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.

Most dealers that Farm Equipment surveyed to get their perspective on equipment auctions agreed that auctions will move equipment, but it often means selling at a loss. While many dealers have considered holding their own on-site auctions, few have taken that path. They also agreed that auctions aren’t ideal for pieces that are only a year or two old.

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Dealers Need Patience

While acknowledging that in many cases a dealer’s need for cash is the major impetus for slashing prices on used, Buchholz urges dealers to not overreact. “A lot of people are running scared because the market has dropped on some products by 30-40%. But if you had a 4% margin built in, you can’t drop the price that much and keep the doors open very long. Everything will cycle and any low offer has to be good for the customer, the salesman and the dealer principal,” Buchholz says. “Going forward, dealers won’t take late-model trades unless they’re pre-sold and older trade-ins will be valued much lower. At some point, the customer is going to have to pay more.”

He also cautions dealers about “taking the bait from customers” who have tales of machines at give-away prices at auctions. “They may have seen a machine that should be worth $80,000 sell for $50,000, but it likely wasn’t reconditioned, it may have never been shedded or it could have had an axle out or a dent in the hood. Not all used equipment is the same.”

No Trades — Thank You

For some dealers, the build up of used inventory got to the point where they simply stopped taking customer trades. This is probably not a good move, according to Janson and Buchholz.

Janson says, “Some dealers aren’t even giving prices. I don’t think this builds good business partnerships. I need to give my customers the good news or the bad news and talk through it with them. You need to explain the situation. I’ve had to tell customers, ‘We don’t make the used market.’ We work very hard not to tell somebody that we won’t consider a trade.”

In fact, he adds, “I want my salesmen to bring us any offer they get, right now. It doesn’t mean we have to accept it, but we want to look at it and see if there’s something we can do with it. Our goal is to satisfy our customer.”

Buchholz says there are times when he doesn’t want to trade because he’s overloaded with similar inventory, but he doesn’t simply turn it down. In those cases, he says, he’s open with the customer. “We’ll tell him that we can’t be fair with him on the value because, for example, we already have 10 of those units, and this is what I can allow him if he wants to trade.

“I often suggest that if they run it one more year it’s not going to cost him anything because it won’t depreciate from what we’re offering. The machine may be worth $12,000, but because of the situation I’d only put $6,500 in it and I want them to know that up front. Our customers seem to appreciate us being honest with them about the situation. Then, in 6 months, if the inventory is cleared out, or a manufacturer’s program has reduced the cost of the new, we’ll be back out to see him.”

Sales Commission Structures

Another tactic mentioned by several dealers who responded to the Farm Equipment survey is adjusting the way they’re structuring sales commissions to put more focus on moving excess machinery. Others are offering incentives, like “bounty bonuses” and trips to Mexico.

“We’ll tell him that we can’t be fair with him on the value because we already have 10 of those units…”

Johnson Tractor’s salesmen are compensated on a percentage of profit, but the dealership has long had a flat fee or “minimum wage” to encourage moving aged inventory on which the dealership will take a loss. That’s true even when booking at near-auction values like they’re at today that will produce little or no margin on the first trade.

“Lately it has been determining how much we can stand to lose,” says Johnson. “The small losses today are the big wins of yesterday. We simply pay a flat amount — a minimum wage we call it — on those items we’re going to lose on. It’s not assigned ahead of time; we figure it out after the deal is done.”

Johnson says that his salesmen all want to sell and see stuff keep moving and that the flat-fee system works. “We’ll pay percent of profit when we do make some money, and there’s been a few.”

While Janson typically pays on gross margin and sale price, for a 90 day period — “until we got where I wanted to be” — he compensated his sales force on a cash difference basis with the dealership’s inventory, he says.

“We felt if our salespeople could get us more than what a piece would go for at wholesale, we would pay them a percentage of the difference. For example, if the wholesale value of a piece of equipment was $60,000 and our salesman was able to find a customer and sell it for $70,000, he got a percentage of that difference. In this case it would get us $10,000 more than we would have got at wholesale. We would then pay him, let’s say 2%. So it put $200 in his pocket, but we added $9,800 in cashflow, which is a lot better than having to take it wholesale. It worked and got our sales people up on their feet.”

