Making the Trade: One Farm Equipment Dealer’s Dilemma | Making the Trade

Making the Trade: One Farm Equipment Dealer’s Dilemma

By Mary Herring Posted in Tractor Blue Book

March 16, 2020

The history of Iron Solutions: Part 2

Part Two of a Three-Part Series

Establishing accurate trade-in values on used farm equipment may seem like a challenge for dealers today. It certainly was a challenge for a single-store John Deere dealer in Outlook, Canada back in the 1980s. In his initial pursuit to give his customers a fair trade-in price for their used farm equipment, Merlyn Friesen had no intention of establishing a valuation method that is still used today to create IronGuides®.

“In the 1960s and 1970s, farm machines were basic with few options, but in the 1980s and 1990s ordering and trading tractors and all equipment became more complex,” said Friesen. “We would give a farmer a quote on his trade-in, which was our best guess, and if the difference was lower than the neighboring dealer, we were a hero. If the difference was higher, we were the bad guy. Neither were right…we just didn’t know. In the meantime, everyone was losing on trade-ins, including the farmer.”

At that time, dealers relied on the Official Guide, first published in 1937 by The North American Equipment Dealers Association (NAEDA). The intent of the publication was to provide guidance, based on prior used equipment sales transactions, as to an appropriate trade-in value. “You needed it for floor-plans and serial numbers but I, along with many dealers, still didn’t feel the values reflected the market,” said Friesen. “The information was not regionalized or normalized, and adjustments for the many increasing options were limited. It was one guide, with one value for all of North America.”

This was in the era before the internet and social media. “We would study the classified ads and assess the machine values that everyone else was advertising. We also attended auctions and consulted with equipment jockeys to get a sense of how much we could put into a unit,” Friesen said. “We were trying to answer many questions on how to establish realistic numbers.  How could we direct our sales team and get some consistency and credibility in this business?”

Friesen worked with another John Deere dealer, Doug Friend, who had created a list of values for tractors, which he used to guide his salespeople. He shared that with Friesen, who would look at his local market and make adjustments. These updated values were then typed up in a revised list, and a copy sent back to Friend. “This shared revision cycle was painfully slow, maybe updated once or twice a year, and involved a lot of guess work,” he noted.

Then, in the 1980s, margins became much tighter and there was little room for error in pricing. A significant event also disrupted the market in 1984 when Tenneco, owner of J.I. Case, purchased International Harvester and the IH farm equipment division became part of Case IH. Case drastically cut their prices and dealers couldn’t compete, even with the fluctuating manufacturer incentive programs and government tax credits.

“I had used tractors in our trade inventory that were several years old, but with the 50% blow-out discounts introduced by Tenneco, farmers could buy a brand-new Case tractor from the dealer next door for less than the used one on my lot,” Friesen said. “Dealers couldn’t afford to have those kinds of fluctuations in the market and not react quickly.”

It was a perfect storm. “About that time, I got my first Tandy 1000 PC (Personal Computer),” Friesen said, “along with the first version of Lotus 1-2-3 spreadsheet and pfs:file database.” Through his passion for more accurate equipment values and a new-found love of computers, Friesen knew the time was right to create a better valuation system.

He started looking at all factors that impacted values, with new selling price as a big factor on the top matrix and used values as a factor on the bottom matrix. The wholesale, or floor-plan value, was based on auction and equipment jockey prices, and the advertised prices were also part of the matrix as another key reference point. Essentially, these were all the factors farmer customers considered when they were shopping for used ag equipment.

The final and critical step was sharing the idea and getting other dealers to provide their sales information. Friesen talked to six neighboring John Deere dealers about his methodology and asked for their sold reports of historical values. All agreed.

“I then compiled all of that information into a database, and normalized it,” Friesen said. Normalizing data means that the sold price is adjusted to compensate for over-allowance, options, condition and usage. “The dealers willingly shared their sold report prices because we all wanted a better system that had fair prices for both the seller and the buyer.”

The first “Duo tang” spiral-bound guidebook was printed, photocopied and mailed in 1987 to ten John Deere dealers. “The intent was to establish fair trade-in values and gain credibility with customers”, Friesen said. “ I never intended for the guide to become a business, as the goal was simply to solve my own problem”

The word got out, and a local Case IH dealer asked to join the all-green group. The only rule was the dealer had to submit their accurate sold reports for tractors, combines and all types of ag equipment. “It’s critical that the dealer reports factual sales prices because those numbers are entered into the database. It’s the job of the editor to look at all the data, and call ‘time-out’ if submitted prices were inflated and not in line with the market. The condition and hours are also critical to the report,” he said.

By 1989, there were about 60 dealers submitting data and receiving the guides reports, now named the Western Canada Trade Guide, which was endorsed by Canada West Equipment Dealers Association (CWEDA).

