Adding resale value to used equipment
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Jodi:
Welcome to the Successful Farming Podcast. I'm Jodi Henke. This podcast is brought to you by Grasshopper. Do more on mow day with a Grasshopper mower made for a smooth cut from the fields to your front lawn. Joining me today is Dave Mowitz Successful Farming's executive machinery editor, and a heck of a nice guy and co-worker. Dave it looks like 2021 may finally be a better year for agriculture. We're keeping our fingers crossed anyway. So a lot of farmers may be thinking, "Yeah, it may be time to purchase some new equipment." Now, the theme of this podcast is adding resale value to the equipment you already have, but maximizing that resale value down the road starts as soon as you drive it off the lot. So the next thing to buy to go with that new purchase is a notebook. Can you tell us why that is?
Dave:
What you're trying to do is to prove to whoever's going to buy your equipment, that it has been well taken care of and what provides great evidence of that is a notebook as well as all the service records that you've put in that machine. It reassures, for example, the dealer that you're trading the equipment in for new equipment, or if you have the equipment at auction, especially at auction for selling it, and certainly with the easy access to online auction these days, we're seeing far more machinery being sold online. You can go to a big iron sale that's held once a week, anywhere from a thousand to 2000 items being sold, farmers are buying it all over the country and it's become a great marketplace or an option for farmers to go and get rid of their machinery. So the idea behind the notebook is whenever there's anything wrong with the machine, anytime you ever do any work on the machine, anytime that you've changed oil, unless the service records display that information, you write it down in the notebook and then you provide that with the equipment when you sell it.
Dave:
And I say equipment, this ought to be done not only on tractors and anything with an engine, tractors, combines, even pickup trucks, semi-trucks, but also with intricate implements, such as planters or sprayers would be a motorized piece of equipment, but it shows that the machine has been well cared for and it reassures them. I've always said that if you're going to do two things, as you always keep all the service records on a machine with the machine, but you could keep it in files in your machine shed or at your office wherever that's at, but then get it out and take it with the machine when you're going to trade in or you go into auction. And then you just keep that notebook.
Dave:
So this is a great thing to have. It just is peace of mind for someone that's gone after machinery. What does that mean in value? Well, I can't really say it's going to add five or 10 or 20% to a piece of machinery, but if two tractors basically similar year, similar hours sitting in a machinery line at an auction, and one of them has all this equipment, has the service records posted on the wall of the cab. You take them up there and there's the notebook. You're going to get 10, 15% more for that tractor at a minimum.
Dave:
And it also helps if it's been well cared for, and you see that on the outside of the machine, it's been washed and waxed or put away properly. If it's been shedded and the paint isn't faded. Now I'm going to put in a major proviso here. These rules typically apply to older pieces of machinery best. What I mean by best? They have a bigger impact on a tractor that’s say 20 years old, that you're selling at auction as opposed to one that's two years old. And you're turning it over as part of your scheduled machinery replacement program.
Jodi:
Yeah, that makes sense.
Dave:
Right. You've got a tractor that's a 2019 and it's got 350 hours on it or 400 hours on it, different deal. Certainly it doesn't hurt to have service records. But the fact of the matter is that combine, that tractor, that self-propelled sprayer is likely going to go to the dealer as part of a trade-in deal as opposed to selling it at auction. Although I can tell you what surprised me about what's happened with online auctions and the fact that being able to buy machinery at auction is more accessible now to everyone. I can be sitting in Maryland, easily bidding on a machine in Iowa, and then actually not only make arrangements for it to be transported to my farm online auction houses provide that type of service.
Dave:
You can get financed on the spot and you could be sitting anywhere bidding on that piece of equipment. Not only in your office, you can be on your smartphone in a tractor cab spraying corn, for example, or in a combine. So what that has done is greatly expanded the number of buyers in the auction market area. And we're beginning to see participation go up in that area. Now, back to what I was saying before older pieces of equipment, having service records is important. They're having that machine taken care of and presenting it that way. Also, the notebook just establishes a pride of ownership. There are other things you can do as well. You wash the machine, especially older tractor or older combine. If you're looking at it, especially the engine cavity is caked with grime and you will see that. And that's pretty typical.
