The Dealership of Tomorrow: Who will be the “New” Used Buyer?

This is an exciting time in the Farm Equipment Business. There is a generational paradigm shift happening both with Ag Equipment Dealer and the Producers. Retiring Producers and those that have gone out of business, have the left the door open to expansion. Across North America, the demand for Technology, specialized product knowledge, and the decreasing number of Producers has lead to greater Dealership consolidation. In order to create economies of scale both sides will continue to grow. So what does this mean and how will it effect each other’s business? I am of the opinion, the next five years will have such a dramatic change the industry it will be unrecognizable.

As the number of Producers shrink the number of buyers do as well. So what does this mean to both the New and Used Equipment Market? I believe the market will mirror the Construction Market.  As Producers’s Operations grow the 2nd and 3rd buyers will disappear. This will leave a void in the market. Dealerships will be faced with what to do with a Used Market with less buyers. So how will this effect the sell of New Equipment? Yearly roles of equipment will be be greatly scaled back. Dealerships will not have the appetite to digest the number of units each large scale operation produces. In doing so, each year will consist of a cross section of equipment trades. Customers will be more interested in maximizing Machines Throughput v. Machine Deprecation. In other words, when have they gotten the good out of the machine and maximized ROI.

Like the Construction Industry, larger operations will have an Inventory Control Manager buying and selling their equipment. They will understand the market as well as, the effect of equipment on balance sheets. Sound familiar? If not it should! This person will have the same functions as the Remarketing Managers do at Dealerships today. They will look at the market and understand what hour range will produce the best ROI. They will also know what Used Machines to buy with the best value. They will be professional buyers and understand the ins and outs of the dealerships because they will come from the dealership!

So the biggest questions in the scenario is who is going to be the buyers of Used Equiupment. The fastest growing segment in Ag Production is the 500 or less acre Farm/Ranch. There are a lot of part time farmers and rancher working their “Day Job” while working the Farm/Ranch at night and the weekend. This has never been more evident then in the raising demand in the 150 HP and less tractor. This segment grows every year and is an important revenue stream to any dealership.

On the flip side, the fast decreasing operation is the 3500 acre and less farm. These are the operations big enough to support one family but not 2 or more. This is where the larger operations are are getting their expansion.  These are also the prominent buyers of late model and low hour Used Equipment. As these buyers go by the wayside so do the buyers of used. So as this population of buyers continues to shrink the Dealer Groups will have to rely on the 1500 acre or less Operation to fill the void. This machines will need to older and have more hour in order to find buyers. This will become the the “New” Used Equipment Buyer.

In my opinion, this will broaden the auction market moreover, the online auction market. Because Larger Operations will have the personnel in place, they will be selling more of their equipment Online to end users, listing equipment on Online Auctions, and trading a smaller amount of equipment back to Dealerships. I see the New Equipment Market developing into a different mindset as automation becomes more mainstream. The number of machines working in the field will increase and the size and HP will decrease. This will open a a whole new door to a whole new buying and selling cycle.

The market is changing and Equipment Dealer needs to be driving change; not the Producer. The shift between Grandpa and Dad was simple, for the most part. The Internet and Auto Track wasn’t mainstream yet. The generation taking over, at a minimum, has spent half of there life on the Internet and is completely comfortable buying off  the Internet site unseen. This generation views equipment as a commodity but the technology and support are not. So I will leave you with one last questions, are we Equipment Dealers or Technology Companies selling Ag Equipment? I believe the later! The future is bright for Ag Equipment Dealer Groups adapting and overcome the challenges they are facing today as well as, recognizing and preparing for challenges the future will hold.

For more topics like this tune into the Moving Iron Podcast which can be found on iTunes, Google Play, Stitcher Radio, TuneIn Radio, and SoundCloud. If you would like to continue and of the conversation you can hit me up on Facebook, Twitter, and Instagram @MovingIronLL  or send an email to MovingIronPodcast@MovingIronPodcast.com.  You can also visit my website, www.movingironllc.com, where you can final all things going on at Moving Iron. So until next time lets go move some iron. This is Casey Seymour out!!

Large Frame Articulated Tractors and Options

Farm Equipment Technology has come along was in the last 100 years. Horse power has gone form 20 HP to 620 HP and rightfully so! The size of implements demand has  greater HP requirements as well as, hydraulic capacity. The role of the tractor has changed as well. Bigger HP tractors are now expected to be a tillage, planting and grain cart tractor. As the size of implements continue to grow. Large HP tractors will have to fill multiple voids on the farm.

3pt and PTO on High HP Articulated 4WD and Track Tractor isn’t anything new. These option have been available for many years. These option have not been very utilized on these machines until recently. It has been since the introduction of the 9R, 9RT, and 9RX have these options been actively added to machine.

The size of Grain Carts is requiring bigger machines to handle the load requirements. These machine also require a PTO to unload. Adding a PTO to these machines increase the salability of the Used Machine. This option will open the National Market and have a greater likelihood to the sell machine faster if positioned correctly in the marketplace.

