Editor’s Note: This is part 2 in a 5 part series on the 4 pillars of the sales department and how they support margin, turns and marketshare.
The last article I wrote outlined three functions of a Centralized Appraisal Process and how a Used Equipment/Remarketing Manager should gather and process data during the Trade-In Evaluation Process. They were:
- 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.
In this article, I am going to focus on function one. I will share what I do to keep up on the local and national equipment market.
When evaluating trade-in equipment, the most important and influential source of data I utilize is my business system. This data is tailor-made for my trade area, and it’s easy to access. The business system is an open book to used equipment timelines, machine profitability timelines, customer buying habits and what customers machines are hot and what customer machines aren't. Anything you need to unearth is in your business system.
Used equipment timelines are an excellent gauge of inventory health as well as if the market is dead or booming for specific models. If the days in inventory are growing, stocks might be too high, and the market has become saturated. If this is the case, a solution outside of your trade area must be explored. On the other hand, the market could be flat dead. No matter how many are in inventory, due to lack of demand, there aren’t any buyers.
An excellent example of this would be the 2012-14 model year equipment. Too many machines are on the market, and buyers are not readily available. But, model year 2012-14 equipment has become a commodity, and the price reflects such. The market can also create demand for machines not commonly seen. The current demand for 20-plus-year-old tractors is unrivaled and unprecedented. Over the past 3 years, this era of equipment has grown in popularity.
Tracking Auction Results
Next, in line of importance is auction results. Auction results paint a picture of actual market health. I like the saying, “Auctions are like a canary in a coal mine, if it is fine, so are we!” Auction trends develop fast and have to be followed closely. If a single auction has a poor performance, that isn't a big deal. When five or more have a terrible day, that is a trend! The better I can see these trends, the better I can make market shifts.
A life lesson I learned in 2015 has changed the way I view used equipment “Advertised Retail Pricing” compared to used equipment auction pricing. When advertised retail pricing becomes more than 15-20% of the auction value, sellers of used equipment run the risk of pushing retail buyers into becoming auction buyers. The spread between auction value and advertised retail price is the value the dealership brings to the customer.
For the customer, they have the peace of mind that the machine is backed with the full faith and support of the dealership. To be clear, I am not saying equipment bought at auction will not be supported; that is not the case. Instead, if something goes wrong, the auction service isn’t there to make it “right” as a dealership will. Because of this, the buyer is asking, “Is the juice worth the squeeze, am I getting the value above auction value from my dealership?”
For the dealership, parts, service, risk management and technology experts all contribute, capturing more of the value proposition between auction value and advertised retail price. What is the dealership doing to tell the “Value Story” it has to offer? How is the dealership managing customer risk? How is the dealership showcasing its part and service departments? How is the dealership leading in cutting edge technology, and how is it supporting the customer? The value proposition of your dealership, which separates what you’re selling from what the auctions are selling. The customer is willing to pay for the value to a point. Know where the line is and stay on it.
The idea that auction equipment is lesser or has something wrong with it is not the case. Today, equipment sold at auction is well taken care of and, in most cases, ready to go to the field. I have to make sure I understand where the line is and have the discipline to stay there. Auctions are a signal of where the overall market is heading.
Watching Advertised Retail Prices
Last but not least is advertised retail price, which is the pricing found on machinery listing sites like Tractor House, Machinery Pete, Fastline and many others. This price has its place, and understanding where to position equipment is essential. I don't want to be the most expensive nor the cheapest; instead, I like to settle in the middle or lower third of pricing. The reason I put this third is that I can advertise equipment for anything I want. Lack of consistent pricing is why a specific model and year has a $20,000 range from high to low. The same lack of consistency is in other equipment related industries as well. Based on what your business system and auction value tell you, retail advertised price is simply a math problem that achieves the margin expectations of the dealership.
In conclusion, data gathered from your business system is the foundation for profitability, auction data is the leading indicator keeping you on the path, and advertised retail price is simply a math problem that draws attention to what you have to offer. The better these data points are understood and utilized, the better inventory will be bought and, in turn, sold!