One dealer in the survey mentioned a commission structure based on days in inventory. “It certainly keeps people motivated to buy their trades right,” he says.

Janson says, “This is a great idea, but it takes a lot of time to monitor programs like this.”

Reduce the Sales Force?

A few dealers responding to the survey said the downturn caused them to reduce the size of their sales force. Johnson, who has 10 salespeople across 4 stores, has not reduced the headcount of his sales team. “When you need to do that, it means you’ve had too many or were keeping someone who should’ve been gone anyway,” he says.

Janson adds it would depend on how the dealership is paying their salespeople. “I don’t believe in paying salesmen a salary. In this case, you might be forced to let some people go, but this wouldn’t be my first choice. I think sales should be paid on commission, so the payroll always adjusts itself to gross margins.”

Buchholz says the first thing a dealership should do is evaluate its sales personnel. “There are some who are more concerned about making a sale than they are about making a profit for the dealership. If 20% of the salesmen make 80% of the sales, it might be a time to reduce the number of non-performers. If no sales are being made and everyone’s starving to death, they’re going to be looking for other employment anyway,” he says.

Dealers with an abundance of late model machines should look at getting as many as possible off the lot and working,” says Mark Buchholz of Kennedy Implement (at right with son Kent). “I would be devising a program to rent machines that tied up enough of the customer’s money in the rental fee that could be applied to its purchase that they are enticed to buy it at the end of the agreement.”

“Maybe you take care of some salesmen who don’t make as many sales, but produce higher margins because they know the equipment better and are looking out for the dealership instead of just themselves.”

Running Your Own Auctions

Dealers organizing their own auctions was mentioned by several dealers as a potential tactic to quickly move used inventory, but employed by very few. Johnson Tractor, on the other hand, is a strong believer in running its own auctions and the Johnsons have done more than 25 in 35 years of business.

The dealership now holds two per year (late summer and right before Christmas). A typical auction will yield $2 million. (For more information, see www.Farm-Equipment.com/8auctiontips)

Johnson acknowledges that this type of auction isn’t for every dealer, noting that very few of his competitors do them. “You’ve got to be prepared to lose money,” he says. “It’s like when you go to a casino, but unlike a casino, you know you’ll have something at the end.”

With one bad experience behind him, Buchholz steers clear of holding his own auctions. “I had the one about 5 years ago and lost a lot of money,” he says. “When it was over, I told my employees that we were starting fresh and would be tougher on trade values from there on out. If an auctioneer is going to charge 10-15%, we would be better off using that money to cut our regular customers a good deal.”

If auctions are scary for some dealers, Johnson puts it into context by controlling the mix of high- and low-priced items, which limit the dealer’s exposure. “We’ll typically sell about 150 pieces and only about 10 are of what I’d call high or fairly high value. So no matter how bad the day goes, we won’t get skinned too badly.”

“Maybe you take care of some salesmen who don’t make as many sales, but produce higher margins…”

For Johnson, the auctions also serve to self-police and clean out product that accumulates around the property. “It disciplines you to clean up all the rest of your stuff around the lot. It’s how to get rid of that extra couple sets of duals, the pallet of old combine parts and the stuff that tends to accumulate. Some may not bring much, but it’s surprising what some of that stuff will bring, and we’re happy to have people pay us to haul some of it out of here.”

Using Online Auctions

Web-based auctions were gaining some traction even before the sales downturn and appear to be utilized increasingly by dealers needing to move aged inventory.

Janson says he has used online auctions, especially to move “dead merchandise.” He says he considers equipment dead when it isn’t sold during its selling season, which is different for different machinery. For example, used tractors, field cultivators and planters not sold by March of the following year after it’s taken in are targeted for an online auction. “If it sat here for 365 days, I’m going to sell it and get whatever cash back out of it I can. If I take a loss, it just blends with the rest of our sales. Why carry it forward at a higher price and pay the tax on it?”

He says the dealership has sold probably 20 or 30 pieces a year online. “It costs me about a half of a percent, which is very low to me, also the salesmen like to see it go, it frees up their time for profitable pieces” says Janson.