Another option growing in importance are High-Flow Hydraulics. In order to operate them, The size of implements are demanding more hydraulics every year. The size of Air Seeders, the size and speed of Planters, and the down pressure required on Planters and Tillage require a large amount of fluid and fluid demand. Implements will continue to require more hydraulics as speeds increase and down pressure requirements increase.

3pt equipment is also growing in size and with size comes weight. Mounted planters are growing every year and Hydraulic Lift Capacity is limited to the weight and size of the tractor doing the work. The tractor will need to have the HP to pull the implement through the field and in order to make this the machine work properly; it will need to be weighted and ballasted correctly. This may mean the Large Frame Row Crop is too small for the implement in question. Hard to believe an 8400R might be too small for some implements in certain situations!!

All being said, The face of Agriculture is changing. To those of you reading this who remember when 300 – 400 HP was a lot of tractor, this is not news to you. In their own right, Ag has had many faces and they all are amazing. The future of Ag Equipment is bright and will continue to morph and change with needs of the Producers do. As I am writing this, down payments are being taken for fully autonomous vehicles as well as, plug-and-play systems making machines autonomous. This means no one is inside the tractor operating the functions of the machine. It’s doing it all by itself while monitored by a distant laptop screen somewhere. Only the future knows what this will do to the size and number of machines working in a single field.

For more conversation like this, tune into Moving Iron Podcast on Itunes, Google Play, TuneIn Radio, Stitcher Radio, and Sound Cloud. Companies like Smart Ag, Climate Corp., and Dot Technologies all have contributed to this topic. If you have any questions or comments please send them to me at MovingIronPodcast@MovingIronPodcast .com or on Facebook, Twitter, and Instagram @MovingIronLLC. So until next time let’s go move some iron. This is Casey Seymour out!

 

Depreciation: Hours Matter!

Like 2017, 2018 will present similar profitability challenges. In order to have a profitable year, every seed, gallon of chemical and water, pound of fertilizer, and machine hour will need to be maximized. Profitability will hinge on how each is respectively planted, applied, harvested, and ultimately marketed. Like you will read in this flyer, machine optimization plays a fundamental role in maximizing efficiencies. With increased efficiencies come increased profits. These profits can come in the form of seed savings, not over applying chemical and fertilizer, and regulating water application based on soil type and field conditions. These material reduction play a profound role in On-Farm Income. Like seed, chemical, fertilizer, and water machine hours can be decreased as well.  This article will outline a simple way to reduce the hours of non-revenue generating machine hours.

I will use a 8370R with 906 hours as an example.  JD link is nothing new and has been a standard option on John Deere Equipment since 2012. Since JD Link is a standard option there is no additional hardware or software need. It is all part of the machine from the factory. Along with machine performance, JD Link tracks machine hours and how they are used. This illustration is the lifetime JD Link Data for hours of use.  The statistics I want to draw attention to is the number of idle hours. This tractor has 906.7 total hours of use. It has set at idle for 227.6 hours. If you do the math this tractor has idled for 25% of its life. This machine will be assed with the number of hours on the meter at the time of trade. The total working hours of the machine will be the same regardless if the machine is at idle or not. The difference in hours could easily equate to $15,000 – $20,000 in total trade difference alone. This 8370R will do the exact same amount of work but, instead would have 679.1 hours. The salability of the machine goes up and so will the trade value.  The other cost savings is $772.50 at $2.50 per gallon in fuel savings. I understand there are reasons why the machine will set at idle during the work day. The point I am making is hours matter! What would the impact be if idle hours were cut in half? It would have an effect on resale of the tractor as well as the trade value.

If you would like to hear more conversations like these tune into Moving Iron Podcast  which can be found on iTunes, Google Play, Stitcher Radio, TuneIn Radio, and SoundCloud. You can also visit my website, www.MovingIronLLC.com, where you can find recent Blog Post from the Moving Iron Blog, past and current episodes of Moving Iron Podcast, Morning Market Roundup with Chip Nellinger, and the Tax Tip of The Week with Glen Birnbaum. So until next time, let’s go move some iron.

Machine Reconditioning and its Importance

It is hard to believe that another Fall Harvest will be upon us soon and Planting Spring Crops is just around the corner. With that being said Combines, Grain Carts, Tractors, various other kinds of Harvest Support Equipment, and Drills will be resurrected once again to bring the bushels off the fields and to the Bin for Market. The importance of making sure your machine is in peak operation condition is paramount during harvest and the current economy. Every bushel of grain is equally important and none of it can be wasted or lost. If your machine is free of breakdowns your efficiencies go up and so do your profits. This means your machine is set correctly and your overall machine utilization is at its max. Grain lose is minimal so more bushels are getting in the bin. The Grain Cart Tractor and Cart are working in tandem for speedy delivery to the Semis hauling grain back to the Farm or Elevator. Time is of the essence during Harvest. Mother Nature doesn’t always cooperate and downtime doesn’t make it any easier.

Winter Service Inspections are a great time to make sure your machines are ready to go and all of the Gremlins are found and disposed of. This is the best time to have the complete attention of the service department. They aren’t slammed with Customer’s calls needing urgent attention because their machine is down. Also, Parts and Service have great specials they run to help maximize your purchasing power. When your unit comes out in the Spring it will be ready to do its part in planting and harvesting without flaw, knock on wood!!

