In the material handling industry, if history has taught us one thing it’s that no matter how deep or dark a recession might be, used equipment is the proverbial light at the end of the tunnel leading us out. With its lower price, higher margins and faster sales cycle, used equipment sales can help dealers climb out of the hole that the economy has put so many companies in. That’s why as a used equipment manager or salesperson, it’s now more crucial than ever to make sure that your department is firing on all cylinders.
The Price Is Right
The great thing about selling used equipment is that you can be flexible with pricing. For instance, you can take a piece of equipment and wholesale it directly with no repairs to a customer for one price, or you can take some time to recondition that same piece of equipment and sell it at an even higher price point.
A good rule of thumb that Morrison Industrial Equipment Company uses to set the price on a piece of used equipment is to take the acquisition cost of the equipment plus repair costs, then mark it up 25 percent. So for instance, on a piece of equipment with a $10,000 acquisition cost, it would wholesale as-is for $12,500. If we were to take that same piece of equipment and put $3,000 into repairing it, we would then sell it for $16,250. This model keeps us cost-competitive while still maintaining good margins.
The question that often pops up is, “How do I decide if I should recondition a piece of equipment or wholesale it?” It usually comes down to two things, the hours on the meter and the amount of repair work that needs to be done. Obviously, if the truck has a large amount of hours, or was used in a corrosive-type application, there isn’t much to gain by reconditioning it. However, if it’s a low-hour piece of equipment with a few dents and scratches, it makes sense to fix it up.
What to Watch For
Used equipment sales can be a huge source of income for your dealership if handled correctly. However, overstating or misrepresenting the equipment’s capabilities can lead to big trouble down the road.
The best way to avoid this is to closely study your customer’s application. Not every application can be handled with a piece of used equipment and you have to be able to recognize the difference. I have always used four hours as a dividing line. Anything that’s going to be run more than four hours a day, I consider a new equipment application. However, if the customer plans on running the truck three to four hours a day, a highquality piece of used equipment should get the job done. If they’re running it two hours or less, they may be able to get away with a cheaper, older model.
Also critical is that the customer understands the limitations of used equipment. As a dealer, it is your responsibility to manage their expectations. They need to know that if they’re paying 50 percent of new for a truck, they are getting 50 percent of a truck, and they must adjust their expectations accordingly. It’s best to handle this up front or else you run the risk of misleading your customer, which is something neither party wants.
Time to Move Forward
Though the economy is beginning to show some signs of life, things are still far from where they were a few years ago. There are fewer buyers out there, and those who are buying are bargain hunting. As a used equipment manager or salesperson, you have to be more aggressive than ever to respond to the marketplace. It’s critical that you focus on honing your negotiation skills so you can provide customers a product they need at the price they require without sacrificing your margins. Maybe you can sell the customer a piece of equipment cheaper than normal, but it won’t be completely reconditioned—no new tires or seat for instance.
Now is the time to get creative, the light at the end of the tunnel is there, and it’s going to be used equipment sales that lead you out.
|Meet the Author
David Morrison is used equipment manager at Morrison Industrial Equipment Company in Grand Rapids, MI, and on the Web at www.morrison-ind.com.