The high depreciation used buyers is next in the series I have been writing called "The Lines of Delineation." In this article, I talk about these customers' buying habits and goals. In my opinion, these buyers tend to trade every 3-5 years and develop a niched used equipment segment that is overlooked and undervalued as a buying group.
As I have mentioned, the used equipment marketplace is an ecosystem like anything else. You will have an inventory issue if there aren’t enough buyers in one segment. The same can be said for having too many buyers. The high depreciation used buyer is crucial because they buy used equipment that is niched. The equipment they buy has too many hours for the late model and low hour buyers, a little more expensive than the 5- to 10-year-old buyer wants to spend, and, after VAT (value-added tax) and shipping cost, puts the international buyer in a very narrow lane.
The high depreciation buyer buys equipment that, in most downturns, causes a bottleneck. I am talking about 1,500 – 2,000 hour tractors and 750 – 1,250 hour combines. For reasons mentioned before, the buying segment is narrow, and when the economy has a downturn, these buyers tend to hold their equipment longer than the traditional 3-5 year trade cycle. Increasing trade cycles causes upstream inventory to build and, in turn, causes downstream used inventory to deplete and the total number of inventory machine hours to grow. The problem is now on both sides. Upstream equipment is more expensive and just out of reach, and downstream equipment has more hours than buyers traditionally want.
The best example is the 2012-14 model year equipment glut we saw from 2013-18. Several reasons caused the inventory problem. Manufacturer over production and on-farm income, to name a few. The sale of new and “new to you” equipment was high, and several buyers jumped several series of machines instead of their traditional trade cycles. When the music stopped, many buyers upgraded exponentially and waited to trade for 5-7 years. Most of these buyers traditionally fell into high depreciation buyers.
Because the high depreciation buyer was on the sideline, the late model and low hours segment saw inventory grow and the dollars spent for various programs exceeded the norm, and selling payments via leasing programs were about the only tools in the toolbox. The hours of use on equipment jumped dramatically. It was not uncommon to see row-crop tractors with 7,000 hours that generally would have 4,000 – 5,000 hours at the time of the trade. Used combines with 1,500 – 2,000 hours instead of 750 – 1,500 hours. The trade cycle extended from 3 to 5 years, and in some cases 7 years, causing even more dependence on dealership aftermarket business. It wasn’t a lack of focus because the customers were there to buy. It was just hard to get high depreciation buyers to get excited about trading.
Because of the niched reality of the high depreciation buyer, a dealership can’t overlook this segment of buyers. I would argue that the same amount of time and effort needs to be expended in building programs for the high depreciation buyers as the late model and lower hour buyers. Upstream equipment interest cost and downstream equipment inventory will thank you!
In the next installment, I will discuss the last buying group, "The 5- to 10-Year Old Buyer." In late 2017-20, the buying habits of this group changed and cleaned up an inventory glut that turned into a profit center for most dealerships. Because of their buying habits, the 2021-22 used row-crop tractor buying frenzy happened.
