As a follow up to my last column, “The Pillars of Used Equipment Management,” this month I cover the washout cycle, evaluation processes, used equipment pricing and margin expectations.

The following are key points to prioritize so you can make the most of your used equipment processes. 

Washout Cycle 

  • Know washout by segment
  • How long does the segment’s cycle last and how many iterations from first to last.
  • Where is the washout cycle stalling?
  • Where is the washout cycle speeding up?
  • What needs to be influenced and what does that look like? 
  • Is the washout cycle too full and where is it?
  • What are the dollars in each iteration and what does that mean?
  • Know what average sell price is for each iteration.

Used Equipment Evaluation Process

Establishing value in order of importance

  • Dealership business system past sales — This the most important number because it shows market conditions in your trade area.
  • Auction values — true cash value buyers are willing to pay today.
  • Retail listing website values — These numbers are only important when positioning equipment for sale on the internet. The machine shouldn’t be the most or least expensive. The bottom half to the bottom third of listings seems to be the best place.

Machine Information

  • Pictures are your friend. Take as many pictures as you can list with the machine.
  • Take video as it tells a different story than pictures. 
  • Accurately list machine specs. Don’t list the build codes if they aren’t the same. 
  • Hours — Have a picture of the hours and if more hours are added before the machine is available, clearly label and define what the hour projection will be and when the machine is available. 
  • List all manufacture and extended warranties. 
  • Give a brief 2-3 sentence description of the machine and what the buyer should expect when buying it.
  • List past work orders, both major repairs and routine maintenance. Let the buyer see the service history and why the machine is a premium or average machine. 

Used Equipment Categories

  • Certified Pre-owned 
  • The nicest of the nice, 5-10% of the machine population. Looks new and needs little reconditioning. 
  • Average
  • 65-75% of the market and is what a buyer would expect for the hours and type of use. Reconditioning cost center around safety issue and repairs that will inhibit the performance of the machine. The reconditioning inspects work as an al a cart menu for the buyer. 
  • Auction
  • 10-15% of the machine population. These machines are odd machines for the area or don’t have a pedigree you want anyone to see. Typically the recon dollars will not spark a return for the investment.

Reconditioning Process

  • Establish a timeline for the recon inspection to happen.
  • Trade-ins are work for raining days. They need to be cleaned and inspected in 10 days of coming into inventory.
  • Who owns the process?
  • The person managing the used equipment is who owns the process. They are accountable for inventory turn and used equipment profitability
  • Who is approving the recon budget
  • The person managing the used equipment. They are not emotionally tied to the unit outside whether or not the machine has the ability to be profitable. If the budget is going to be more than planned they will make the call as to what will happen. Not the salesperson or the service manager..  
  • Who is updating pictures and information across all website platforms?

    The person managing the used equipment. This can be delegated to an admin or someone else, but the person managing the used needs to audit websites for accurate pricing, good pictures and accurate machine information and description. 

Used Equipment Pricing & Margin Expectations

Pricing Structure 

  • Has to work in conjunction with your compensation plan.
  • Retail Ask Price – Customer facing pricing.
  • 2-3% difference between Retail Price and Market Price
  • Market Price – Sale price for a retail customer including over allowance and other add costs. This is the value the machine should sell for.
  • 2%-3% difference between Market Price and Cash Price
  • Cash Price — Wholesale price for non-retail customers
  • Cash price and net book — The minimum margin your dealership expects to make based around machine price, current inventory turn, interest cost and compensation plan.  
  • Net Book — (Cash Price – Margin) + (Recon + Freight + Reserve + Lien Search + Ect)  
  • This is the true all-in book value estimate during the evaluation process.
  • Recon Estimate — Alignment with Recondition Process.
  • Customer Freight — Freight cost to the customer’s yard. 
  • Location Freight — Freight cost back to the dealership location.
  • Reserve Allocation — Fund charged to the deal to build its reserve account. 
  • Lien Search — accounting for the cost to perform a lien search
  • Trade in Value — Trade in value is the Net Book Value less all expenses.