This is an exciting time in the farm equipment business. There is a generational paradigm shift happening both with ag equipment dealers and the producers. Retiring producers and those that have gone out of business have left the door open to expansion. Across North America, the demand for technology, specialized product knowledge, and the decreasing number of producers has led to greater dealership consolidation. In order to create economies of scale, both sides will continue to grow. So what does this mean and how will it effect each other’s business? In my opinion, the next 5 years will have such a dramatic change the industry will be unrecognizable.
As the number of producers shrink, the number of buyers does as well. So what does this mean to both the new and used equipment market? I believe the market will mirror the construction market. As producers’ operations grow, the 2nd and 3rd buyers will disappear. This will leave a void in the market. Dealerships will be faced with what to do with a used market with fewer buyers. How will this affect the sales of new equipment? Yearly rolls of equipment will be greatly scaled back. Dealerships will not have the appetite to digest the number of units each large scale operation produces. In doing so, each year will consist of a cross section of equipment trades. Customers will be more interested in maximizing machine throughput vs. machine deprecation. In other words, when have they gotten the good out of the machine and maximized ROI.
The Ask the Expert: Used Equipment series allows dealers to regularly ask questions and get them answered in real time. It is brought to you courtesy of Iron Solutions.
At Iron Solutions, we provide used equipment valuations, market intelligence and a suite of integrated, cloud-based business systems custom-tailored for the equipment industry. Our proprietary model is built on actual dealer sales transaction data. Learn more…
Like the construction industry, larger operations will have an inventory control manager buying and selling their equipment. They will understand the market as well as the effect of equipment on balance sheets. Sound familiar? If not, it should! This person will have the same functions as the remarketing managers do at dealerships today. They will look at the market and understand what hour range will produce the best ROI. They will also know what used machines to buy with the best value. They will be professional buyers and understand the ins and outs of the dealerships because they will come from the dealership!
The biggest question in the scenario is who is going to be the buyer of used equipment. The fastest growing segment in ag production is the 500 or less acre farm or ranch. There are a lot of part time farmers and ranchers working their “day job” while working the farm/ranch at night and on the weekend. This has never been more evident than in the rising demand in the 150 horsepower and less tractor. This segment grows every year and is an important revenue stream to any dealership.
On the flip side, the fast decreasing operation is the 3,500 acre and less farm. These are the operations big enough to support one family but not two or more. This is where the larger operations are getting their expansion. These are also the prominent buyers of late model and low hour used equipment. As these buyers go by the wayside, so do the buyers of used. As this population of buyers continues to shrink, the dealer groups will have to rely on the 1,500 acre or less operation to fill the void. These machines will need to be older and have more hours in order to find buyers. This will become the “new” used equipment buyer.
In my opinion, this will broaden the auction market, moreover, the online auction market. Because larger operations will have the personnel in place, they will be selling more of their equipment online to end users, listing equipment on online auctions and trading a smaller amount of equipment back to dealerships. I see the new equipment market developing into a different mindset as automation becomes more mainstream. The number of machines working in the field will increase and the size and horsepower will decrease. This will open a whole new door to a whole new buying and selling cycle.
The market is changing and equipment dealers need to be driving change; not the producer. The shift between grandpa and dad was simple, for the most part. The internet and auto track wasn’t mainstream yet. The generation taking over, at a minimum, has spent half of their life on the internet and is completely comfortable buying off the internet site unseen. This generation views equipment as a commodity, but the technology and support are not.
I will leave you with one last question. Are we equipment dealers or technology companies selling ag equipment? I believe the latter! The future is bright for ag equipment dealer groups that are adapting to overcome the challenges they are facing today, as well recognizing and preparing for challenges the future will hold.