“There might be a business case here,” Friesen recalls telling his wife, Elna, after working nights and weekends compiling data. “I’m not the only one that wants this information.” This was becoming a full-time job, so Friesen took the opportunity to sell his John Deere dealership in 1991 to focus solely on the used ag equipment valuation guide.

As more dealers heard of the product, they asked for a guide to cover Ontario and Eastern Canada. After a year of research, working with Ontario Retail Farm Equipment Dealers Association (ORFEDA), and gaining commitment from dealers to send in their sold reports, a second book was added called the Eastern Canada Trade Guide.

As popularity increased for the new trade guides, NAEDA was interested in bringing the new technology to the United States since the group was still printing the guides, which it first published in 1937. Friesen was invited to meet with NAEDA executives at a board meeting in Florida to discuss options, although some members were skeptical of using a new format and were cautious about the change.

“As a farm kid, and dealer from rural Saskatchewan at the time, going down to Florida to meet with a group of prominent equipment dealers that made up the NAEDA, was a little intimidating. However,” continued Friesen, “I knew Don Peters, who was a New Holland dealer from Alberta and the incoming president of NAEDA, and Don was a great supporter of the Guides project in Canada West”.

“I explained to the group how I pulled all the data together, created the database and matrix, along with the report analysis, to create the guide,” Friesen said. “I shared how the data was normalized and I analyzed all factors that impact the value including historical values, selling price, sold reports, auction prices, condition, options, hours and usage. It’s interesting to look back at how we exchanged all this information so openly.”

“So, it was quickly apparent why their guides were not reflective of the market”, Friesen said. The NAEDA data was not normalized with options or for usage and condition. “You can’t just throw a bunch of unqualified numbers into a database and expect it to reflect reality.”

“Having a guide with normalized data is a lot of work, but that’s the secret sauce,” Friesen said. “This is the same process used today.”

That initial board meeting was followed by months of negotiations and regional dealer meetings, led by John Hiebert and Dave Ottaway, NAEDA’s CFO and CEO, as well as Bob Robeson and John Schmeiser representing the regional associations. There was a high level of trust and sense of common mission among this group. So, in 1993, NAEDA licensed the guide rights for the U.S, hired John Wallace as the US Guides Editor, and released the first Midwest region official guide as a pilot test in Spring 1994. The last original guide was still published in 1994, in conjunction with the beta guide. The following year, they were publishing five regional books across the US, with Friesen publishing the two Canadian editions, now named the Official Guides2000. This term was coined because NAEDA had the rights to publish it to the end of 1999, also known as Y2K.

In 1999, the group merged all the technologies and marketing rights to form the new company IRON Solutions, LLC owned equally in thirds by NAEDA; the 19 regional dealer associations; and Friesens. Asked how the name came about, Friesen, said it was two-fold: IRON was an acronym for Interactive Realtime Online Network, which tied well with the reference to tractors as “iron,” known to all in the equipment business.

Eventually, dealers were ready for the information online, so the following products were developed: Real Time Guides (online), Ag Appraiser and Quote Pro, which were CD versions, and IronSearch.com, an online equipment marketplace.

Although the industry has gone through many changes in the past ninety years, the gold standard for gathering and normalizing the data remains the same as developed over 30 years ago. Often referred to as the blue book of farm equipment, or the tractor blue book, IronGuides is still the resource that agriculture dealers, farmers, lenders and analysts use as their trusted source for equipment valuation.

“This all started because of the necessity and aspiration to fix my own problem,” Friesen said, “but soon I realized that most dealers across Canada and the US had the same challenge.”

“Having a guide with normalized data is a lot of work, but that’s the secret sauce,” Friesen said. “This is the same process used today.”

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The organization, now known as the Equipment Dealers Association (EDA), published the first trade manual in 1937 to help with appropriate trade-in value.

Cover:

Making The Trade: Although the farm equipment industry has gone through many changes in the past ninety years, the formula for gathering and normalizing the data remains the same as first developed over 30 years ago. Often referred to as the blue book of farm equipment, or the tractor blue book, IronGuides® is still the resource that agriculture and construction dealers, farmers, lenders and analysts use as their trusted source for equipment valuation.

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The first Midwest regional Guides2000 (pictured left) were released as a pilot test in Spring 1994, also the last year the original guide (pictured right) was published. The following year, NAEDA was publishing five regional books across the US, with Friesen publishing the two Canadian editions, now named the Official Guides2000.

Iron Solutions, Inc’s IronGuides®, Winter 2017, was the final print edition. IronGuides online, still considered the gold standard in equipment pricing, offers online agriculture values, with more options and attachments.

Coming Next: What makes IronGuides Unique?


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