As U.S. and Canadian farm equipment dealerships wrestled with their hangover from the half-decade of hyper sales activity that ended a couple of years ago, the job of finding new homes for a large number of used machines may have been their biggest problem.
For the most part, that trouble has now faded from view, for Canadian dealers at least. Dealer used-equipment inventories have settled into a new normal.
One factor that helped ease the problem is that demand for good used machinery in Canada is now reasonably strong.
But Jim Wood, chief sales and operations officer at Rocky Mountain Equipment, says the good harvesting conditions this past fall caused a bit of a slowdown in sales as many farmers kept their current machines working through the good weather.
“As far as the industry goes, I think everyone would say they’d like to have sold a little more,” he says. “But I think because of the easy harvest, everyone was left with a little more (inventory) than they thought.”
Even though there is no longer a general glut of machines sitting on dealership lots, Canadian retailers once again face the need to cope with increased investment in used inventory. But this time it isn’t because of too many unwanted machines, it’s due to the Canadian dollar faring too well against the U.S. greenback. The higher exchange rate has pushed up the price of new equipment and lifted the values of late-model used equipment right along with it.
For dealers, that means their total used investment is higher, Wood explains. “But it’s just because the dollar (amount) is higher. The number of units is down.”
That’s in addition to the normal increase as higher-priced, more sophisticated machines replace older, more basic units in dealers’ used inventory, especially when one-year-old trades are taken into account.
“When we take a one-year-old 8240 in, let’s say it’s worth $450,000 today. If we took a one-year-old 8230 in three years ago, it was probably worth $300,000. So if you take the same amount in every year, your used value is worth more just because the value is so much higher.”
But Wood says that isn’t necessarily bad news, as long as the market for used machinery remains reasonably good.
“Used is a revenue stream for us. It’s a large part of our business.”.”
Wood says the certified pre-owned warranty programs that all the major brands instituted at the height of the used inventory crisis have been useful sales tools in keeping used machines rolling out to farmyards. And they have given producers in Canada a useful way to keep investment costs down when refreshing a farm fleet despite that high U.S. exchange rate.
“Customers get better piece of mind,” he says. “There’s a little more work in it for us, but it definitely benefits the customer with extended warranty and enhanced programming.”
When it comes to sales of shiny new machinery, Wood says RME is on par with the industry trend that is looking good. According to AEM (Association of Equipment Manufacturers), November’s year to-date sales tally for Canada of tractors in all horsepower classes, along with self-propelled combines, had jumped significantly over 2016. Notably, four-wheel-drive tractor sales climbed by 21.3 per cent and combines outpaced that, getting a 25.3 per cent boost.
Those numbers paint a rosier picture up here than what’s currently happening in the U.S. market, where rigid-frame models above 100 horsepower, the most common tractor sales category, are down 8.1 per cent, although there is single-digit growth in the four-wheel-drive category, along with combines.
“We’re happy with it,” Wood says of sales volumes. And he notes most lease agreements signed at an RME outlet are for longer periods, up to five years. But machines often come back for replacement earlier than that.
“For us, it’s the longer lease term with the lower payments,” he explains. “It’s not necessarily that people want to keep the equipment that long, it’s just that that’s the amortization of the lease to keep the payments down. Depending on the equity, if you lease a machine over five years, by about two and a half years in, they’re in an equitable position. So then they’ll trade again.”
“I wouldn’t say that it (the lease period) has stretched because of the economy, I think we’re just trying to keep their payments down for cash flow.”
Looking for growth
Rocky Mountain Equipment, Canada’s largest dealer of both CNH brands(Case IH and New Holland), already has over 35 stores across the prairie provinces, but according to Jim Wood, chief sales and operations officer, the company is always on the lookout to add to that number.
“We’re definitely always open (to it),” he says of expansion opportunities. “But you have to have willing sellers too, right?”
Finding willing sellers of established dealerships is getting to be a bigger challenge as more and more consolidation has taken place in the industry. That also means there are other retail chains out there that may be competition in the hunt for established stores to add to their networks.
“But we’re definitely looking,” Wood says. “We’ve delivered on our balance sheet and kept inventories in line, so we’re definitely healthier than we’ve ever been. We want to expand; it’s just where and when.”
And although there may be a few isolated opportunities in regions such as the northern Peace River district of B.C. or communities in northern Alberta to create startup stores, Wood isn’t eager to go down that road. The initial investment is high and it can be a very time-consuming and expensive process, with a lapse of several months before the company could even open the doors for business.
“For us it’s tough to put a fresh store in somewhere,” he says. “Because you have to hire people, you have to develop the area. I’d much rather just buy somewhere pre-existing business. It’s a heck of a lot easier.”