[Author: Tom Junge, 07.2016 | Keywords: Iowa Field Notes, Equipment Values, Change]
Not too many years ago (maybe 5 or 6 years), dealers used the “Official Trade-In Guide” to determine the value of equipment. Depending on the condition of the equipment, dealers primarily used Retail Price or Trade Premium.
When the ag industry boomed, trade-in guide values struggled to keep pace with rising equipment prices. As new tools became available online, dealers switched to what I call “TractorHouse Pricing.” Dealers would go to TractorHouse and look up the average retail price for a specific piece of equipment with the goal of bringing in the equipment so they could list their item for that price or a little less.
After experiencing a rapid decline in the ag economy, dealers today have found that retail prices on
TractorHouse are unrealistically high. As a result, they are now using another new online tool – auction reported prices.
For decades, auto dealers have used auction pricing to value vehicles. Ag equipment dealers have always said it would be nice to have the same auction reporting for ag equipment. Over the past couple of years this reporting has been both timely and easily accessible online with sources including: AuctionTime, Machinery Pete, BigIron, Ritchie Bros., Purple Wave, Steffes Group, Inc., Sullivan Auctioneers, LLC and so forth.
In the past, numerous auction companies would come to the Association office to talk about how dealers could utilize auctions to sell equipment. I always told them that dealers brought in trade-in equipment at near retail price so they could not afford to sell equipment at auctions. AUCTIONS were considered a LAST RESORT!
What if this was not the case? What if dealers could bring equipment in at auction price or close to that price? Then, if they couldn’t sell it at their retail price in a set time period they could put it on an auction, minimize their loss and move on. Plus, if dealers used auction pricing for valuing equipment, they would be more comfortable trading unfavorable or competitive equipment in and systematically selling it on auctions to move it outside of their trade area. Auctions would not be a last resort but one method of moving used equipment.
Let’s take a look at some examples of how this might look using simple assumptions. Since some dealers contend that farmers would not allow them to give them auction price for their equipment, I’ve added a local trade premium. Conservative dealers may stick with allowing only auction price for the trade-in.
You’ve always heard that timing is everything. Well the timing is right for ag equipment dealers to adopt this new method of valuing equipment. Many dealers already use this method for some items, while others are using it for all items. Why can’t ALL DEALERS use it for ALL ITEMS?
The sooner we move to this method, the sooner we will reduce the risk of taking enormous losses on used equipment sales and improve used equipment inventory turn. Hard lessons are being learned. Will we forget these lessons when the economy improves? I hope not.
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.