How to Determine Used Equipment Values
Dealers should be consulting multiple sources and data fields in order to accurately assign values to used equipment.
It’s no secret that there’s too much used equipment on North American farm equipment dealers’ lots these days. While dealers are making strides in reducing their equipment inventory build up — Titan Machinery, Case IH’s largest dealer, has reduced its used equipment inventory by $39 million in the first half of fiscal 2017, for example — correctly valuing used equipment is key to properly managing inventories now and in the future.
According to Ag Equipment Intelligence’s May 2017 Dealer Sentiments & Business Conditions survey, A net 28% of dealers described their used equipment inventory for as “too high” in April. That’s just slightly lower than the net 30% reporting used inventory was too high in March. One year ago, a net 42% of dealers reported their used equipment inventory as “too high.”
Unfortunately, when it comes to valuing used equipment, there’s no one-stop-shop source, says Trent Hummel, a consultant who specializes in wholegood inventory management and a trainer with the Western Equipment Dealers Assn.’s Dealer Institute. “I know everybody wants the silver bullet to figure out what a used unit is worth. We all live in different markets, we all carry different product lines, different products within our line, but there are multiple data sources that need to be used,” he says.
Rank Your Used Equipment Valuation Sources
Farm Equipment and WEDA surveyed dealers to determine what data sources they were using to determine the valuation of used equipment. On a scale of 1-10 (with 10 being the most influential), dealers were asked to rank the influence level of 10 data sources, including:
Discussions with Wholesalers
Discussions with Auctioneers
Online Tractor House Auction Results
Ritchie Bros. Auction Results
Machinery Pete Auction Data
Iron Solutions Guide Values
Discussions with Competitors
Discussions with Inline Dealerships
Your Past Sales
Other Auction Results
The survey data confirmed what Hummel contends; dealers are not doing their homework as well as they should when it comes to researching used equipment values. (See “Sources Influencing Trade Valuations” for the complete rankings.) While Hummel says it’s good to see that dealers aren’t basing their valuations completely on one source, he adds with weighted averages of about 3-5 for most sources, they are ranked too low. “We obviously don’t have the confidence in what the wholesalers are telling us. We don’t have the confidence in what the guide book is telling us. We’re not confident in what the inline or competitive dealerships are telling us when we’re only scoring those sources under 5. What we would like more is to have the confidence to score all these at 6, 7 or 8,” he says. “It’s great to have all these sources, but if they’re not having much influence on you, why use them?
According to the 2016 survey, dealers’ own past sales results impacted their valuation decisions the most. However, with a weighted average of 8.46, Hummel asks, “How is this not a 10? I can’t figure out why dealerships aren’t using their own results as the gospel. Your past sales are the most important.” However, in the 2017 survey, this number improved 9.22. Tractor House auction results remained in the number two position in the latest survey, but it’s weight average dropped to 6.03 from 6.11 in 2016. Iron Solutions Guides remained in the number 3 spot with the latest survey.
Hummel stresses that dealers need to be looking at all these sources to determine the right values on a piece of used. When looking at auction results, such as those posted by Machinery Pete and other such sites, Hummel says it’s important to make note of where the auction was held. For example, the results of an auction in Iowa don’t reflect the market in Washington. It’s also important to note that when equipment gets to be of a certain age, the year is no longer important. In those cases the condition and hours are the most important.
Assign the Right Value to Used Equipment
Hummel says the number one job of sales managers and inventory managers is evaluating used equipment correctly. “Everything comes back to valuing that piece of used equipment. If you bought that used unit for the wrong price, it’s not good. It doesn’t work. We all know that. We get backed up and it causes a lot of problems. If we can buy it right, it will sell fast,” he says. “I constantly ask sales managers what their number one job is, and very few state ‘evaluating used correctly.’ They seem to think it’s selling stuff. The salesman’s number one job is to sell stuff. The sales manager’s number one job is to buy stuff correctly.”
Hummel says if, in the example above, the dealer had reduced the price 18 months ago when the mistake was first made, the unit wouldn’t still be sitting on the lot. Now, the dealer has to take a bigger loss than he/she would have. “A loss doesn’t always mean that you have to lose money. It’s just that you budgeted to make 10-15 gross margin points on a unit and you had to sell it for 5. While you lost from what you intended to make, you didn’t lose money. You’ve still made 3, 4 or 5 points. The first loss is your best loss because sometimes it doesn’t actually mean you lose money. You just make a lower margin than you wanted to,” he says.
While mistakes are bound to happen, Hummel says what’s important is to correct the mistakes right away. “We can’t be in this business and buy and sell as much equipment as we do and not have some mistakes. But, what we do with mistakes and how fast we address them is what separates the men from the boys,” he says. If you buy a piece at noon and by 3 p.m. you realize you made a mistake by paying too much, Hummel says that’s when you need to adjust the price. Or if it’s 3 days later and you realize the mistake, adjust it. “Don’t wait 3 or 4 months. And don’t just keep saying, ‘Well, let’s try to sell it for this much money for 6 another months.’ Because all of a sudden it will be 18 months and it’s still sitting on your lot,” he says.
