Dave Baiocchi

Eating Bullfrogs

Posted on Mar 20, 2020 in Featured, Features

Since January, my articles have been reviewing the highlights and ideas presented at the 2019 MHEDA Rental and Used Equipment Conference.  This conference was held in October of 2019, and featured speakers from around the country who have been successful in their rental and used equipment ventures.

At the conference the information provided by the speakers was relevant and useful, but some of the most exciting ideas were shared across the table at the breakout sessions.  Ideas that boost sales, and cut expenses are usually shared “dealer to dealer”.  It was no different during these sessions.   Last month I shared some of the ideas presented in regard to the used equipment department.  The March article covered the following topics as they related to the sales and marketing of used equipment:

• Used equipment sources
• Brand strategy
• Grades and quality
• Warranty offerings
• Trade ins

This month I will complete this series covering the following topics:

Financing

Capital equipment requires financing, even at the used equipment level.  Many customers don’t have the ready cash to invest and sorely need the productivity that our equipment offers them.  There are plenty of local vendors that will show an interest in providing funding for used equipment.  We got about a half dozen calls a year from funding sources we never heard of before, asking us to consider them as a used equipment finance vendor, or to consider new equipment opportunities that our primary financial supplier was unwilling to underwrite.

From a dealer perspective, choosing the right vendor for UE financing should be a decision that offers intrinsic benefits for the dealership.  Limiting the vendor base, and “partnering” with just a single primary and (perhaps) a secondary funding source allows the dealership to forge relationships that are deep enough to allow flexibility and allowances if the need arises.

Customers may be considering tapping their bank lines to finance equipment.  Having an alternative vendor who may be willing to write a lease instead of a contract sale, would allow the customer to still acquire the equipment, while preserving their bank lines for operational borrowing.  While new equipment lease-financing normally involves only 1 or 2 payments in advance to initiate a contract, used equipment transactions will require down payments of 10% to 40% depending on the age and condition of the equipment.  Payment terms longer than 36 months are rare, and interest rates are routinely double that of a new equipment purchase.

There will be times when a good customer doesn’t have the ready cash for a sizeable down payment. In some of these cases, we were able to RENT the unit to the customer for six months, then provide a rental credit of a portion of his rent against the original selling price.  This was a creative way to secure the sale using the rental platform as a tool to provide the equity the customer needed to ultimately finance the equipment.

Dealer financing may also be an option, although most dealers don’t like to extend direct financing for more than 12 months.  90-day terms with 1/3 of the balance in advance is also popular.  Extended terms like this can also be offered “same as cash”, or with a nominal financing fee.

Competing with the internet

The internet is both the best and worst thing that ever happened to the used equipment business.  Many customers use the ubiquitous equipment listings on the internet as a weapon to get salespeople to reduce their prices.  Unlike new equipment, used equipment value is “in the eye of the beholder”.

Anyone who has been in this business for a while will understand that if the customer was truly interested in buying a forklift online from an independent source…. he wouldn’t be standing in front of you!  Used equipment purchases come with inherent risks.  Quality issues and warranty support are just the beginning.  Internet purchases are normally an “as-is – where is” proposition.  The ugly duckling that finally gets delivered, strangely looks much different than the photoshopped image of the equipment on the website.  Remember that as a full-service dealership you are not just representing equipment!  You are representing a support function, and an assurance guarantee not available online!  Stand your ground….and defend your value.

Dealer website and social media presence

While we battle the red herring on someone else’s website, we have to ask ourselves if it’s time to review our own digital marketing.   Most local UE customers will now start their search online, and a majority of them will call with an idea of what they think they want, based on what they found on your website.  The number one problem with UE web pages is the failure to actively manage the posted inventory.  Sites need to managed and updated every day.  Sold equipment must be removed quickly, and featured units should be rotated regularly.

Some dealers don’t price their equipment online.  They want the customer to call and negotiate pricing in person.  Guess what….  THEY WON’T CALL.  There are other dealers in your area that list the price. When they do, the customer feels empowered to engage because they feel they have a negotiating starting point.  It’s much better to list a price (even a high price), and then explain the BENEFITS represented by that price.  Prices listed on the website should never be your listed minimum price.  It should be viewed as a negotiating starting point.  Add value by also representing service capabilities, customizations, warranties, trade in allowances and financing to support your pricing online.  To prove my point…how many times have you called for a price on anything, when it wasn’t listed on the website…. I never have, and I suspect you haven’t either.

Some dealers don’t list individual trucks.  They will list a sample unit with a photo (like a cushion 5K) and specify a price “range”, stating that several units are available.  This is a good strategy as it provides a price point for the customer without attaching a stated price to any particular individual unit.

Commissions

Most dealer commission plans pay salespeople from about 5% of the selling price for used equipment orders.  Most also will offer “gains sharing” if the salesperson priced the equipment in excess of the dealership minimum selling price for the unit listed.  Most gains sharing splits will pay the salesman 40-50% of the amount over and above the minimum listed price.

Some dealerships have improved the base percentage to 6% or even 7% of the listed price.  However, they pair these enhanced commissions with some caveats.   If the salesperson offers discounts that take the price below the desired minimum, commissions fall proportionately.  Also, if a trade in is taken in on a used equipment sale, commissions are reduced, or held in trust, until the trade-in unit is profitably removed from inventory.

Inventory control – write-downs

I talked about grades and quality of used equipment last month.  The fact remains that every used equipment manager sometimes “takes a chance” on a unit that ends up being a problem child.  You know what I’m talking about.  You wanted to just clean it up and sell it, but it seems to spring a new leak just as you got the last one fixed.  Some used trucks just won’t be satisfied unless they are sold at a loss.

As painful as it is, my personal experience tells me that the best home for a problem child is in the yard of a wholesaler.  If you finally do sell a lemon at a discount to a retail customer you can probably expect to continue to enjoy lemonade well past any warranty period.  The good thing about wholesaling units is that the bleeding stops when the unit leaves the yard.  Bad trucks don’t heal themselves.

Control your inventory by taking the painful write-downs early…and often.  You may miss a bonus because you didn’t hit your quarterly numbers, but you will always pay a penalty when you put off the inevitable.

When I first became a used equipment manager in 1987, I inherited what seemed like a whole fleet of bad eggs.  I would fix them, then rent them, then fix them again, then discount them to sell them…. then warranty them until they drove me crazy.  I finally had a meeting with the CFO (many years my senior), who told me something I have never forgotten and often quote to others.  He said “Dave, if you have a frog that you have to eat…. you’re gonna want to eat him when he’s tadpole…not a bullfrog.  Take your loss. Then use what you have left to buy equipment that will MAKE you money!”

Successful used equipment operations involve assessment, planning, execution and cost controls.  Swallowing frogs will need to happen along the way.  Sound initial decision making however will help you drain the swamp, and produce sustainable and profitable results.