Each of the major North American farm equipment makers — AGCO, Case IH, John Deere and New Holland — were invited to contribute to this special report on equipment rollovers and provide their perspective. Only AGCO chose to participate. Steve Gorsuch, director of national accounts for AGCO, provided the company’s responses. Here are his answers.
Roll Programs Impact on Margins
From the OEM side of the business, margins can be constrained due to overly aggressive roll programs. The key for any manufacturer is to ensure the roll business being quoted and retailed is “real business,” not simply an attempt to sustain an artificial level of activity. The business model that makes sense results in a used equipment fleet that is accurately valued and in line with other late model trade values. The manufacturer, dealer and customer each achieve this by covering an appropriate portion of the cost of depreciation.
Pros of Roll Programs
Manufacturers and dealers who actively remarket late model used equipment have been very successful in providing “new technology” at a discounted price while keeping the original warranty in place. The customer base for this slightly used equipment has become a combination of former new buyers realizing the value in late model used equipment, and historic purchasers of used machinery who have moved from 3-4 year old used purchases to late model used as their operations have expanded.
Cons of Roll Programs
The increase in high-dollar used equipment can surpass a dealer’s market potential in his marketplace. When this becomes the case, overvaluing the roll equipment can dramatically affect the residual values of equipment of all ages in the dealer’s market.
Dealers will often add at least one additional trade cycle to cash out any resulting profits. Specialized equipment provides additional challenges if the number of future used retail homes is limited.
Finding Homes for Late Model Used
It’s important that remarketing of the used take place from the time of the original delivery. The key to finding buyers for late model used is the initial determination of what discount from new is required to quickly place the used equipment.
Sustainability of Roll Programs
- Roll programs are sustainable with the close coordination between the dealer and the OEM. A balance needs to be determined on what percentage of business can utilize a roll program to ensure later buyers exist in a quantity that will sustain the required residual values.
- Dealers who attempt to overuse rolls — assuming future market conditions will always be stronger than the current market — are certain to experience a downward market trend sometime in the future.
- Defining both the first and second homes of used equipment upfront for any roll program is the key to success.
- Effective use of a roll program can influence a customer to purchase exclusively one brand of equipment.
Alternatives to Roll Programs
- Traditional lease programs often cannot compete with the guaranteed repurchase price of equipment running through a roll program.
- Dealer rental fleets are another alternative, but unless continued rental utilization can address interest carrying costs, the rentals have a higher total cost.
- OEMs are not likely to consider carrying high levels of inventory on their books that increases the working capital employed.
- None of the above programs allow the same result as an effectively run and managed roll program.