To help avoid making those mistakes, Hummel says you have to put in the work and do the research. “Figuring out what the value of used is will be the hardest job you ever do. Evaluating iron is too complicated for a one-stop shop. There’s no bulls-eye or magic formula. You can’t look at one set of auction results and buy it for those prices. It doesn’t work like that,” he says.
To read the full article, visit Farm-Equipment.com
Farm equipment holds its value through the years
Minnesota Farm Guide is celebrating its 15th anniversary with a look back at a few of the tractors manufactured over the last 15 years.
Shown here are the 2002 New Holland TM135; the 2007 John Deere 9030; the 2012 Case IH 500 Steiger QuadTrac and the 2017 AGCO Challenger 1000.
They represent the thousands of tractors and farm equipment featured and advertised through Minnesota Farm Guide over the past 15 years.
The entire staff at Minnesota Farm Guide wishes to thank the implement dealers and all the advertisers who have funded this publication for 15 years. We also want to thank the readers who picked up the phone and called the advertisers for more information.
We wish we had room for all the tractors built since 2002 on our front cover, and we sincerely apologize for being unable to feature many favorite tractors and brands.
This publication has always tried to show respect for the mechanical knowledge of its advertisers and readers, and this article simply celebrates how tractors retain their value over the years.
The first photo, the 2002 New Holland TM135 was selected from the New Holland photo library to recognize an early article that appeared in the publication. A farm couple, Paul and Sherri Fossum of Moorhead, were awarded first place in the national “Farm Progress – Best Managed Farms” contest. One of their prizes was the use of a New Holland TM175 for six months or 200 hours. Even though they farmed primarily with John Deere equipment, the Fossums were glad for the extra help of the New Holland tractor.
Today, the New Holland TM Series tractors manufactured in 2002 still have a retail value of $30,000-$50,000.
The retail value of newer tractors just goes higher, based on quality, condition and hours of use.
Deere & Company introduced a new line of large, high horsepower tractors in 2007 with the 9030 Series. Designed for construction and field operations, the 2007 tractors still look like-new in 2017.
Tractors built after the millennium have been smartly engineered and reengineered, explained Mitch Kaiser, Case IH Steiger tractor marketing manager.
When the Steiger track tractor was first introduced, it pulled much more than a Steiger wheel tractor. Farmers quickly discovered the track pulling power and started pushing it to see what they could accomplish.
“We found out we really had to upgrade the axles and the transmission and the frame and everything to get the durability improved,” said Kaiser. “Durability was good back in the Steigers in those days, but customers did more with it, so we had to keep building a more durable and heavier frame.”
The Steigers that started out handling fieldwork and packing silage piles, are now moving dirt and pulling out tree trunks. Kaiser said that Steigers are getting resold from agricultural applications into oil exploration work in Alaska. The tractors are taking supplies to the Antarctic, where possible. The tractors are also being resold to Australia and around the world for roadwork.
“The Steigers, in particular, we keep building the frame heavier for moving earth with heavy scrapers,” he said. “We use that frame and chassis for ag customers where it lasts much longer.”
In addition, the tractor that used to last 8,000 hours is now lasting 10,000 hours. The quality and efficiency of oils and engines are maintaining longer lives for tractors.
“We have customers who say as long as you maintain the tractor, it lasts,” he said.
High quality oils and fluids allow tractors to now work longer without an oil change. With new SCR technology for emissions, the engine burns cleaner and the oil is less dirty and puts fewer pollutants in the engine oil, he said.
With the higher horsepower, farmers are putting fewer hours on their QuadTracs, so when they are ready to trade, the tractors have more value.
“A customer that doesn’t want new, but wants a used one can get a great buy on a used Steiger tractor, because the durability and quality is still there,” said Kaiser. “The value is still there years and years later.”
Looking ahead, ag information systems will help tractors retain their durability, said Russ Green, director of product and brand strategy for AGCO North America.
“It wasn’t uncommon 15 years ago, that farmers wore a pliers on their belt loop and could virtually fix anything,” Green said. “Today, you’ll see a farmer with an iPhone and they can do with that iPhone what he used to do with a pair of pliers.”
Rather than the farmer always having the responsibility mechanical upkeep, the tractor’s information system can alert the dealership that fluid levels are low, or something needs to be checked.
“The things we know today, and the speed we can get that knowledge to someone else to take action – if you can take advantage and service that tractor when it tells you, or even in advance of when it tells you, you are going to have a lot more longevity of your product,” Green said.
The information above was sourced at Ag Update