Inside the dealership, where does used equipment management belong? For its entirety, used equipment has fallen under the scope of the sales department, but the question needs to be asked: what is the mission of used equipment management? What is the scope and function of used equipment management? The standard answer is to get used equipment ready for sale and monitor pricing to ensure that what is on the lot is priced to sell. The more I think about it, the more used equipment management should fall under risk management, not sales. Used equipment management comprises four pillars: appraisal, reconditioning, pricing, and asset management. These pillars support managing risk more than the sales function.

Appraisal

The appraisal process is meant to verify what the piece of equipment is. The appraiser correctly identifies the equipment's make, model, and year. The appraiser is also judging the overall condition rating. The appraiser looks at tire tread depth, machine operability, maintenance history, and overall appearance and verifies what technology the machine has or doesn't have, to name a few. All of these steps are made to tell the buyer an accurate machine story. Also, the description estimates any reconditioning cost associated with bringing the machine to "sale-ready condition." This process sets the stage for how the machine is priced and presented to the buying public.

Reconditioning

Establish a timeline for the recon inspection and the category the machine belongs in: certified pre-owned, average, or auction. This sets the expectation for the machine and the customer. The person managing the used equipment owns the process. That person should be accountable for inventory turn and used equipment profitability and approve the recon budgets.

Pricing

Pricing is placing the machine in the market, so it is not the highest or the lowest price. Pricing should be based on three data points in the following order. First, what did the "x" of machines sell for, and what was the time frame for each sale? Next, what is the current auction value for equipment, the auction volume, and future volume? Finally, what is the average retail market listing price and the last three to six months of online inventory listings for like machines? Pricing should account for the profit goals of the dealership while offsetting the risk of holding costs on dealership profitability. I look at 4 different pricing functions when pricing a piece of equipment.

  • Retail Listing Price: This is a number used to position equipment for retail listing sites. The purpose is to ensure that the piece of equipment is not listed at the top or bottom but falls in the middle of the pack. If the machine is listed at either extreme, there should be a good reason, which needs to be clearly expressed in the machine details.
  • Market Price: The sale price for a retail customer includes over-allowing and other added costs. This is the value the machine should sell for. Cash Price: The wholesale price for non-retail customers. These are all no-trade deals and should be restricted to wholesale and dealer-to-dealer transactions. Selling a machine below its cash value will jeopardize margin goals.
  • Net Book: (Cash Price—Margin) + (Recon + Freight + Reserve + Lien Search + Ect). This is the true all-in book value estimate during the evaluation process. This is where all deals' margins should be calculated during a presell situation and tracked and measured for accuracy when the machine is sold.

Asset Management

My inventory management strategy revolves around day inventory, divided into 4 "buckets" which are:

  • Bucket 1: 0-90 days
  • Bucket 2: 91-180 days
  • Bucket 3: 181-270 days
  • Bucket 4: 300+ days

All of these buckets have different triggers and actionable points throughout the lifecycle of a machine while in inventory.

As ag equipment undergoes its next iteration, so does used equipment management. Equipment management should be a stand-alone department that reports to the CEO or the CFO. Used equipment must be removed from the influence of new sales and market share. The temptation to overvalue equipment in such an environment is too high — trust me, I have been there. Every deal has to stand independently, not on the back of used equipment. Managing the risk of used equipment needs to be a singular focus of the dealership.