IS THE CURRENT COMPANY STRUCTURE WHERE YOU WANT IT TO BE?

I think organizations always evolve. Continuous improvement is one of our values. I see us working really hard to be customer oriented to listen and be the most responsive company in the industry. That is our goal. I think our crane leadership is more global than they have ever been, and our product management is closer to the marketplace than they’ve ever been. But I also see a highly competitive industry and for us to stay up with competition we need to continue to do better.

I think we have great products as defined by our engineers, and I think we have great products as defined by our customers. But there’s not always a willingness to pay for everything we put on our products, which is the ultimate test of product success. We need to continue to build products our customers want without adding the costs they see as unnecessary. Our customers truly want better returns on capital. The simplest way to achieve that is a low entry price and a high exit price. We need to pay attention to residual values and only put on a crane what our customers truly need to do the job. I think you’ll find that happens more often on Terex cranes than ever.

IS THERE A TENDENCY TO DO THIS, TO PUT MORE ON A CRANE THAN IS NEEDED?

In our industry, from the time God created construction equipment, engineers thought they had the answer. But truly, customers want things that are different than what an engineer may want to design. To be successful you need to listen first and implement what customers want versus what you think they want. I love engineers, but my job is to love customers more. And I want all our engineers to design what customers need, not what they can create. It’s a big transformation, but it is how our customers will make more money.

Also important is to give our customer choices. Because with choice they can determine the ultimate ability to charge for the extra value.

HOW DO YOU PERCEIVE THE STATE OF THE GLOBAL EQUIPMENT MARKET AND PROSPECTS FOR THE NEXT YEAR OR SO?

Overall, expect a fairly flat market. Not a lot of growth, but with some pockets of strength in the U.K. and North America, and maybe India. There will be substantial pockets of weakness in Latin America, Russia, parts of Europe and mixed results in China. Net, it’s not a bad market, but not the growth-oriented market we’d all like to see at this stage.

THE FIRST TEREX SUPERLIFT CC3800 IS NOW WORKING IN THE U.S. WHAT HAS BEEN THE RECEPTION TO THIS MACHINE?

We think the Superlift CC3800 accomplishes virtually what our competition is working to finish their designs on. This machine is years ahead with a lot less fanfare. We are pretty excited about the product. I spoke with a customer yesterday and they could not be more satisfied with the Superlift 3800. When customers tell you nice things about your product it makes you feel good.

YOU HAVE BEEN AT TEREX FOR 22 YEARS. WHAT IS IT YOU LIKE ABOUT YOUR JOB?

I like the people. I like the industry. To me, enthusiasm comes from seeing people succeed. I’ve had a great opportunity over 22 years at Terex to see people make something out of nothing and for it to impact their lives in a positive way. It is rewarding to see how people can accomplish career goals and aspirations through the products we sell and customers we serve. When I started, we had no money, no future and many customers thought our products were dead. We did not have a retirement plan, we had no medical plan. We were a company that no one would want to go to work for. While we are not the best of the best today, we are clearly a company that a lot of people have made a good life with and future with over the past 22 years. I like that about my job and feel positive about that. It’s engaging to be with people who are proud and passionate about serving our customers.

WHAT’S YOUR FAVORITE CRANE IN THE TEREX LINE UP?

I do have a favorite crane. It’s our twin boom CC8800. It has 3,200 metric tons of lifting capacity. We sell one or two a year. They are typically purchased to build nuclear power plants. But it’s a phenomenal product. There’s hardly a crane in the world like it. It reflects a combination of big boys with big toys, and the difference technology can make in impacting peoples’ lives.

I often tell our team that we don’t make equipment; we help improve people’s lives, and it’s a connection often hard to make, but very real in my view. We produce equipment, but that equipment can build a nuclear power plant that allows people to power their homes. We are building something that makes a difference, that impacts people’s lives. The CC8800 is the personification of that.

WHAT DO YOU DO WHEN YOU AREN’T WORKING?

Like lots of gals and guys in this industry, I like to play golf. I like to travel, but business travel gets old. I read quite a bit, and I’m a bit of a political junkie. I have a few both Republican and Democrat friends in Congress, and I like to bend their ear on infrastructure needs. I’m not sure I’ve been successful but I certainly am an advocate. I expect to continue to be an advocate.