[Author: Tom Junge, 03.2016 | Keywords: Iowa Field Notes, The 80s]
Most dealers agree that ag conditions today are not the same as they were in the 1980s due to lower interest rates and lower farm debt. However, dealers continue to debate whether or not the farmerís need to own equipment has been satisfied today more than in the 80s. For instance, in the pure cash grain areas, farmers replaced a lot of equipment so their needs may be less than they were in the 80s. However, dealers with more diversified farming customers feel there are still equipment needs to be satisfied.
While conditions may not be the same as the 80s, there is definitely a slowdown in new equipment sales. As a result, some old tactics from some manufacturers are starting to show up. Here are some tactics I witnessed as a Territory Manager in the ag industry from 1983-1992 that I am beginning to see now:
Ordered Equipment Shipped Before Date Requested by the Dealer
Many manufacturers have policies that state they can ship equipment at their discretion. Many dealers have already experienced an early equipment shipment due to manufacturers having unordered equipment at the factory. If a manufacturer chooses to ship early, dealers need to make sure floor plan terms are from the dealer requested ship date and not the actual ship date.
Some manufacturers will offer an extra discount on a retailed item as long as the dealer re-orders the same item. Dealers who experienced this in the 80s stress that the due date comes around very quick on the re-ordered unit, so they recommend not taking the additional discount. I know one dealer who has already declined this type of discount because he feels economic conditions won’t improve soon enough to sell the re-ordered unit before its due date.
Order Equipment & Manufacturer Will Extend Floor Plan Terms on Another Item in Inventory
In the 80s with 18% interest rates, dealers did anything to stop interest payments. However, when they did this, it caused the same problem as the re-order discount mentioned above. So in time, instead of having one item come due, the dealer had two.
Manufacturer Offers Longer Terms to Get Equipment Orders
While this can prove tempting, it is important to remember that there is still a due date. So, if the new equipment doesn’t sell, the extra floor plan terms won’t be long enough and before the dealer knows it, the unit(s) will come due.
Manufacturer Offers to Set Equipment on Your Lot with No Obligation or Terms
Dealer beware! If a manufacturer doesn’t get orders they may offer to put equipment on your lot with no terms or obligations. If this happens, be sure to get it in writing. Too often in the past, the item magically appeared on the dealer’s statement and the person who made the offer left the manufacturer, leaving the dealer stuck paying for the equipment.
Cheaper Factory Price than Unit in Inventory
This was a serious and common problem in the 80s. Dealers could order a new unit from the factory and get a special ordering discount, making it cheaper than equipment on their lot in paid inventory or even floor planned. If this manufacturer policy continued, dealer inventory continued to age. In the 80s, I recall equipment more than two years old in dealer inventory that was higher priced than recently manufactured equipment. Two dealers reported that this has already happened to them this winter.
Manufacturer Offers to Re-Invoice Equipment
Sometimes a manufacturer gives new terms on equipment that was on floorplan by re-invoicing the equipment at today’s prices. The problem with this scenario is that the dealer’s equipment is now priced the same as getting a “new” piece from the factory. This makes it harder for the dealer to sell or transfer to another dealer. In addition, if the manufacturer offers retail programs based on invoice date, it may not qualify for the better discount.
Equipment in Paid Inventory was Forgotten
The worst case scenario for a dealer in the 80s was to put equipment in paid inventory, because once it was in paid inventory, it was forgotten by the manufacturer and no longer visible to other dealers. In addition, it might not have qualified for higher retail programs offered at a later date.
Curtailments: Where are they?
Curtailments on equipment were cursed, but were better than the alternative of having a final due date and putting it into paid inventory. Many manufacturers offered curtailments of 10-25% to stop interest or extend terms. So far I haven’t heard of manufacturers offering this.
I’m sure Iíve missed other tactics that may have gotten dealers into trouble in the past. During challenging times, dealers need to remain cautious and not only think about current conditions, but what they might be a year or two down the road. In difficult times, manufacturers may resort to less than popular business dealings. Even when a manufacturer feels they are doing something in the best interest of a dealer, it may just turn out to delay the problem.
About the Author
Tom has traveled across Iowa calling on members for more than 24 years. When he’s not on the road, Tom stays busy managing both the Iowa and Nebraska Power Farming Shows. In his free time, Tom enjoys watching college and NFL football, fruit gardening and taking trips with his wife and children.