Dave:
It's been run for 25 years and there's all this grime around the engine, around the transmission at the rear of the tractor, for example, the hydraulic area, engine cavities and combines even the inside of combines, which had nothing to do with the engine. It's dirty, it's dusty, it's full of trash. It was put away that way. It was never cleaned out. Again, it's all presentation. You wouldn't go to church in work pants and a shirt, nor should you take a piece of machinery or sell it at auction or to a dealership dirty. It's that little extra effort that just says, "I take care of my machinery." Peace of mind for someone bidding on your equipment.
Dave:
And boy, you can see it at auctions. I've seen rows of similar tractors, and those that are presented better, that are cleaned. That don't have grime on them. They're a little shinier here or the paint's not so faded because they were kept in a shed, when not in use or they were waxed up. And I know you guys think it's silly to wax farm machinery, but literally no, it is not. A combine is a big job to wax, but self-propelled sprayers and tractors it's not a bad thing to do. So it's enticing that guy. You're presenting yourself in the best image. You're going to church in your Sunday, go to meeting clothes in other words.
Jodi:
Dave, through the life of a machine you're going to have to replace parts if you have this machine for any length of time. So, if you're thinking resale value down the road, should you use OEM replacement parts or does it matter?
Dave:
It's wildly debated. My advice go with OEM parts. Non-OEM parts are okay. And certainly we know that there's reputable suppliers of parts out there. And if you not go with OEM parts, John Deere parts for John Deere equipment, then at least pick reputable will fit parts, buy items from a brand name, recognized outlets, such as Napa, for example, not to pull them up as opposed to parts that are just sitting on a shelf in a farm fleet store. The thing is, is that OEM parts as the name implies original equipment manufacturer parts, follow the specs that the manufacturer put down for that part and will fit parts may or may not meet those specs. But ask if you're going to do so, does it meet the requirement of the OEM standard, the original manufacturer standard? But they're out there you can look around, you can find them, but be careful about that.
Dave:
I think we've seen some knockoff oil filters, certainly go buy Baldwin filters go by Napa filters as well as John Deere filters, as long as they meet the OEM specs, but boy, I'd be questionable about some things that we're beginning to see on shelves because we're getting a lot of parts from overseas, particularly China, and they may not meet the specs. They're just sticking apart out there. So what happens if you're using an oil filter and the filter medium is not meeting the OEM spec, you're getting a lot of pass through on particular through that oil and it's starting to score the piston sleeves for example, or causing problems in the hydraulic system? So I say as a standard, always go with the OEM or parts that meet OEM specifications.
Jodi:
And I guess that goes into fluids as well.
Dave:
Now boy, I'll tell you, fluids especially. I can tell you right now that when it comes to engine oil, it is absolutely crucial that you use engine oil that meets original equipment manufacturer specifications because oil formulations on diesel engines particularly have changed so much so that we can meet emission standards and going out and buying SAE 30. It's still available. I still see it being sold. We're not putting that oil in John Deere A tractors. We're putting them into John Deere 8640s out there that are running at higher temperatures are running at higher pressures, not only in the hydraulic system, but in the engine itself. The field system pressure is higher. The tolerances are much tighter and so good oils are essential.
Dave:
Now go with good brand named oils. If you had John Deere equipment, it could be Deere or it could be Chevron or it could be Exxon, or it could be Citco. Now a lot of these oils certainly meet OEM standards. And it's very crucial because what can happen, especially with tier four diesel engines, I'll give you a great example. You use the wrong oil, it starts burning off excessively. It starts plugging that diesel particulate filter that's now required in these tractors. And you end up with a four to $5,000 repair because that filter starts getting plugged with a lot of situ that comes off the burning of the oil. For example, these oils, these days are specifically formulated to meet high performance standards. By the way, they're backdated.
Dave:
You can still use that oil, the latest standard in diesel oil formulation for a 40 year old tractor, they'll work great there. In fact, they'll be better than their original oil that you used in that tractor. But it's crucial to do that. A little sidelight on fuel to be very picky about the fuel that you're getting. Certainly there's outstanding fuel that's coming from all sources out there, but do you go with brand named fuels? If you're using a co-op fuel that's great. For example, Cenex has an outstanding program that assures that the quality of the fuel being delivered to the farm is great.
Dave:
The problem comes in with fuel that's stored in diesel tanks, and let's say you're buying fuel at the traditional yearly low that's about February, March diesel has a tendency to settle out, become a little cheaper. You have a massive tank, you're taking a massive delivery on fuel you're dumping it into a tank that maybe hasn't been cleaned out in years that has accumulated moisture over this time. And you're polluting that great fuel that's coming in. So number one, if you haven't gone in and cleaned out your fuel tank, do so, let it drain down as far as you can. If you have to, there's some companies that will come in and actually filter the fuel that's in a tank and then drain it and try to clean it out inside.
