Editor’s Note: This is part 1 in a 5 part series on the 4 pillars of the sales department and how they support margin, turns and marketshare.
In any sales department, there isn’t a more prominent hot button than the value of trade evaluations. I have evaluated equipment for the past 12 years and could count on one hand the number of times someone has said, “I think we might be putting too much in this.” Customers fight with the sales professional causing an emotional attachment to the deal they are working. Taking all of this into account, what is the best way to value Used Equipment? In my opinion, the only way to successfully evaluate used equipment is by using an unbiased appraisal system. The more removed the appraiser is from the deal, the more precise the number will be. The less I know about the customer and the more I know about the machine, the better I am at my job.
What is the function of the Centralized Trade Evaluation Process? I think these three functions are the most important.
- The Used Equipment/Remarketing Manager has to understand the current state of the used equipment marketplace and the outside influencers that will have a positive or negative effect.
- Have an unbiased look at the machine value based on past dealership sales history, current auction value and, finally, retail advertised price.
- Lastly, have NO emotional tie to the deal or the customer.
All three of these are essential in their own way. Understanding the market is predicting what the next move will be and guessing where the market will be in six months to a year from now. If I could effectively guess where the market was going to be and when it was going to be there, I would have an umbrella drink in my hand on my private island. Guessing the market is hard, and many factors play into it, none of which you can control. Are you going to be right in six months to a year? Your guess is as good as mine but, you can be more right within 90 days.
Understanding market factors surrounding you right now is essential. These puzzle pieces allow for the picture to become more evident as to what the future could hold. In doing so, you have a short term view of the market and its reaction. Sometimes situations come up that are unprecedented and have no real historical data, like COVID-19. For the most part though, the historical record shows when "X" happens, "Y" will follow. Floods, droughts and embargoes all have factual corrections and seem to follow a similar path. Understanding the correction lines will help set the table to better understand future market positive and negative indicators.
The unbiased look at "Market Value" is an absolute must. The unbiased look is the science portion of used equipment management. On internet listing sites, there are so many different machines listed for many different prices. In value, machines with relatively the same specs and hour will have a spread of +/- 10% or higher with no real rhyme or reason as to why. Pricing equipment is hard, and being emotionally engaged in the deal only makes it that much harder, causing a higher likelihood of overvaluing used equipment.
When valuing equipment, this is the order data ought to be collected. First, what was the last machine sold for according you your business system? How long did it take to sell? How many have sold over the previous 90-180 days? What was the average selling price? All of these answers are housed inside the business system. This data is unique to the specific trade area and not influenced by anything else other than what is happening within this particular trade area. If a drought is happening in the Midwest, and your trade area is receiving timely rains, things are right in your area. If the opposite is happening, you will have to readjust.
Second, auction data is the next important data point. There is no more significant "canary in the coal mine” than auctions. I want to be very clear to point out “Auctions” is plural. One auction doesn’t set the tone for the rest of the market but 5-10 will. I am not advocating setting trade value at auction value; the dealership will have a hard time trading equipment. All things considered, some machines need to have an auction value as a trade value.
Understanding the spread between auction and retail value is of utmost importance. There is a fine line between too much range and not enough. If the pendulum swings the scope too far away from auction value, auction buying will increase. The customer will think the risk is worth taking, i.e., the 2014-16 auction markets. If it gets too close, then the dealership has no value. The line is different for different areas, but the used equipment/remarketing manager needs to know and understand where the line is.
Finally, there are not many silver bullets in the ag equipment industry, but the centralized evaluation process is as close as a dealership can get. The further removed the evaluator is from the customer and the equipment, the less likely they are to be influenced. I briefly mentioned the art and science of used equipment management. The science behind data collection and pricing the market has to be black and white. "The Art of the Deal" is making the deal work for the customer and the dealer.