How long is too long to hold onto a piece of used piece of farm machinery? This is a subjective question based on a dealership’s tolerance, patience and playbook for remarketing used equipment, says Scott Grundstad, director of sales for new and used equipment at Plains Ag in Williston, N.D.
Whether a larger dealership group or a single store, he and other used equipment managers acknowledge the need to implement and evolve a timeline based on market conditions. For one dealer, evaluating used inventory in 6 month periods has helped salespeople prioritize and price used equipment accordingly.
The first 6 months is primarily an observational period — price comparing to other similar models on the market. But moving into the 6-12 month and 12-18 month periods increases the urgency to sell the used equipment and after 18 months, the dealership will send it to auction.
A Canadian dealer color codes the timeline of used machinery for each salesperson and compiles the database in a spreadsheet. There is no color attached to the first 12 months, but 12-24 is “yellow” and anything older than 2 years is “red.”
This creates regular awareness for each salesperson as to the volume of aged inventory they have brought in on trade. In addition, the dealership distributes spreadsheets to each salesperson, breaking out their individual used sales performance in thirds.
Those in the top third are “green,” meaning they are keeping their aged inventory to a minimum, followed by a “yellow” group (moderate volume) and then a “red” category for those with the oldest volume of used equipment. The Canadian dealer notes that this method has effectively created some “peer pressure” motivation among the sales team to effectively market and sell their used equipment.
Another dealer takes the approach of looking at used inventory on a quarterly basis. This allows the dealership to make price adjustments based on the seasonality of equipment.
He suggests keeping in mind the time of year a piece of used equipment comes in on trade and start the timeline for how long it is on the lot accordingly. If a planter comes in on the tail end of spring, it’s likely not going to generate much customer interest for several months.
Commission incentives can be a motivational tool for salespeople to prioritize selling older machinery, but they aren’t always effective. One dealer cites a 6-week spring promotion he ran, offering a an air miles bonus for the top performing used equipment salesperson, but the program gained little traction with employees.
However, other dealers have had success with “negative commission” programs, penalizing salespeople for having aged inventory. One dealer notes that after 365 days, he sends used equipment to auction and salespeople get a 3% commission penalty and also lose 20% on the sale of the piece of equipment at auction.
The dealer adds this policy covers all of the dealership’s equipment from large ag machinery to “a $500 lawnmower.”
While a silver bullet method to setting a hard expiration date for used machinery is difficult, Grundstad says 12 months is often a good benchmark to abide by because dealers never want to celebrate the anniversary of equipment on their lot.
“There are several factors that play into an expiration date including seasonality and evaluating the value of the equipment,” Grundstad says. “But the main takeaway is that dealers need to have a plan and work that plan to get their used inventory where they want it.”