On the other hand, Johnson Tractor has considered this approach, and has bought some pieces this way, but isn’t yet comfortable with selling via online auctions. “There’s certain pieces you just know won’t work,” Johnson says. “We’re not going to sell a 1-year-old combine or 4WD and get anywhere close to wholesale.”

Working with Jockeys

While the Johnson Tractor auctions are intended to be retail events, the professional equipment traders, better known in the industry as “jockeys,” support the lower end and make the auctions better than they would be otherwise.

Johnson has good relations with jockeys (he took several calls from them during the Farm Equipment interview), and had numerous years when wholesale demand was strong for his tractors because farmers in places like Texas eagerly seek out Midwestern tractors that had a third of the hours that warm-climate farmers put on in a year. He also had a well-connected jockey who moved a lot of equipment into Mexico. But that picture is only a shadow of what it once was.

“My perception is that their pipeline is somewhat full or that they’re like a lot of customers who are just waiting for bargains. Now, we do our two auctions a year and a lot of that stuff goes wholesale.”

One dealer in the survey said, “We hired a used specialist to help with processes, advertising and wholesaling” with some success. But this isn’t an approach that appeals to Buchholz. “If they knew of a place to take several units and get them moved and charged me $3,000 for their services I probably wouldn’t do it. Again, I’d rather knock $3,000 off the price and let my loyal customers have the savings.”

“It is hard to remember the value of farm equipment as a whole going up in the 27 years I’ve been doing this,” says Tom Janson of Janson Equipment. “If I have $5 million in used equipment the chances of that going to $6 million are very, very slim. And in today’s market the chances of it going to $4 million are a lot greater, wouldn’t you agree? So the question dealers need to answer is ‘When do I decide to take my hit?’”

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Embracing CPOs

Certified Pre-Owned (CPO) programs have been introduced by each of the major farm equipment manufacturers and some shortline equipment makers to help dealers reduce their excess inventory of used machinery.

Johnson Tractor was a pilot dealer in Case IH’s CPO program a year ago and saw immediate benefits because farmers, Johnson says, feel like it’s a little extra insurance. They aren’t seeing farmers specifically seeking out CPO equipment yet, but when a farmer is in the hunt and realized that the dealership has something to offer in CPO, it can get a deal done. “I wouldn’t say it’s getting us any more money for the piece, but is minimizing the losses.”

The evidence of the CPO permeating the dealership, Johnson says, is the service manager immediately asking about every late-model machine and whether it’ll be CPOed. “None of us likes hearing about problems after we’ve retailed a piece of used. But if the CPO process is followed, you’ll find the problems, so it really helps after the sale with customer satisfaction. You can’t afford to do it on every piece, but on a combine and other low-hour stuff, we find the CPO to be worth it.”

In this environment, he says, you often need to cut your price close to the vicinity of your CPO investment anyway. And the CPO makes it a better value for the farmer.

“I can’t imagine not taking advantage of a program like this right now. If you’ve got a late-model combine or tractor that’s been sitting for 18 months while your neighbors are selling, it shouldn’t take long to figure out you’ve got to do something different.”

Extending Warranties

In some cases, dealers have offered extended warranties to make their used equipment more attractive, but Buchholz generally recommends against it. “If you’re trying to get the guy the best price, and yet he wants warranty, well, you can’t always have the best of both worlds. On big-ticket items, such as combines and 4WD tractors, I can see it being needed to close the deal. I would recommend very short warranties, like 30 days, that cover only parts. Otherwise, customers will run you back and forth to the field for every little thing. If they’re paying for the trip, that won’t happen.”

Janson says his dealership offers extended warranties on used equipment once in a while, but he’s found it more advantageous for new leased machines. He says typically, manufacturer warranties on new equipment cover the first two years. “We’ll buy one additional year to cover the third year. It makes it cleaner and doesn’t increase the payment that much. It builds a better relationship with the customer and saves an argument if something does go wrong.”

“Auctions also serve to self-police and clean out product that accumulates around the property…”

He adds that this is something the manufacturer could do to help their dealers move used inventory, but that’s not the way it works currently.

Advertising to Minimize Downturn’s Effects

Johnson doesn’t necessarily agree with the notion that buyers aren’t out there, so marketing remains important. “We’ve found that if you reduce something low enough and throw out a wide enough net that you’ll snag some attention somewhere.”

