Editor's Note: This guest blog is an “answer letter” to Duane Scholten’s commentary of 10-24-24 on a Farm Equipment staff blog 'Ripped-Up’ Multi-Unit Trade Deals & Viral Videos that digs into a viral video posted by Illinois farmer Jake Lieb about a "ripped up" multi-unit dealer purchase order with John Deere dealer AHW LLC.
A few days ago my wife emailed me a link to Farm Equipment’s Guest Blog penned by Duane Scholten from Scholten’s Equipment in the Great State of Washington. My wife read it at work (she still runs HR and a few other duties at our family-owned dealerships) and wanted my reaction. We’ve been married 38 years, and she knows I’m not afraid to cast an opinion … especially related to the farm equipment industry. Even though I don’t believe I’ve met Duane, based on his column and bio it seems we have a few things in common. We both started in the ‘70’s or early ‘80’s. We both have the same hair color, although I’m a little jealous of how much of it he still has. We both started out with little or nothing and managed to last a career in the retail farm equipment business.
Terminology Matters
Where Duane and I differ in opinions is in the title of his Farm Equipment magazine op-ed of October 24, 2024, titled “Root Cause of the ‘Ripped Up Deal' – Volume Discounts.”
First, let’s clarify the term “Volume Discounts.” Since farm equipment dealer consultants are always correct, and I am now one myself, I believe Duane’s use of the term “Volume Discounts” is incorrect.
I believe Duane was referring to Volume Bonus, which is a payment made by the manufacturer to the dealer either quarterly or annually. It is usually a combination of market share performance and total dollars settled to the company. To me, a discount refers to the dollars that are subtracted from the deal at the time the deal is made — and many times are referred to as multi-unit discount or MUD. These are two distinct programs, but my guess is that Duane doesn’t like MUDs either. The real distinction between volume bonus and MUDs is that any dealer of any size can have a customer that qualifies for a MUD. It is customer centric. Volume Bonus is a reward for sales volume and, as I mentioned, market share plus some other criteria and is dealer centric.
The second part of the title that bothers me is that Volume Discounts, or more correctly stated, Volume Bonus, is the cause of the “ripped up deal.” I’m only speculating here, but I believe there is more to the story. While most of us that are outside looking in believe that AHW could have handled this particular deal differently, the lack of response when questioned by Farm Equipment editors and others was a mistake. But to associate this mistake with a company program such as Volume Bonus is also a mistake.
Now, let’s get to the real heart of Duane’s issue: Is Volume Bonus good or bad for the farm equipment dealer industry? In my role as a consultant, I’ve learned the answer to many questions is “it depends.” Volume Bonus programs offered by the 3 majors all use a combination of non-revenue criteria along with dealer settlement dollars to calculate the payout. The non-revenue component includes market share, customer satisfaction, dealership training and many other items.
All these things are components of a well-run dealership. But they come at a cost. And that cost can be recouped by the volume bonus.
Are manufacturers forcing dealers to consolidate with the use of volume bonus? I don’t believe so.
Yes, it may be an additional incentive to buy a neighbor, but there are numerous dealers, and I’ve seen the financials of dozens of dealerships that do very well without throwing up $100 million in revenue.
Niche is Dealer’s Choice to Make
The other factor in the “it depends” equation is the type of market you’re serving. My family has dealerships in row-crop territory and some livestock. We like selling big stuff and have benefited from volume bonuses. If we focused strictly on livestock and hay tools, our volume checks would certainly have been less, but what we sell is the path we alone have chosen.
Do manufacturers have too much clout in deciding who receives a sales and service contract for any given area? Yes, probably. They want good dealers to represent their products successfully and to serve the retail market fairly. Our family’s stores share inventory, service capabilities and accounting, and can control costs by spreading fixed expenses over more people and locations.
The last thing that comes to mind in evaluating the purchase of another store is Volume Bonus. Trying to improve the customer’s experience through better service and inventory selection are our main goals.
Volume Bonus is a great tool for an aggressive, ambitious dealer. Our group works hard to do the right things for the customer and the results show that we succeed more often than we fail. Would eliminating Volume Bonus make us better or worse? Since our business philosophy is to reinvest dealer profits in the business, it would be a hit, but we’d survive.
I’m glad that Duane and I are not among the 1,000 dealers that have been sold out in the last 4 decades. He runs his dealerships his way, and I ran mine my way. That’s the wonderful thing about this country!
