Dave Baiocchi Good, cheap pneumatics
Good, Cheap Pneumatics
For the past three issues of MHW, we have been writing a series of articles based on the information and ideas presented at the 2019 MHEDA Rental and Used Equipment Conference. This conference was held in October of 2019, and during the conference, I shared ideas and strategies with the attendees regarding best rental and used equipment practices, and strategies.
Although the information provided by the speakers was relevant and useful, some of the most exciting ideas were shared across the table at the breakout sessions. The best and most applicable ideas in sessions like this, are usually shared “dealer to dealer”. This month I want to leave the rental department behind and focus on some of the ideas shared in regard to used equipment.
Used Equipment Strategies:
Sources
The one recurring theme I hear from used equipment managers is that they just can’t find good used equipment. One reason for this is that in a dealership setting, the bar is set relatively high in terms of what is acceptable, and saleable, and what is not. We (and our customers) tend to want USED equipment, not OLD equipment. Telling the difference can be a moving target, as year of manufacture sometimes doesn’t indicate a unit’s true age and condition. Equipment shows its age first in hours, then in years. Can you trust the hour meter? It depends on where the unit came from.
In our business there a few popular sources of used equipment:
- Rental Fleets – YOU are always your best and first source for used equipment. I find that dealers that have built and cared for their rental fleets properly, seldom have to look outside their own resources to find pre-owned inventory for sale.
- Leasing Companies – Lease returns are another valid source for sourcing used equipment, especially if you are looking to purchase a “package” of multiple units. It’s common for finance vendors to partner with dealer organizations, so if you are looking for a particular brand, this is the place where you are likely to find an ample list to choose from.
The down-side is that you have to share your profitability with the finance company. Acceptable residual values on original leases have also increased over the years. Add the seller’s markup, and prices can get pretty steep. This can squeeze your budget for refurbishment, and affect your overall profitability.
We also need to be careful. Many long-term leases have been pushed from 60 to 72 or even 84 months. The original lessee most likely had a duty cycle of more than 1 shift. Combine these two factors and you may need to check the hour meters to see if the deal is worth making!
- Wholesalers – I love these guys, and they are necessary to our business. For the dealer wholesalers exist to DISPOSE of equipment that is not suitable for the retail market. There are times however when you can partner with a wholesaler and participate in a purchase of your brand of equipment. Dealing with wholesalers is a “caveat emptor” situation. These guys are also direct sellers in your marketplace. Make sure you insulate yourself properly, and inspect machinery carefully. Warranties from wholesalers usually end at their driveway.
- Trade-ins – Most of the equipment the dealer takes on trade is being traded in because it is PAST its useful economic life. An old used equipment guy once told me “don’t water dead plants”. This applies to most of the equipment traded in today. Use your network of wholesalers and move these units off the lot. Even if you have to take a small loss, it’s better than pitching a tent over it in the shop, and then trying to sell an overvalued boat anchor.
Brands
Many dealers have taken to the practice of only selling used equipment that is manufactured by the OEM they represent. All other brands are sold on the wholesale market. This policy provides some advantages.
- Parts are available and priced right. Not having to buy your refurbishment parts from the dealer preserves your profitability.
- Technical expertise. Your service crew knows these units. This makes labor allowances easier to manage.
- Limiting available used trucks to only your OEM drives your brand and unifies your messaging. If all of the equipment on the lot is the same color, the customer will correctly assume that you can answer all the questions, and undoubtedly provide the after-sale service.
All of this said, I usually see this “OEM brand only” policy in dealerships that have either have adequate rental fleet to feed their used equipment inventory, or they have a close relationship with the leasing agents that routinely market their brand.
Grades and quality
Let me just start by saying the words “good, cheap and pneumatic” don’t belong in the same sentence. By far, ITA class 5 forklifts are preferred in the used equipment marketplace. The reason is simple. Pneumatic tire forklifts can perform a wider range of tasks, and operate both on improved and unimproved surfaces. As the hot commodity, you will rarely want to discount a good pneumatic unit, as they hold their value well. But, if I had a dollar for every time a customer was looking for a good, cheap pneumatic I’d be a rich man.
So, what does “good used equipment” mean in our business? In my experience, most well run dealerships will limit retail used equipment offerings to units that are able to pass the following test:
- Under 10 years old
- Under 15,000 hours
- No visible engine smoke
- No visible engine oil leaks
- Transmission does not slip
- Starter bendix and flywheel in good condition
- Ignition provides clean start within 5 seconds
- No hydraulic leaking or seeping from any cylinder
- No hydraulic valve cavitation
- At least 50% tire life remaining
If it passes these tests…. it’s a machine that most likely will provide a customer with a useful life in a light to moderate use environment.
Warranty
It’s also a machine that the dealership won’t be afraid to stand behind. Warranties are wide and varied in connection with used equipment, but because you are a dealer, retail customers will expect a warranty every time.
Yes, even if you agree with the customer that the unit is “as-is, where-is”, there is a better than average chance that he will be back to complain the first time it breaks down. Customers that come to the dealership looking for a good, cheap pneumatic, should be educated that cheap pneumatics are only really available at an auction, or on Craig’s list. The dealership should hold a posture and policy that the used equipment they sell to the retail customer will ALWAYS represent quality, and come with a warranty.
30 days of (entire unit) warranty is common in our industry for lower grade used units (7-10 years old). 60-90 days of coverage is offered for the upper tier. Power train warranties vary. This is where I think the dealership has an opportunity to represent quality. What if every lower tier unit had a standard power train warranty of 90 days while the upper tier provided 1 full year of coverage?
Too risky? Really?
You just sold a good, serviceable forklift for a fair price (say $15,000). Do you really think that if the engine or transmission bites the dust inside a year that the customer won’t be on your doorstep looking for you to “do the right thing”? Guess what? You’re probably going to find a way to satisfy him, because the big sign hanging on the front of your building is not for sale for $15K! Your reputation is worth far more that it costs to simply take care of that customer. The unit was sold for a responsible price…. the customer should be able to expect at least a year of use before a major repair is needed. You can even add the provision that this “extended” warranty is only for customers that sign a PM contract. So, in actuality…. you risk nothing, and pick up a new service customer in the process.
Next month I will complete this series!
Happy St. Patrick’s Day!
P.S. I will be at MODEX in Atlanta in March. If you want to join me for a glass of wine, and a discussion of aftermarket initiatives that move the needle, give me a shout at: [email protected]. Hope to see you there!