Dave:
It's a little tough when you've got a ground-based or a fuel that's below ground, but this is crucial because what happens is fuel sitting in storage, especially in the summer, it gets hot during the day and then it gets cold at night. Well, when it cools down, it reduces in volume that sucks in ambient air, outside air, into the tank that has moisture with it. And then that starts condensing on the sides of the fuel tank into moisture that drips down into the oil eventually over time that settles that into kind of a sludge at the bottom of the fuel tank. Now we were able to get away with dirty fuel back in the good old days, because again, tolerance is special and fuel injection systems were a lot more loose than they are today.
Dave:
Boy, today they're just really down tight and you start pumping a lot of dirty fuel through these engines you're going to start blowing injectors. You're going to start plugging, not only filters, but you're going to start doing serious damage to the fuel system on that machine. So again, I've even seen tractors sell at auction where the guys will state, this was the oil I used and this was the fuel that we use. I always use Cenex or co-op or Chevron fuel in my machine. Again, the whole idea is that when you are going to sell this piece of machinery, you want to present it as a good deal, by the way, guys think that this doesn't matter much when it comes to trade in, actually it does a dealer will give you more on trade-in.
Dave:
But they also know when they get that machine and that's been well taken care of, they're going to be able to sell it much easier off their lot. So, they want to buy equipment that is “cherry”. Cherry equipment always sells higher and it always sells faster. Besides you avoid repairs, you avoid breakdowns. And boy, I'll tell you, breakdowns in the middle of planting, according to some of the research I've done, you're talking three to five to $10,000 an hour you will lose during a breakdown.
Jodi:
Let me ask about technology upgrades. It may not be as important if you're trading off something you've only had for a couple of years. Although sometimes as fast as precision technology changes from year to year, is it worthwhile to put in the latest and greatest before you try to sell it?
Dave:
You can debate that one way or the other. I think what the machine has is what you're going to sell it at. I don't know if you want to necessarily go and buy some software that allows, say the tractor to be able to work with a planter, to have row cut off for example. Typically you'll sell it for what came with the machine. So I don't know if I go in and invest in a technology upgrade that way. Here's where technology upgrades have a huge impact. And that's when you were a buyer. Back in the good old days, not that long ago, actually I said back in the good old days, 20, 30 years ago, a tractor was a tractor, was a tractor, a 4640 was a 4640 John Deere. They all basically came the same, the same engine, the same transmission, the same cab, everything.
Dave:
These days there can be huge, huge differences. Let's take a John Deere, 8320 for example, or a Case IH Magnum 340. Two tractors, those two models sitting side by side. And there can be, if they're late model, for example, 2019, there can be a five to 10 to 15, even $20,000 price difference between two Case IH Magnum 310s that are the same year, say 2018. And that is because one comes with a CVT transmission, for example, or it has a suspended front axle, or it has a suspension in the cab. The machinery industry is really upselling a lot of equipment today. It's striking when you look at combines and tractors and self-propelled sprayers that huge differences there are in what used to be just a standard model.
Jodi:
I know when I look at a car, I'm looking at the inside, the interior to make sure there aren't rips and shreds and pop cans or whatever underneath the car seats and everything else. Is it that important to maintain the interior of say a combine or tractor cab? Do people look at that?
Dave:
Certainly. Clean it up. Gosh, I've seen tractors sell at some auction lines and you get inside and they've been used in a feed lot. And my gosh, there's mud and manure and they smell and come on, take the extra time, clean it out. What's it going to cost you? An afternoon or less to go into the cab and just clean it. It'll add, believe it or not thousands of dollars to the value of that machine. If the seat is really bad, you may want to buy a replacement. It all depends on how much the replacement costs. On an old, old piece of machinery you kind of expect the seat to be worn and you just go into it, if you're buying that tractor, you're going to have to replace a seat or sit on the whole thing. A later model machine, I'd be a little hesitant to necessarily go in and replace the seat just to get it sold.
Dave:
Cabs however are a different deal. I've had several auctioneers tell me that torn headliners, the padding all over the cab. If it's hanging down, if you've had mice in it to go ahead and just spend the money to get it relined or a kit. And by the way, there's real liner kits available for almost every cab made. Probably not the cabs that were 50 years old or older. To go in and do that is acceptable because it shows off the cabin, the best position, as opposed to one that's really ratty looking. And in that case, if you have a tractor or a combine say 20 years old and its hours are reasonable, whatever the hours, it depends on the machine. Then you may want to go in and invest in interior improvements in the cab. Here however, is a general rule for farm machinery. Don't repaint it.