Because advertising and marketing have received good attention previously, there haven’t been big changes in Johnson’s programs. While the dealership’s marketing would be defined as a “shotgun approach” (online listing services and ag papers in Wisconsin and Illinois) he says they haven’t figured out how to do anything better than what they’re already doing. But, he says, they will maintain marketing budgets. “Every company has a choice to make in a down market,” he says, “whether to advertise less to cut expenses, or advertise more to try and minimize the downturn.”

One area that has brought results was using an outside company to create a direct mail program with compiled lists that focused on details and pricing on all the dealership’s available combines.

He’ll soon be doing another one on Magnums, which is his biggest issue at the moment. “It’s hard to pin down, but I can just about guarantee that everyone we sold a combine to last year received one of those mailers.”

Give Them the Facts

Several dealers who responded to the Farm Equipment survey believe it’s imperative to keep the situation front-of-mind with the sales force to show them the numbers and facts. In other words, management needs clear and repeated communication of the problem.

Could a Dealer Actually Wait It Out?

Johnson Tractor’s Leo Johnson has heard talk recently about a dealer building a warehouse with the purpose of storing used combines it can’t move and riding out the market. With a DNA that shows active sellers, it’s not an approach the Johnsons would consider.

Farm Equipment asked him to explain what he understands about the logic. “I like to turn used 4 times, but let’s say the standard is 2 today, and maybe the new standard is going to be 1 or 0.5,” he explains. “And so if guys are embracing the idea that it’s going to take longer to sell used inventory and they can form some relationship between the amount of time they hold it and the price they get, then more power to them. I’ve never seen it that way. We’ve generally maximized the value of a used piece within the first 60 days.”

“The best way is to show them inventory turns and margins because that gives you return on assets,” says Janson. “One way or another everybody’s paid from return on assets.”

Johnson agrees that the biggest thing a dealer can do to focus on the problem is communication with salesmen. A dealership practicing open-book management like Johnson Tractor is at an advantage in a climate like this.

“I’d rather lay it on the line and say, ‘Here’s what we own this thing for, go out and make something happen.’ And talk about what we need to do to get it sold and how big a loss we could take on a piece.

“As an open-book company, our salesmen know the costs on every single piece. Eric [Leo’s brother and co-owner] and I don’t set prices; we just establish a book value, an inventory value for each used piece we own. The radical change is communicating that it’s OK not to make money on it, but let’s get it moved.”

That, says Johnson, happens at the monthly sales meetings. While these meetings were once dominated by new products and programs, they are now very focused on drilling down on each used piece, who the potential prospects are and what it’ll take to get them moved.

“If nothing else, we’re paying much more attention to our appraisal process and more time honing in on each individual machine,” he says. “In the past, a traded-in machine, even if missing some specs or something was unusually worn, would still sell with a couple of photos and being able to say the farmer ran it through the shop just a couple of years ago. Those days are gone,” says Johnson.

“In the past, a traded-in machine, even if missing some specs or something was unusually worn, would still sell with a couple of photos and being able to say the farmer ran it through the shop just a couple of years ago. Those days are gone,” says Leo Johnson of Johnson Tractor, which was a Farm Equipment Dealership of the Year in 2012.

A good used piece that’s equipped well and in nice condition will still sell for decent money, but it takes longer now to figure out if it is a really good piece and was well cared for, he says.

Janson adds that experience shows that sales discipline is also required in times like these to keep the sales force on track. He says he has always kept a close eye on the car industry and discovered a long time ago why the best performing dealerships have a used car manager who values the trades with the salesmen.

Janson says that dealers who allow their salespeople to value trades are probably having a more difficult time digging out of their used equipment problems. “Thinking that a salesman can keep the emotion out of it and value used equipment in a disciplined way is the first mistake. There needs to be a partnership between the used equipment manager and the salesmen, there is not enough time in the day for the salesmen to sell and know the used market. This business is a lot more intimate than it is in a car dealership, so it’s very hard for a salesman to tell his ‘customer,’ who he’s known for years, that his trade isn’t worth as much as he thinks it should be. The most successful dealers I know have someone, other than the salesperson, who is responsible for monitoring the used market and trade values.”

