[Author: Tom Junge, 05.2016 | Keywords: Iowa Field Notes, Change]
During my visits with dealers, many have brought up the old saying ìbad habits are learned in good times.î Dealers are starting to recognize that they have developed bad habits or ignored good business practices during the robust years of the ag economy. Many are now working on bringing back the good habits or restructuring their business for todayís economy. Here is what some dealers are doing…
Addressing Blanket Liens – As financial conditions worsen for farmers, dealers have become concerned about blanket liens. Some now require salesmen to acquire information from customers on the bank they use so a release can be sent to that bank. One dealer doing this reported that while there was resistance from some banks, it has since become routine.
Collecting on Repair Bills – As one dealer said, “it is the customer you least expect that will get you.” With the good times come loose credit policies. Dealers are now tightening policies so that all service bills must be paid before equipment is allowed to leave the dealership. The use of the mechanic’s lien law was even mentioned by one dealer.
Reviewing Expenses – One area that easily got out of control was advertising and donation expenses. Dealers are now evaluating the ROI on their advertising dollars and declining some donation solicitations.
Changing Sales Product Mix – In the past, many dealers only focused on row crop farmers. Today, more dealers are focusing on different market segments, such as light construction, acreage owners, livestock farmers and residential. CAUTION: Only so many compact tractors and mowers can be sold in Iowa and Nebraska so be careful not to order too much inventory for these markets.
Focusing on Customer Labor Sales – When equipment was selling at a rapid pace, dealers were so busy getting equipment ready for delivery that they often ignored customer labor. As a result, some dealers saw their internal labor reach 70% of total labor sales. Currently, the focus is to get customer labor sales back by offering service specials and aggressively contacting customers to ask for their business.
Declining to take a Customerís Trade-In – With used equipment inventory still a problem for many dealers, some are now telling customers they won’t take their equipment in on trade. Some dealers have offered to pay half the cost of selling the item at an auction or putting the equipment on their lot on consignment.
Buying Used Equipment at Wholesale Prices – More dealers are buying lease return equipment from manufacturers or auctions to meet customer needs. This was done in the 80s to supplement sales when dealers were unable to sell new equipment. While dealers would prefer to sell from their own used equipment inventory, if they can’t, they can still capture a sale with this newly purchased equipment. Dealers feel the profits from these sales will help offset the potential loss on selling equipment from their existing inventory.
Communicating with Employees about the Slowdown – When business is good, everyone is happy. With the ag economy slumping, dealers are seeing employees who have never experienced a downturn getting nervous and scared that they will lose their jobs. Dealers have mentioned that some employees have already jumped ship. Dealers must have open communication with their employees to avoid further employee losses.
Compensating Good Employees – While some dealers have been forced to downsize, in doing so, they have also evaluated employees and made sure that good employees were being paid healthily. During the recession, car dealerships found that it was best to take some of the savings from payroll reduction and redistribute it to key employees they wanted to retain. During these times, commissions may drop for parts personnel, technicians and salesmen. Replacing these employees will remain difficult no matter the condition of the economy.
Moving Forward…Possible New Business Practices
Using 5 Year True Lease – All dealers acknowledge a problem with taking late model large equipment in on trade. Some feel one potential solution might be using a 5 year lease with 10% residual. Once the lease price is determined the customer determines the yearly cost per acre, bushel or hour. The customer can then choose to buy out the lease or let the piece of equipment go back to the lease company. This might be a solution for large row planters, combines, corn heads, tillage, etc.
Quoting Cost of Combine per Bushel – With the size of combines and headers today, farmers are running many more bushels through their machines per separator hour. It is quite possible that it costs the farmer less today per bushel than in the past. Pricing combines by the bushel may prove more acceptable by farmers. Dealers are beginning to notice the increased bushels in the wear and tear of machines and are looking to adjust reconditioning costs.
Allowing Near Auction Price for Trade-In – Dealers are allowing slightly more than auction price instead of near retail price for trade-ins. In addition, if a dealer cannot sell it in a set period of time, they will sell it via auction for a small loss.
Setting Hard and Fast Timeline to Sell Trade-in – Dealers are discussing the setting of timelines to sell trade-ins by type and model of equipment. No longer will they be stuck holding aged inventory.
Downsizing/Closing Locations ñ Industry consultants continue to discuss this topic. A few dealers are currently monitoring the performance of specific locations. Often, the reason for closure is not only due to declining sales, but the difficulty of hiring and retaining key personnel at these locations as well.
These are only some of the changes dealers are making in their businesses. The dealers who recognize bad habits in their dealership and make changes will only prosper as economic conditions improve. Now is the time to rethink the way of doing business.
About the Author
Tom Junge
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.