Editor’s Note: This article was originally published in December 2015

A dealer responding to Ag Equipment Intelligence’s November 2015 Dealer Sentiments survey summarized the industry’s current dilemma: “There was a lot of positive activity during the month, but a lot of people passed on making purchases when they saw what their used equipment was valued at. Used pricing is too soft to convert people to make new machine purchases.”

The fact of the matter is North American farm equipment dealers are victims of their own success. Record sales of high horsepower tractors and combines during the last decade resulted in a huge backlog of used equipment — much of it low hour, high dollar machines — that was traded in to help fund the purchase of newer units.

By the time the boom in new large ag equipment sales began to subside in early 2014, it was becoming readily evident the build up of used farm machinery had the potential to become a major problem for many dealers. And with commodity prices dropping, much of that problem continues to linger today, eating up dealers’ much-needed cash and further slowing the sale of new ag machinery. (Read more)

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The reasons for the excessive inventories of used farm equipment isn’t the focus of this report, nor is it to find fault or spend any more time than necessary looking in the rear-view mirror. The dollars that dealers could offer in trade and their ability to move that equipment in 2013 was an entirely different reality in 2015 and will be in 2016 — it is what it is.

Rather than replay the tape, the following pages are about “taking inventory” of the potential solutions and ideas for a dealer to work out of the problem. Farm Equipment went to a place that the dealer community has liked to go for insight — the Dealership of the Year Alumni — recognized as some of the best minds in the industry. In this case, the dealers we spoke with are on the “smaller” side.

Why smaller dealers? Because walking past all of their inventory on a daily basis can bring a code-red clarity. Also, smaller dealers tend to be more agile and able to turn in a hurry when a new tactic or idea strikes them. And because it seems that the size of the problem is connected to the size of the dealership. Used machine inventory is a place where it can pay to “think small,” regardless of whether your group is small or not.

“First, you’ve got to identify the problem, and then you’ve got to hit the problem head on,” says Leo Johnson of Johnson Tractor. “Everyone has a little different idea on how to hit it head-on.”

While some dealers have concluded that it’s best to advise farmers to go another year, Johnson Tractor’s Leo Johnson (at right) can’t do business that way. “We’ll never tell a guy not to trade, that’s against our DNA. We’ll work hard to show them what we can and can’t do today. There are guys who decide not to trade, but no one’s gotten mad or called us cheaters or liars.”

Solutions that can and have worked are as diverse as the dealers that make up this industry. Many of the things that dealers have tried recently — with various degrees of success — to reduce their inventories of excess used equipment are covered in this report. They were gathered from a survey of dealers Farm Equipment conducted in late October and early November. We then asked three of our smaller Dealerships of the Year, who are students of the used equipment market, to comment on the suggestions offered by their dealer peers, as well as offer their own.

Our dealer interviews included Johnson, Johnson Tractor, with 4 stores in Wisconsin and Illinois (2012 Dealership of the Year); Tom Janson, Janson Equipment, with 3 locations in Michigan (2011 Dealership of the Year); and Mark Buchholz, Kennedy Implement, a single-store dealership located in South Dakota (2012 Dealership of the Year). Within these 3 interviews, Farm Equipment hopes to present a thought or two that warrants a second look, or that your team can run through your dealership’s filter and adjust and calibrate your thinking in a different way.

‘Slash the Price’

Responding to the survey question “What single best tactic/action/program did you take that provided the best result?” One dealer replied, “Slash the price. There’s a buyer for everything if you do.”

“Without retail for the trade, it’s always a good practice to book trades at close-to-auction prices…”

Adjusting prices was the most-often suggested tactic, and more than a few dealers said they wished they had taken this action sooner. Several said the current oversupply and declining price for used machines has caused them to take a whole new look at how they valuate their trades initially. Our dealer panel believes this action is the best discipline dealers need to adopt, regardless of the market.

At the same time, Janson believes without retail for the trade, it’s always a good practice to book trades at close-to-auction prices. “That should be a rule of thumb in any market. That way you are aggressive for retail during the up market as well, eliminating timing of used value fluctuations.”

New & Used Equipment Inventories Remain ‘Too High’

The first signs of an excess build-up of used farm machinery began to emerge nearly 4 years ago. According to the results of Ag Equipment Intelligence’s Dealer Sentiments & Business Conditions survey, the last time North American dealers reported that their inventories of used equipment were “too low” was in May 2012. Since then, dealers have consistently reported that the backlogs of used wholegoods on their lots are “too high.”

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Buchholz agrees. “You need to book the dollars in a trade at auction value. That way you know in a worst case scenario, the most you could lose on the deal is 10%, or what the auction company charges to move it.”

To do so, dealers need to become students of the used equipment market. Buchholz attends as many area auctions as time permits. He also watches Big Iron, Auctiontime and utilizes various online services to stay up to date on trade values. And he adds, “We’re not too proud to call other dealers and ask them what the market is in their area. We have connections in several states and we use them to get a range and we’ll price at the bottom end of the range.”

Janson couldn’t agree more about the necessity of dealers being students of the used machinery market. “You need to do this all the time,” he says. “It takes a lot of my day, but it’s worth the effort.”

He adds that developing a network of sources for current retail values of farm equipment is invaluable. “When you’re trading and you’re not sure, you have to be able to find where the retail market is at. I pay particular attention to auction results like Machinery Pete, and talk to other dealers, like our 20 Group, where we can bounce things off one another.”

Based on the data he’s seen, Janson estimates that the farm equipment retail market is currently 25-30% below retail asking price.

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