This article is the third installment in “Lines of Delineation.” In the previous two articles, I discussed what the lines of delineation look like and what they are made up — the new buyer, the late model low hour buyer, the high depreciation used buyer and the high hour used buyer.
All are important, and all have a place at the table. Each of these buyers is a critical part of the equipment ecosystem. A problem will develop quickly if any of these buyers don’t show up. In this column, I will talk about the late model low hour buyer and how they set the tone for the market.
When I say the price of new equipment has increased, it is like me saying it’s cold outside when it’s –20 degrees. A few more adjectives are needed to express the gravity of the situation truly. In My opinion, the price of new equipment has reached a level of pricing only a few can afford, mainly because of discount structures and available programs.
I want to be clear when I say this: I am not implying there isn’t value associated with the pricing because there is. The technology in the machines is increasing efficiency and profitability. My point is the cost of entry is high enough that only a few can afford the latest and greatest technology as it sits today. Updating technology is an article for another day.
My definition of the late model low hour buyer is a buyer looking to replace equipment with 1- to 2-year-old equipment with hours under 2 seasons of use. When I look at the new buyer, the late model low hour buyer, the high depreciation used buyer, and the high hour used buyer, the late model low hour buyer sets the tone for the rest of the washout cycle.
If used equipment buyers are wrong here, correcting the downstream issues is hard without taking some heavies along the way. Knowing who these customers are and knowing these customers are buyers year in and year out with some established trade cycle is essential. During times of increased on-farm income, most customers seem to be late and low buyers at some level — a tractor here, a combine over there and might as well update the planter.
“The late model low hour buyer is a new buyer. They act like a new buyer, look like a new buyer and typically have a very progressive mindset…”
The late and low customer must be treated as a perennial new buyer. Looking at the cost of operation programs, just like the new buyer, is the best and most effective way to set up sales success at the top of the washout cycle. I have a sales territory. I manage 3 locations and 7 sales reps.
In a location conference room, I have a 4 foot x 10 foot magnetic whiteboard. I have the board broken down into 3 different levels. At the top are all the new buyers and the equipment they purchased:
- The names of the customers we plan to target for the 1st trades and what they will have for trades.
- The names of the customers we plan to target for the 2nd trades and what they have for trades.
- The names of the customers we plan to target for the 3rd trade and what they have for trades.
I have worked with our used equipment manager and worked out the cost of operation programs for the late and low customer. If I can get the late and low buyer to commit to the program, each subsequent level in the washout cycle has the equipment to sell and a customer base to buy the equipment. The hardest part of this exercise is getting the proper names to the right place on the board. The new buyers at the top of the board collectively have 58 machines ready to trade. Assuming a 25% close ratio, you need 232 selling opportunities to complete phase one of the
The late model low hour used buyer is a new buyer. They act like a new buyer, look like a new buyer and typically have a very progressive mindset. The late model low hour buyer is looking for the same things as a new buyer. Operationally they are looking for the best technology path that leads to the cheapest, most efficient possible production practices that lead to the most profitable outcome. These customers aren’t just used buyers but late model low hour used buyers.