Trent Hummel, is a fourth-generation equipment dealer and trainer-consultant for the Western Equipment Dealer Assn.’s Dealer Institute. After cashing out of his family’s Case-Kubota in 2008 and New Holland locations in 2010, he has been consulting and training other dealerships in operational best practices, leadership and financial understanding, with a special emphasis on inventory management. (See more details below on the Dealer Institute and upcoming Iron Management training sessions.)
He is also serving as general manager of KeyAg, a Kubota dealership in Red Deer and Leduc, Alberta. KeyAg’s owner Harv Schimke asked him to serve as general manager of his family-owned business in 2015. KeyAg began in 1981 as a fertilizer dealership and took on the Kubota line in 2000. It also carries Husqvarna and Land Pride.
Hummel provides insights on the ways he aggressively moves more used equipment — and earns more from those sales in this interview with Rural Lifestyle Dealer.
RLD: What’s the used equipment market like in your area?
Hummel: Demand for less than 100 horsepower used tractors is always strong. We cannot get enough. Our hay/forage market is strong and the products to service those markets are moving well. With a low Canadian dollar, the world is buying Canadian commodities and many of our farmers are still active buyers because they have cash flow.
Our competitors’ pricing is based off the U.S. dollar and their pricing has increased considerably due to the Canadian/U.S. exchange rate. Many Kubota units are based on the yen and euro. Our new pricing has not increased to the same degree as our competitors and this is allowing us to get great buys on “used iron.”
Trent Hummel is general manager of KeyAg Kubota and a trainer-consultant for the Western Equipment Dealers Assn.’s Dealer Institute.
RLD: Why did you become involved in training others about used equipment strategies?
Hummel: I am all about managing your inventory, which, in turn, is cash. I have witnessed poorly managed inventories destroy a dealerships and the personal wealth of good families. We are all in this together and there is money to be made. If everyone ran a good dealership, we would all be prosperous.
Everyone hates the dealership that does not know what they are doing and quotes unrealistic prices. As the demand for cashflow rises, dealerships need to get better at understanding the utilization of money. A dealership that is undercapitalized or has too much cash tied up in inventories is going to mess up the market for everyone.
It’s time to change the culture; it’s time to change the way most dealerships think about used equipment.
RLD: What do you think the issues are for most dealers?
Hummel: Many dealers have been heavily focused on income statement management and they rarely review balance sheet and cashflow statements until they are up against the wall.
In the rural lifestyle market, if you don’t have it, you can’t sell it. We have to have stock on hand. You can’t presell as easily as you can in the “big iron” business. Maybe we stock 20 of some units and only 18 sell. Two of them get old and the dealership never addresses those 2 units. Those older units need to be addressed right then before the season ends. If we have to sell them for cost, we do it.
Dealers need to treat equipment like it’s a load of oranges. It’s going to rot if you don’t do something with it. What they’re not seeing when they look at a row of tractors is piles of money and it is piles of money that need to be put to work. If it’s just going to sit there on the lot, it’s not working. Cashflow management is inventory management.
RLD: How do you monitor the age of used equipment in your inventory?
Hummel: I created an Excel report that tracks days in inventory. For wholegoods, we target 60% of the inventory to be under 4 months; 30% between 4 and 8 months; 10% 8-12 months old; and nothing over 12 months. We do not celebrate equipment birthdays.
When equipment looks like it’s going to jump into the next aging category, we focus on moving it. We want to be proactive on those units, not reactive. We don’t want it to jump over to being 12 months old and say ‘We’ve got to do something with it.’ There are too many reactive movements in this business and that’s a mistake.
RLD: You also watch a 12-month rolling sales figure. Can you explain that?
Hummel: A new metric being used by large ag dealerships is the percentage of dollars in used equipment as it relates to the rolling 12-month new and used sales figure. Most large ag dealerships are using 10% as their maximum. For instance, if they sell $100 million in new and used equipment over a rolling 12-month
However, if that rolling 12-month sales total drops from $100 million to $80 million, then you need to reduce your used inventory to 10% of the $80 million. What’s happening now in big iron is that they’ve gone from $100 million in sales on a rolling 12-month average down to $70 million and their used inventory is still at $10 million or more. I am encouraging rural lifestyle dealerships to use 3% as their maximum.
It’s just an indicator telling you that you’re a little heavy on your used iron in relation to your latest 12 months of wholegoods sales. If you have too much used inventory, you will need to address individual pieces and work on clean it up.
RLD: How do you ensure that you stock used equipment that sells well?
Hummel: It’s different for every market, but used equipment has “sweet spots.” There are probably 10 sweet spots in the course of an equipment’s life. Even if a tractor has 5,000 hours, it can have a sweet spot when to take it in trade based on your market. You’ve got to know your market and know your customers’ businesses.
