To say 2023 is going to be interesting is like saying a hurricane creates a slight breeze. As the equipment market settles down and supply chain issues revert to “normal,” equipment values will change.
So, what does that mean? How fast will pricing change? When will it happen? If I had the answers to these questions, I would own a small tropical island someplace with my yacht parked offshore. The only thing I can be sure of is the contraction in price will be easier to see than those of the past and will have a softer landing. The market has 4 things going for it.
1. The amount of used equipment on dealer lots is the lowest it has ever been. Unlike other booms, the amount of new equipment available for sale was limited and forced the sale of late-model-low-hour equipment. Since the late-model-low-hour equipment was the only choice, it went fast.
Each subsequent equipment class followed suit as more used equipment became available and as new equipment was delivered. Supplies of used equipment didn’t replenish, they were presold. As a result, the trade-in moved from farm to farm, rather than from the dealer’s lot to the farm. During the past 3 years, the only equipment issue was the complete lack of equipment, not an oversupply.
2. High commodity prices and COVID relief programs gave producers the funds needed to update aging equipment. The available funds luckily arrived at the right time. Had the funds been available when inventory was readily available, we could have easily seen a catastrophic crash as new equipment sales would have dominated and used equipment would have been slow to move. There would have been another 2012-14 style mess to clean up.
3. The elevated equipment price will be around for a while because of used and new equipment supply chain issues. The scarcity premium of equipment will slowly erode over the next 12-18 months and affect pricing, but allocations will impact how much and how fast the premium erodes. If managed correctly, allocations can have a very impactful result on the market.
“The ‘bad’ that comes will open a path for a new kind of ‘good’ that will change the way manufacturers, dealerships and customers do business and look at equipment…”
4. The lack of used equipment generated from model years 2021-23 impacts these model years’ value as they work through the machine life cycle. Also, because of the used equipment price, these model years will have a different trade activity than machines in the past. These machines will have more hours than units in previous years when traded. As a result, this will further elevate pricing from similar machines in the past.
Managing the “bad” in this contraction should be more straightforward than ever before. First, however, the signs will be there to see and read. Then, as the amount of new equipment from factories arrives, and lots have used equipment to sell that is not presold, supply will catch up with demand, and the price will begin to stabilize lower. Therefore, this correction will not be like 2014 all over again. I have had many conversations where 2014 comes up, and I don’t see it happening like that.
There needs to be more equipment on the market. In 2012, the combine auction market was inundated with dealer listings. Dealer lots were piled high with used equipment, which is not the case today. Demand for used equipment is as high as for new equipment. In addition, customer buying groups are becoming increasingly more stratified in their segments.
Because of this, buyers are less likely to jump over a model of equipment, leaving gaps or excess equipment in the washout cycle. Adding upgrade/retro kits and autonomy for equipment will also determine when and how often equipment is traded.
The backside of the correction will be like nothing seen before. The rules used by equipment managers before will not work in this game. A new approach will have to be taken, and its playbook has yet to be written.
The “bad” that comes will open a path for a new kind of “good” that will change the way manufacturers, dealerships and customers do business and look at equipment in general. Where data comes from and how data is used will increase efficiency across the spectrum and change the customer landscape.
