It’s that time of year again, the fourth quarter of the year. Auctions, year-end tax buying and equipment upgrades for next year are in full swing. The fourth quarter moving into the first quarter of the year are busy times for dealerships. Getting one last push for all departments feels like your hair is on fire most days! I have written several articles about the washout cycle and the importance of understanding how it works for the dealership, but increasing the washout starts with understanding key reconditioning points.
We all have customers who fit into a specific buying group. Some are new buyers who trade every year, some are 1-3-year-old used buyers with 2-3 year trade cycles, and some are 4-7-year-old buyers with trade cycles that last 5-plus years. Each of these buyers is important in their own way to the used equipment ecosystem. If any of these buyers step out of a cycle and don’t buy, a problem develops rapidly. This ecosystem is very similar to what started in 2013 and has lingered through today.
I am very conscious of when machines are close to an expensive reconditioning point. What I have failed to do is translate these reconditioning points to the customer’s trade cycle. If I had done this correctly, reconditioning points and washout cycles would have been viewed the same. Meaning, machines traded with 1-2 seasons of use before hitting these expensive recondition points in a perfect world.
Combines are the most straightforward machine to have this conversation about. Because of the moving parts and the amount of material that flows through the machine, reconditioning is never-ending. In my opinion, the key reconditioning points for a combine are roughly every 750 separator hours. Each 750-hour point is different and will require various repairs, but this doesn’t exclude maintenance intervals outlined in the owner’s manual. The recondition points I am talking about are when the machine has significant amounts of wear items replaced at the same time.
“I want to make sure the trade-in machine has at least 1-2 seasons of use before the next buyer will contend with key recondition points…”
Working through each of the trade cycles of the buyers I outlined earlier and leaving the next buyer to do the reconditioning has been a sticking point. Customers spending $20,000-$30,000 on repairing a machine they have yet to use is hard to swallow, regardless of including these repairs in the pricing.
I have been targeting customers with specific hours on their machines. I have been using the washout cycles and the territory sales professionals’ knowledge to better trade for equipment. I am using the reconditioning cycles to trade equipment and sell equipment at the same time. I want to make sure the trade-in machine has at least 1-2 season of use before the next buyer will contend with key recondition points. I want to trade the new buyer, trading every year, at 400 separator hours, and sell it to the next operation. In theory, the next buyer will run 150-200 separator hours per year for the next 1-3 years. At the time of the trade, this will link up with their normal trade cycle and the machine will have roughly 750 separator hours.
Once back at the dealership, the machine will go through the reconditioning process and be sold to the third buyer. This buyer will operate the machine for 100-150 separator hours per year. The third buyer typically has a 5-7 year trade cycle. At the end of 5 years, the combine will have another 500-750 separator hours. Suppose this combine is traded closer to 500 separator hours. In that case, the fourth buyer, averaging 75-100 separator per year, will have, 2.5-4 years of use before the next 750 separator hour reconditioning point. One combine is sold and traded 4 times and only going through one 750 separator hour recondition process. Not until the combine is traded in the by the fourth customer will the machine have the second critical reconditioning point process completed.
Combining both the washout cycle with customer buying habits and understanding key reconditioning points will help predict customer trade cycles for equipment in inventory both on the dealership lot and what customers have on their yards. The better a dealership understands both the washout cycles and key reconditioning points, the faster the washout cycle speeds up, increasing inventory turn and available cash.