In our area, we’re not excited about taking in an 85 horsepower tractor because it struggles to lift a heavy 5x6 round bale. The 80-85 horsepower range is a dead zone for us because it’s too big for the sundowner or small acreage farmer and it’s too little for the serious livestock producer.
Tractors that are 95, 100 or 110 horsepower offer that sweet spot. Or, a 125 horsepower tractor is in demand as it can pull a 13-foot disc as well as a 5x6 baler.
RLD: What is your pricing strategy on used equipment?
Hummel: Any piece of equipment, with any number of hours, will sell if it’s priced right. Some dealers say that certain pieces of equipment won’t sell. It will sell; if it went to auction it would sell. Many dealerships don’t want to accept that the units won’t sell for the money they want. They don’t want to get in touch with the real market price.
It may mean that you have to sell some items for a zero profit or a loss. You can’t buy and sell as much iron as we do and make some mistakes. But how quickly you take that loss will dictate how little loss you have to take. Taking that first loss sooner is your best bet.
What many don’t realize is that the cash you generate, that $100,000 you put back in the bank, for instance, can be turned 4, 5 or 6 times a year. Take that same $100,000 and buy another tractor and do that week after week. You’ve recovered your losses and made money. It’s the utilization of money that’s key to this business.
RLD: How do you build up your inventory of good, used equipment?
Hummel: We dig up deals and go after the trades we want. We target those customers who have the products that we’ve identified as being “hot.” We’re going after 100 horsepower tractors because cattle prices are strong and we can sell used tractors. We’ll take in just about any color tractor because we can sell it.
When a customer unit comes into our shop, our service techs are checking the warranties to see if there is any time left and, if so, we might pursue that unit for a trade. Also, our sales team knows who are the good, clean operators in our market and will go to them to see about trades.
To get those trades, you need to offer a deal that works for the customer. They don’t
care what the value is to you, just what the value is to them. You need to get creative. Maybe they’ll trade in and buy new if they can stay with the same payment. Or, maybe they’re ready to bump up to a larger horsepower. We have one customer who wants to avoid any Tier 4 compliant engines. Or, you can present ideas regarding the utilization of their own cash. Possibly the equity they have in their tractor would be better utilized in a different holding. As with every dealership, we strategize among our sales team and throw out ideas to help each other.
RLD: What influence do manufacturers have on trade-ins and sales?
Hummel: The floor plan terms manufacturers allow sometimes hinder the dealer’s ability to be a better businessperson. If a manufacturer gives long terms, dealerships can become sloppy on how they manage inventory. I’ve heard dealers say, “We can pay more for this trade because we have terms.” What does that mean? Whether you have terms or you don’t, you pay a wholesale value so you can sell it at retail for a profit. You don’t pay more because you have longer terms.
RLD: How do you promote your used equipment inventory?
Hummel: When you’re selling to the rural lifestyle market, you probably have to spend more of your gross margin dollars on advertising than you do if you’re in large ag. With large ag, there are only so many buyers and they all know where they can buy John Deere, Case, New Holland or AGCO equipment. With the rural lifestyle market, there are 10 or 15 different dealerships and you have to be ‘in the customers face’ repeatedly.
We don’t necessarily advertise in different publications for the different markets, but for rural lifestyle equipment, I try to list the three most important features on that unit. These are the features that put it into that sweet spot. For instance, if a piece of equipment has 400 hours when others of that age might have 800, that’s a sweet spot. I generally don’t list the year when I describe the equipment. People don’t care if they’re buying a 10-year-old tractor or an 11-year-old tractor.
RLD: Is there anything else you wanted to share on the topic of inventory management?
Hummel: In 1923, our family started in this industry in an extremely dry area. This area receives about 7-10 inches of rain a year. Drought can come at any time. Because of this, I come from a long line of very diligent wholegoods managers. In my early years, I was brainwashed that if you don’t manage your used inventory, or your inventory period, you’ll go broke. There’s nothing like being told that mismanaged inventories will make you go broke — especially when you’re managing the family money, not the banks.
About WEDA’s Dealer Institute:
The Dealer Institute is a full-service training and consulting firm launched by the Western Equipment Dealers Assn. in January of 2015. It offers resources, tools and solutions to increase profitability and efficiencies for dealers throughout North America.
Dealerships of all brands and sizes from across North America are invited to register for the upcoming Iron Management training courses:
- Kansas City, Mo.: June 8-9
- Boise, Idaho: August (dates to be determined)
- Regina, Saskatchewan: Late summer (dates to be determined)
All proceeds earned through the Dealer Institute initiative are reinvested back into additional programs, services and scholarships benefiting the equipment dealer industry. For more information contact Cory Hayes, Vice-President, Training & Education, at 800-762-5616 or email@example.com.