“Thinking a salesman can keep emotion out of it and value used equipment properly is the first mistake…”

Janson serves this role as used sales manager. “It’s not because I’m the owner,” he says. “It’s just what I’ve always done. I’ve always studied the used market. I like used equipment and working with salesmen to establish those values.” And, he adds, “I haven’t sold in 15 years.”

At Kennedy Implement, trade values are established by Mark Buchholz, along with his son, Kent. “We do our homework, read the condition report and then both of us write down a number on a piece of paper and compare them. If one is much higher than the other, the increased cost must be justified,” says Buchholz.

Minimizing ‘Roll’ Trades

Another tactic mentioned by several dealers responding to the survey was minimizing or renegotiating one-year roll customers to a two or more year schedule. “We reduced our one-year rolls by 50% going into this year, but I wish we would have stopped them all last year,” said one dealer. “Not ordering new equipment is very tough to do in this business, but stopping the flow of new is critical to addressing this extraordinary used inventory situation.”

Janson remembers a now retired Case IH executive that he got to know well when he was younger saying “one-year trades were deadly” and warning him to stay away from them. “He told me more dealers got taken down with one-year trades than for any other reason.”

Is an Auction the Right Option for Your Dealership?

We surveyed dealers to find out how they’ve been managing their used equipment inventories — what’s worked, what hasn’t and what they considered but ultimately decided against. A common theme among those who responded was auctions, whether on site, off site or on the Web. Auctions will likely move used equipment inventory you want off your lot, but the results may not be ideal. Below are some tips to keep in mind when considering taking used equipment to auction.

  • Auctions will move the equipment but often mean selling at a loss. One dealer says, “I know some have gone the auction route be that on site or via the Web and I would imagine those results have been very painful, but this route does move the piece down the road.”
  • Weigh the benefits of taking equipment to an off site auction vs. holding one at your dealership. “Auctions can be a very rough path. We typically do not like to take items to auction, so we use this as a last resort. So far that has worked for us. We have used internal customer auctions and find that yields better results,” says one dealer.
  • Auctions aren’t ideal for pieces that are only a year or two old. “But a select number of nice used pieces along with all of the other stuff we all seem to accumulate will generate some cash. You’ll be surprised how much activity this generates for items not on the auction,” says one dealer.
  • One dealer placed the loss incurred by auctioning equipment at 25-35%. Are you willing to take this kind of hit?

Janson Equipment wasn’t doing a lot of rolls, but some customers wanted a multiple layer of inventory, which required some one-year old equipment. “We did a few,” says Janson, “but nothing to the extent that a lot of dealers did. Our customer demand for one-year-old equipment was never that great. If you really study the one-year trade, it is a higher cost per hour for ownership than a three-year-old trade for many end users. Explaining that value and pride of ownership has helped our customer base build more equity and added to their bottom line. That is what it is all about, helping our customers increase their profitability.”

Best Course of Action

Moving forward, each of the dealers interviewed for this report laid out their plan for continuing to whittle down their used equipment inventories.

Getting equipment reconditioned in a timely manner is an area that Kennedy Implement has targeted to help moved trades. “We’ve just increased our shop size by 150%. We’re aiming to get more of our used equipment through the shop in a timely manner so when a prospect comes in it’s ready to go,” says Buchholz. “If it’s not ready and he continues shopping, we could lose the deal.”

He also plans to have a wide selection of used equipment to offer — up to a point. “It’s like in poker, five of a kind is better than three of a kind. If we have five 5 X 6 round balers on our lot, priced $4,500-$15,000, the customer has a selection without shopping and he’ll buy from us.

“You have to establish in your mind the number of similar units that creates an inventory problem,” Buchholz says. “When you reach that number, trades after that have to be booked at auction value and not wholesale value. It’s easy to get past your comfort level in the harvest season when a lot of equipment is moving. That’s when it’s really important to have discipline.”

Determining what trades will be reconditioned is first on Janson’s list, as well. Pricing it correctly is next.

“Recondition your equipment immediately — immediately. Don’t wait 30 days. Don’t let it sit around. Get it done so that now you’ve got something you can be proud to sell. The longer you wait, the enthusiasm and the optimism for that tractor or piece of equipment fades. It starts losing appeal from the day you put it on the market,” says Janson.

