Editor’s Note: This article is a portion of what David Gibson presented during Farm Equipment’s 2017 Dealership Minds Summit in August. Gibson walked dealers through his process for determining the best value for used equipment to get it sold.


The primary functions of our wholesale division are used equipment evaluations. We evaluate possible trades for 43 salesmen. My counterpart Eddie Borders and I provide an educated and well researched opinion of the wholesale value for each potential trade. In the past year, we’ve evaluated over 5,000 machines. We frequently attend farm equipment auctions to monitor used equipment values and trends. We leverage or utilize a wholesale network of dealers, auction companies, wholesale buyers and jockeys to discuss possible trades and to help move unwanted machines out of our areas. We assist with the evaluation, marketing and liquidation of used inventory. And then we purchase used equipment as needed.

So what do we consider the wholesale value of a machine to be? It’s our estimate of what that machine will sell for if we took it to auction. It is not necessarily a booking number. The booking number for a given machine is established jointly by one of our division managers, the store manager and the salesman. On larger deals, our corporate group will be involved. From our company’s perspective, our level of risk in a given machine is the difference in the booking amount vs. the wholesale value.

Gathering Info

In my opinion, the first and most important step in the valuation process is the gathering of information. A key component of our trade evaluations is a web-based sales and management application known as Power EQ. Power EQ allows our sales and management team to evaluate and process trades, quote machines and manage inventory. It also has a CRM function. It uses real-time information from our business system and it also has an iPhone or iPad app that enables our salesmen to evaluate a used machine in the field and then transmit this information back to Power EQ and our wholesale division.

With 32 years of experience in the equipment industry, David Gibson has worked in 6 different farm and construction equipment dealerships and in 4 states. He has sold Case IH, New Holland, Kubota, John Deere and Massey Ferguson lines. He’s been the wholesale division manager at H&R Agri-Power since 2010. H&R Agri-Power was a 2015 and 2016 Farm Equipment Best-in-Class Dealership and operates 13 locations in Kentucky, Illinois, Tennessee, Alabama and Mississippi. In 2016, H&R Agri-Power’s total sales volume was in excess of $239 million.

In appraising potential trades for 45 sales reps, Gibson’s process includes attending auctions on a regular basis (43 in 2016) to monitor market trends, helping the used equipment manager identify and liquidate problem or distressed units, leveraging the wholesale network and purchasing the right inventory to resell.

So the valuation process begins with a salesman going to his customer’s location to look at a possible trade. He selects the appropriate form, then he works through various screens, completing information related to availability, specs, options and condition. Near the end of the appraisal, they are asked a few key questions. First, did you drive the unit? Next, we want to know if they found any issues while driving it. If they answer yes, a dialogue box will open and they’ll have an opportunity to describe that issue or issues.

Next, we want to know if there was damage to the unit. If there is damage, another dialogue box will open and they have the opportunity to describe the damage. Later on, they will be prompted to take photos of that damage. Then finally, we want to know, if we trade for this thing, what’s your plan? Will you recondition it and then try to retail it? Will you sell it as is? Would you like for us to get you a wholesale bid on the unit? Or does it need to go straight to auction?

There are check boxes where they can select the most common reconditioning items and then another dialogue box where they can add additional reconditioning details that need to be done. We also ask them for an estimated reconditioning amount. At the end of the appraisal, the salesperson is prompted to take up to 8-10 walk-around photos of the unit, plus they have the ability to take 10 additional photos as well as 10 more photos to show any damage.

Finally, they will click on a save and send button. Within minutes, this trade will appear in the trade-ins section of Power EQ. And at the same time, the wholesale division receives an email that has that trade appraisal attached as a PDF. In Fig. 1 you can see page one of our sample appraisals. The first two pages contain information on the customer, the unit, the cab, and any guidance components. Next, you would see photos of the cab interior. This is followed by specs and condition ratings on the major components and systems, information on the tires and their condition, and the plan for the unit if we trade for it. And finally, we have the walk-around photos. The full report is about 10 pages long.

Assigning the Value

Once the report is submitted, this information is permanently stored in Power EQ. If we end up trading for the unit, our marketing department will use the information from this appraisal to advertise the machine. So now, I have a machine that needs a wholesale value. Sometimes, depending on the machine, we simply know what the wholesale value is. However, most times, research is required.

Fig. 1. After a salesperson completes their appraisal of a unit, the wholesale division automatically receives a 10 page PDF of the appraisal. The first page is shown here.

I start by completing an Iron Guides appraisal. If possible, I like to do this for every major trade that we look at. I really like the new electronic version because it gives us the ability to complete appraisals on the go using our mobile device. Plus, we can now store these saved appraisals for future use. As always, it allows us to adjust for hours, options and geographic regions. The objective of this appraisal is to determine what their wholesale number is. Once I have this, I’ll put it to the side and come back to it later on.

Next, I like to look at our own auction results. We attended over 40 auctions in 2016, and we maintain a database of auction results for machines that we frequently trade for. I can filter these auction results by category, make, model, date, hours, etc., to hopefully zero in on some comp units. This is what I consider to be one of our primary evaluation tools. We can look at auction result websites like Machinery Pete and Ritchie Brothers, Auction Time and Big Iron. These all provide a wealth of information and can be a great resource.

Another valuable resource I can use is our own internal sales histories, which I can access from the reports tab of Power EQ. Here I have the capability to filter for make, model, year and date sold. I can even drill down on units and see how long we had them, how much they were booked for, what options they had and how we did when we retailed them.

And then finally — and this is one of my favorites — is I can call on my wholesale network of wholesale buyers, jockeys, auction companies and, most important, competitive dealers outside of our trade area. Over the past 7 years, I’ve developed some very good relationships with folks to discuss used equipment values. Some days they call me, some days I call them. It’s not uncommon to speak to one of these guys on a daily basis.

Usually by this point, we’ve looked at enough data, sitting out here in buckets, that we can arrive at a wholesale value. Sometimes, we’ll appraise late model competitive units or a machine that just won’t fit our area. When this happens, I like to take my research one step further. In this situation, I’ll search the various retail websites — TractorHouse, Fastline, Machinery Pete — to determine what a competitive retail price will be. Next I go to the booking calculator that’s built into our app, Power EQ (see Fig. 2). We have this formatted with our own margin data. Here I’m able to enter the estimated reconditioning amount from the trade appraisal along with what I feel we can retail the unit for. Then the booking calculator will provide me with an advertised price and booking amount. Again, this is based on our own pre-set margin factors.

Fig. 2. H&R Agri-Power’s Power EQ app includes a booking calculator, formatted with their own margin data. The dealership enters the estimated reconditioning amount from the trade appraisal and an ideal retail price. The calculator then provides a asking and booking price. David Gibson says when he gets a request for an appraisal he can usually turn it around and have a value for the salesperson within 10-15 minutes.

The last step is we need to communicate to the folks who will make the decision. So I go back to the trade-ins tab of our application, locate the unit being appraised, click on “edit wholesale,” enter the wholesale value range, designate who it was that looked at the machine, and then click on “update wholesale value.”

Instantly, the wholesale value is populated for that record in Power EQ. And all of the decision makers will receive an email letting them know what the wholesale value is.

This is the process I use when placing a value on potential trades. On the surface, it probably seems very lengthy to you, but it’s not that bad. Sometimes my coworkers will get a little frustrated with me because I just won’t shoot from the hip and give them a quick number right on the spot. But we deal with a lot of risk out there when we’re trading for this stuff every day. And my objective of this valuation process is to hopefully help limit this risk.

 

October/November 2017 Issue Contents