Jodi:
Really? Why is that?
Dave:
Farmers will look at a painted machine and think that a tractor jockey has gotten that thing and has given them the paint job to get it sold. And it's hiding some problem. It's just a perception that absolutely has nothing to do with quality. Well, it does have to do quality, repainting the machine will be a higher quality machine in some regards because it's got a new coat of paint. It's just the perception somebody's trying to hide something. This is the exact opposite in the construction industry. If you go to a big construction sale, such as one of those being held by Ritchie Bros, there are consigning companies that are say, they're getting rid of their line of crawlers and they're changing over. Construction companies will almost entirely sell their line through auctions, not on trade-ins, they'll pay for that machine to be repainted so it looks really nice.
Dave:
And Ritchie Bros, for example, on their large lots and their massive auction sites, you'll see both the auditorium where they sell the machinery. You can sit in a padded seat and buy machinery, but also they have facilities set up. So they've reconditioned this equipment. There the reason why you do it at construction because construction company that comes along and is buying that used equipment wants it to look good at the site it's being used, because it's a matter of pride. And it says to the people that hired him, these guys have good looking equipment. Isn't that odd? Farm machinery is not the case. Don't repaint it, sell it as it is, wash it up, even wax it, if you can, I would even go through and there's some auto body rubs that will take haze off of tractors and recondition the existing paint itself and make it look a little better if you want to spend the time to do that, don't repaint.
Jodi:
Turning towards some of the expensive parts on the equipment, such as disc blades on a planter. If they're a little dull, is the money invested, worth it for resale value if you replace those before you try to sell it?
Dave:
Again, it's like the repainting thing. A guy's buying a used planner he expects the disks to be a little dull and they expect them to be a little rusty. This is true of packer wheels, true of any soil engaging component out there. If they're bent, if they're chipped, if there's obviously a problem, then replace it because it'll help to say that you were taking care of the machine. Okay. You're looking at a planter and you're seeing all those disks out there and you see a couple that are pretty banged up pretty bad, and it doesn't hurt if you have to replace two or three discs, but I would not replace the disc because they're dull, a guy that's buying a used piece of equipment will be looking at soil engaging components, and then judging whether they can resharpen them.
Jodi:
What are some of the little things that can get away from you that you may not immediately think of?
Dave:
Well, again, clean. Some guys will do a decent job cleaning up the tractor or combine in the cab on the surface. But when you're going to do a combine, I've seen combines show up at auction and you look in the back of it, such as the residue management system, the chopper, or you look in the sieves and I've seen combines look fairly decent on the outside. You look in the back and you find sieves are plugged with residue that was never cleaned out. The guy didn't even bother to start the combine and just run it for a while to get the stuff out of there. And I'm not talking vacuum the combine out, but if you have to pull the sieve out, clean them out and then put them back in. So that again, presents the machine a lot better, go to the theater house and clean it up, go to the header itself and clean it up. Just get rid of the residue that's there.
Dave:
I don't think there's any better return for time spent cleaning up the machine before you sell it because an hour spent there can mean thousands of dollars in extra value. Again, it's all to the eye of the beholder, trying to make that thing look nice. So do some repairs that are obvious that of course, you've got a 50 year old tractor a 50 old disc or something like that. The hoses are pretty ratty. You got to say, am I really going to get that much from that machine? If I replace the hoses, but on newer machine, if the hoses for some reason, got kinked, got worn, were looking pretty bad, just replaced the hoses for the costs that you have into them.
Dave:
Cylinders would be something that you wouldn't have to replace. For example, hydraulics, because he's not going to be able to operate that machine, raise it up and lower it down. So I won't go into that, but generally be prudent. When you're thinking about replacing parts on a machine, it's like the technology question before, should the machine you're selling have all the latest in technology in it? I'd say sell it with the technology that it came with. And again, when it comes to replacing parts on it only replace those parts that obviously make the machine look like it has been well cared for, because I think that'll be a good investment on it.
Jodi:
Thanks Dave Mowitz for being my guest, to Grasshopper for sponsoring this podcast. And thank you for listening. For a Successful Farming, I'm Jodi Henke.