New Tractor Sales Are Declining

[ddbackhoe]

IMHO I do believe that after tax time and the weeds
begin to grow tractor sales will rise. Usually people
wait until after tax time to purchase any big items.

willy

Because so many use their taxes as a savings account (wow, I got a $x,ooo.oo return). Now, I can buy that new lawnmower or go on vacation or….

 

[Torvy]

There probably are narrow number of situations where a dealer wants to move something and the customer gets close to invoice and 0% financing, but for the vast # of typical buyers, 0% interest means paying more invoice. OR you pay higher interest and get a lower price.


Next people will be saying the paid invoice, got 0% for 5 years and got retail trade in money for their trade-in.

Come on fellas, these aren’t multi-billion dollar corporations because they are philanthropists to their customers.

I think the problem with this line of thinking is mostly that it assumes the manufacturer and/or the finance company give a rat's backside about your individual deal. I've been there from the finance side and I 100% guarantee the finance company does not care. It is the aggregate that matters. They are selling 1000s of loans across a diverse customer base (spreading risk) For them, the advantage of selling some at zero percent means they can legally sell even more at higher rates. Since dealers and manufacturers get incentives (direct and indirect) from moving inventory and getting deals financed, they all win. Is it really 'free', no. Nothing is free. However, only ignorant dealers/manufacturers make the cash price equal to the lowest rate finance deal. My 'free' deal is being paid for by some schmuck who has poor credit or cannot negotiate. (Really a handful of them)

 

[Hay Dude]

Dealers wouldn’t stay in business long is they weren’t making money on their sales.

The “schmucks” who can’t negotiate do exist, but I don’t think a salesman’s says to himself, “I just fleeced Bob out of $5,000 on his tractor, so I’m going to give Tony a tractor at cost”.

I try to make money off every customer of mine, but try to be fair. That’s why I have been successfully self employed for 30 years.

 

[Hay Dude]

Drove by the local Kubota shop yesterday. Their lot was full of shiny orange stuff, wonder how many will be left come October.

Probably a few. With leasing coming on strong, I think we have entered a new phase of the way equipment is purchased/financed. Leasing has been around for 40 years, but it’s now becoming the preferred way to buy.

1. Lower payments
2. Manufacturer warranty for life of lease/dealer maintenance
3. New tractor every 2-4 years.
4. No unfixable technology to worry about

 

[TN8Man]

Probably a few. With leasing coming on strong, I think we have entered a new phase of the way equipment is purchased/financed. Leasing has been around for 40 years, but it’s now becoming the preferred way to buy.

1. Lower payments
2. Manufacturer warranty for life of lease/dealer maintenance
3. New tractor every 2-4 years.
4. No unfixable technology to worry about

I would never lease anything. It's nothing more than a long term rental contract. At least when you buy you have a asset when its paid off.

In my neck of the woods people buy and sell used tractors (and other items) for short term use then sell it and possibly make more than what they originally paid.

 

[Torvy]

Dealers wouldn’t stay in business long is they weren’t making money on their sales.

The “schmucks” who can’t negotiate do exist, but I don’t think a salesman’s says to himself, “I just fleeced Bob out of $5,000 on his tractor, so I’m going to give Tony a tractor at cost”.

I try to make money off every customer of mine, but try to be fair. That’s why I have been successfully self employed for 30 years.

That is my point. You are looking at this from the perspective of a small business owner (or an individual salesperson). Individual customers truly matter and that's a good thing. Big businesses, like manufacturers and finance companies look at a much broader perspective.

It is hard to make a direct comparison because you are providing a service that takes time and spending that time does not create more time for you to spend elsewhere. For a finance company, making a zero percent loan to an excellent credit customer literally makes more money available to lend to lower credit customers at higher risk, but potentially greater profit. Essentially, the lower the aggregate risk, the more money regulators will allow a bank to extend.

Say you have 3 customers that all want a $100k tractor: customer A has excellent credit and could pay cash; customer B has average credit and cannot pay cash; customer C has worse credit and cannot pay cash. Based on aggregate risk, if A pays cash you can only lend to B or C, but not both. If you can get A to finance, you can lend to both. Offering 0% may be the only way to get a high credit savvy buyer to finance. From the perspective of the dealership, they sold 3 tractors instead of 2. The lender made 3 loans at an average of, say, 10% rather than 1 loan at 15%. 300k worth of loans at 10% a year means 30k of revenue versus 100k of loans at 15% a year only being 15k of revenue. (simplified for illustrative purposes). The customers all got tractors. In a sense, everyone wins. Sure, 2 of them pay more interest than A, but B probably doesn't get a tractor if A pays cash. (Maybe C, but usually the middle gets squeezed). Of course, from the manufacturer and finance company perspective, multiply this by hundreds or thousands per day.

 

[Hay Dude]

I would never lease anything. It's nothing more than a long term rental contract. At least when you buy you have a asset when its paid off.

In my neck of the woods people buy and sell used tractors (and other items) for short term use then sell it and possibly make more than what they originally paid.

Thats what I do, too. But you are looking at it from a “small timer” perspective. We are both small timers. The BTO’s are where all the sales come from. I’m talking 150HP-500HP, large square balers, $400,000 planters, etc. Those guys lease equipment like you wouldn’t believe.

They can no longer afford to buy and more importantly maintain this new ultra high tech equipment.


About 4 years ago, Kubota ran a MASSIVE leasing program on M6 and M7 tractors. They are all now “coming home”. If you look at the Tractor House on line, you’ll see 15 or so of them all being offered for sale by PNC Bank. They were the financier or them. I am considering one, but still a bit above my pay grade.

 

[Torvy]

Thats what I do, too. But you are looking at it from a “small timer” perspective. We are both small timers. The BTO’s are where all the sales come from. I’m talking 150HP-500HP, large square balers, $400,000 planters, etc. Those guys lease equipment like you wouldn’t believe.

Truth. For bigger businesses, leases provide advantages. For most of us, they are not a sound choice.

 

[Hay Dude]

Truth. For bigger businesses, leases provide advantages. For most of us, they are not a sound choice.

Back in 2010, I leased my M-126X when I decided to enlarge my operation. It was a great fit for me. I paid it off after the lease was over and out-right purchased it. It ended up not being a very good tractor, but the lease kept the payments low enough for me to make it all happen.

Leases can work for small timers, too. It just depends on your situation. I’d doubt I would ever do it again, but you never know. One of my local competitors leases Fendts and swears by it.

 

[ovrszd]

So what do you call relevant?

What you spend.