“Don’t let it be shown until it’s prepped because your best prospective buyers are going to see it right away and you want them to see it at its best. If it’s a tillage tool, get it power washed. Make it look like something you want to own. You want potential buyers to see it at its best. When they have a potential customer, salespeople aren’t going to hold them off.” Janson adds that he finds this sense of urgency is hard to transfer to his 3 stores.

He also points out that if you wait 30 days you go from a 4 times turn to a 3 times turn just because of not getting it prepped. “That’s huge and this is something you can control in any market at any time.” He says this year, Janson Equipment is running at about 3.5-3.7 turns, which is down from their usual 4 turns.

Secondly, he says, in the current equipment economy pricing is absolutely crucial. “You need to price it in that lower third of the price range, or until you get phone calls. You don’t want to be priced in that higher part in today’s market. And if you reconditioned it, price it accordingly. And the equipment that you’re not going to recondition, value and price at that level.”

In summarizing what Johnson Tractor believes is the best way to address the problem, Johnson says, “Our idea is to lower the price, cast the net as far as we can, and try to have the best looking piece with the best warranty and financing at the lowest price. And then you just work your ass off till you get it done.”

While Johnson has equipment that won’t bring in anywhere close to what they’ve put into it, a dealer can benefit on the buy side. The climate won’t prevent them from trading or buying at today’s prices. “The worst thing I think a dealer can do is to sit on what they’ve got and hope things get better.”

“We’re going to need to be tougher taking trades. The customer will need to pay if they want to trade…”

Johnson is focused primarily on 25 late-model tractors (measurable by about 6 per store) that he hoped to get whittled down in December. Moving forward he says Johnson Tractor will continue the path they’ve been on with regard to the auctions. “The easiest thing is to spend $25,000-$30,000 putting together an auction and advertising. We’ll get rid of that lower end of the inventory while getting this higher end stuff sold. When we get those tractors sold, we’ll go out and trade for some more, and then we’ll have another sale next year. That’s what we’re going to do.”

Some Final Thoughts

Moving forward, Buchholz predicts that manufacturers will continue to discount new inventory to make sales — which will further erode used values and mandate deeper discounts. “We all want to grow our businesses, but we’ll need to be realistic. There are fewer people to sell to every year. Farms have gotten bigger as we’ve lost some second and third tier farming operations. The manufacturer won’t help us with our used inventory. It all comes back to the dealer-principal. We’re going to need to be tougher taking trades. In the end, the customer will need to pay. Their cost per hour, like it or not, has to go up, if they want to trade.”

Janson says that while dealers may be relieved to finally get their used equipment inventories down to manageable levels, they’re never happy to have to take it to auction or to lose money on it.

“No, we are seldom happy at an auction. For me, it means we’ve failed in our whole thought process. Somewhere along the line we determined that we could not find retail for a piece and had to go to auction, and that wasn’t our plan when we traded for it. I think we need to admit we’ve somehow failed, but the other side is it’s a healing process. This is what will make us more intelligent equipment traders in the future.”

Just as important as keeping track of the numbers, Johnson says it’s imperative that dealership management make every effort to keep the troops motivated. He says maintaining a positive attitude at Johnson Tractor is his and brother Eric’s job. “We can rant and rave a bit, but you’ve still got to give everybody a pat on the back and celebrate successes, even if they are small.”

One of the simple ways is the email threads from the salespeople letting others know when a sale is made. “That’s the time to recognize and provide encouragement, not to ask about how little something went for.” Because he and Eric are so hands-on, that’s not necessary anyway, as there are few surprises. “Our salesmen wouldn’t trade a guy for $10,000 less than we’re expecting without talking to us first.”

More effective, he says, is checking in with the salespeople about a specific customer and whether the deal is getting tied up. “If not, we try to talk about what it would take to get it done and what we can do to make the job easier. So right now I find myself doing a lot more cheer leading and coaching than I did a couple years ago where it was more like directing traffic.”

Even though the business is down over the last 2 years and salesmen are making less, he says, “Our guys know our role in the distribution chain and that the fundamentals of that aren’t going to go away anytime soon. Nobody has ever found a better way of distributing farm equipment than through the dealer network. In fact, if anything we’re getting more stuff dumped on us than taken away.”

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