The Rising Price of Equipment and the Secondary Market.
I was curious to see what the price increase has been for combines over the past three model changes. I looked through the business system, locating customers who have rolled combines every year trying to see the the evolution of pricing over the last decade. What I found was not at all that shocking but at the same time I have to wonder how long trading the volume of equipment with high used pricing can be sustained. This is not to say a 2018 combine and 2008 combine are the same. The amount of technology and overall improvements in the past 10 years are tremendously vast. So, this goes without saying, R&D cost will be recaptured but with this comes a challenge of its own. When a manufacturer has a price increase it does affect the used market but not the entire price increase. In the the last 5 years, the rate of price increase recapture has been less than previous 5 years.
As mentioned earlier, I went and found customer who have traded combines every year since 2008. For the most part, the combines they order are the same year-over-year. The codes all lined up except for when a model changed happen an option that was extra became standard, like a particular transmission or a new option not available on the previous series. The particular customer I picked bought the 2008 combine, in round numbers, for $240,000. Fast forward 10 years and the current model, all major options staying the same. For example, 2WD v. 4WD, Chopper v. Spreader, so on and so forth. The basics are all the same. The new combine sold for $383,000, in round numbers.
The Market in 2008 was different then 2018. On farm income was on the rise and dealerships where having some of the best years ever. This also marked the beginning of Used Combine pile up on dealer lots. Over the next 5 years used combines became the mainstay at any auction; live or Internet. This had nothing to due with lack of on farm income. It had everything to do with above average on farm income.
Fast forward to 2018, Dealer Groups are selling used combines for the same amount as they were new in 2008, which is true of any era. The lack of buyers we have is directly tied to lower on farm income, no big surprise here. So, what happens when the market turns around? The Producer looking for a new machine and is truly a new machine buyer will always buy new. What I have concerns about is whether or not the difference between the 1-2-year-old machine will be great enough the secondary buyer will be incentivized to buy Used Machines.
Currently on any Internet listing site, Used Combines can be found for $350,000 and higher. In the current market the Producer who can afford $350,000 or higher combine is also the same Producer who is buying new. So, this leaves to question where is balance between New Trade Difference and Used Pricing for the Secondary Market met?
I don’t have the answers to this problem! Used Combine Internet listings are slowly creeping up every month. There are completely different set of obstacles dealers are being faced with then in 2008. Trade issues, lower on-farm-income, raising interest rates, and less used buyers than 10 years ago. These obstacles aren’t bigger; just different. More Producers are buying equipment because they have to instead of because they want to. Late model and low hour equipment aren’t readily available. There is demand for this equipment but the price will continue to play a roll. Payment structures will have to continue to be creative and a few Interest Rate Percentage Points will be the difference in a Producer buying a piece of equipment or not. This is a market ripe for the picking it will just take a different tool than the past!
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