If you are in the market for a New or New-To-You piece of equipment then Recondition will help the value of your trade in. The better condition a piece of equipment is in during the sales process the better the residual value will be. Recondition plays a key role in what a trade is worth. The less effort the dealership has to put into Recondition Process the less cost will need to be associated in buying the equipment.

Regardless, of age condition plays a key in role in the resale of the machine as well. Sales People are more likely to recommend a machine to a customer if they have the confidence it will be perform well and keep the customer running. If the Sales Person does not feel like the machine is a good machine and there will be potential issues, not accounted for during the evaluation process, then the machine will sit and subsequent trades will have a stigma attached and the machine residual value will reflect this attitude.

Future customers find solace in repair history. The more information the dealership can give a potential customer the more likely they will find comfort with the machine and thus purchase. Having past winter inspections to show what has been repaired and at what hour intervals paints a picture of a well taken care of machine. When a machine, historically, sells fast the more the machine’s residual value increases. The cost to hold goes down; thereby more residual value for the trade in.

In closing, understanding how Recondition effects machine’s performance helps better understand the machine’s ability to be efficient. The more the efficient the machine is during Planting or Harvest Seasons the more profitable the machine is. The better shape the machine is in when it comes time to sell the greater the residual value is and a greater return on investment. The machine stays profitable throughout its life cycle.

If you would like to hear more conversations like these tune into Moving Iron Podcast  which can be found on iTunes, Google Play, Stitcher Radio, TuneIn Radio, and SoundCloud. You can also visit my website, www.MovingIronLLC.com, where you can find recent Blog Post from the Moving Iron Blog, past and current episodes of Moving Iron Podcast, Morning Market Roundup with Chip Nellinger, and the Tax Tip of The Week with Glen Birnbaum. So until next time, let’s go move some iron.

The Case for a Sales Department Machine Inspector

Inaccurate Machine Reconditioning can completely wreck inventory. If the estimate during the Sales Process is to low or something was missed; the end result could be a loser for the dealership. If the Recondition Estimate is exceeded, the unit could be sold for a loss. Writing Machine Book Values down and paying interest, costing the dealership money and negative margin selling opportunities demotivate Sales Reps. On the flip side, over estimating can have the same effect. It is easy to put too much cushion and miss the deal. So instead of creating Margin, Volume, and Market Share via Aftermarket and Whole Goods the deal is gone. Having machines for Sales Reps to talk about and sell generate margin. It is easy for Reps to become demotivated by stagnate inventory they have pitched over and over again. So, how do you balance this fine line we walk? In my opinion, the sales department needs to have an inspector.

One of the questions I get when I bring this up is “Why would we hire someone to inspect possible trades when we have a shop full of Techs that can do the same thing?”

This is true and they are really good at what they do. That’s why they need to stay in the shop working on revenue producing jobs. The more time they spend looking at equipment the dealership does not own the less revenue they generate. Tech’s time is valuable and needs to be spent billing labor hours. Also, because of their nature, Techs are going to lean toward fix if something is questionable. There is nothing wrong with this. That is what they get paid to do, find billable labor hours and bill them. The residual affect is too high of Recondition Estimate and an increased trade difference. These issues will need to be notated and ultimately shared with the customer.

The Sales Inspector would be the liaison between the Sales Department and the Service Department. When a machine is going through the sale process the Inspector would inspect the machine. Once this inspection was done the evaluator would then know if the machine was meant for Retail, Wholesale or, Auction. Having a clear picture of machine during the sales process will go a long way in securing the overall machine salability and moreover, profitability. The margin of error has greatly narrowed and, like it or not, you know what the machine truly has to offer.

The other key role an Inspector would play is handling the reconditioning process once the machine has been traded. The inspector would handle approving all work orders for Used Inventory. The Machine Inspector would be held accountable for the budget put in place during the sales inspection process. As well as, hold the service department accountable for getting the machine ready in a timely manner and doing so at or under budget. If the trading location is too busy to inspect, detail, and service the Used Machine, then the Inspector would have the authority to relocate the work to another shop.

In the current economic state of the Ag Equipment Business, it hard to justify such a position. This position will more than pay for itself by decreasing overall time to sell, spending less money during the Recondition Process, and increasing parts and service sales. The customer will have more control of what to fix during the sale process. If a customer knows that the first $10,000, for example, is covered they are more likely to spend additional money in the Shop and at the Parts Counter. The dealership now has better control over the outcome of the machine’s profitability.

If you would like to hear more conversations like these tune into Moving Iron Podcast  which can be found on iTunes, Google Play, Stitcher Radio, TuneIn Radio, and SoundCloud. You can also visit my website, www.MovingIronLLC.com, where you can find recent Blog Post from the Moving Iron Blog, past and current episodes of Moving Iron Podcast, After the Bell with Chip Nellinger, and the Tax Tip of The Week with Glen Birnbaum. So until next time, let’s go move some iron.