Understanding Used Product Segment and Turn
In my last column, I talked about the importance of understanding the Washout Cycle and how understanding time to hold and number of units to sell through, effect your future inventory. In this edition, I am going to write about the importance of segment turn and how it effects overall Used Equipment Turn. To the people reading this article it is no surprise the bulk of the Dealership’s Cash is tied up in Used Equipment. The risk of every dealership is in used equipment. So much of the Dealership’s profitability is directly tied to its ability to generate cash by selling used equipment. The faster your dealership turns used equipment the more available cash there is to move to the next machine or project. Understanding how each inventory segment effects your overall turn will greatly increase your ability to achieve your turn goals.
Every Inventory has segments which move faster than others. Knowing what those are and how to react to them are paramount for the current economic environment. Dealerships should be trying to turn used inventory as fast as possible. The biggest delay in most segments is seasonality of equipment. For example, combines or planters usually have 2-3 peak selling cycles per year and High HP Row Crop and Utility Tractors have a year around selling cycle. The turn for each segment are dynamically different and it will need to be in order to reach overall turn goal.
Let’s assume the overall turn goal for the organization is 3x-4x but the combine turn currently is at 2x or less. In most case combines will be the slowest moving and have the largest inventory dollars associated. This mean if you rely on combines alone it will be very hard to achieve the stated turn goal. Segments like tractors will have to pick up the slack left by combines. If the turn goal of the dealership is 3x-4x times tractors will have 6x-8x turn. This will create the inventory turnover to influence the overall turn.
Understanding how each segment effects turn is very important. To overcome three segments with less than 2x turns, four segments had to have a 5x turn or better to achieve 3.34x turn. If any of the high turn segments would have be under 5x turn the overall turn would have been less than 3x turn.
So, the questions you have to ask is which segments are the most important to focus on? If the Dealership focus shifts to Combines, Planters, and Tillage with less since of urgency on the tractor segments the dealership will run the risk missing the overall Turn goal. If the Dealership shifts its focus to the tractor segments it will have to increase sales to overcome the lack of Combine, Planter, and Tillage Sales. So unfortunately, there is no silver bullet. Each Segment needs to be equally as important as the next. If the Dealership lets up on one and focuses on the another, there will be ramifications effecting dealership performance.
Every machine traded for has to have a plan associated with it. Customer prospecting is the single most important element to inventory turn success. Knowing your customer base and who to call on, make and extraordinary difference in the washout cycle. The faster a trade cycle washes out, thus increasing dealership’s cash flow.
This has to be a focus of any Remarketing Manager! Not just turn but the Marketing of Equipment. Working with the Dealership’s Marketing Department and helping build campaigns. Using Customer Prospecting services, like EDA, to highlight customers with strong equity positions. Last but not least, creating a strong online presence to showcase the dealership ‘s equipment. That means clean; crisp pictures and strong story telling descriptions outlining first-hand accounts of the machine in question. Description so strong and descriptive when buyer in Iowa closes his/her eyes they can see the machine setting in Nebraska. Every machine in the Used Equipment Eco-system has its place in achieving your Dealership’s Used Inventory Turn Goals.