Dealer Markup On New Tractors

Such a guarded secret, like buying a new car or truck. I understand it's business, but prices seem high for tractors that aren't made in this country.

I do not know what brands you are pricing and what you are calling made in other countries .
New Tier 4 engines emissions requirements added about four thousand dollars to cost. dealer markup can be different within the brand and depending on rebates offered on a particular model.

The only new one I ever bought was in 1981. They knocked 12% right off the top on that one because I didn't have a trade in. There must be a fair whack of wiggle room on them.

I expect that you will find that the markup is less than you believe.

There is little mark up in anything anymore.

Dean

Any of them, Deere included. I question the Tier 4 engines too, adding that much "extra" to the cost....I think in time, tractors will be running on natural gas anyway....

I expect that you will see the reemergence of gasoline powered tractors unless the federales stop meddling, which, of course, will not happen.

Dean

Why or what makes you think that gas tractors are coming back? I don,t even see it coming back in smaller -30 hp and down much less larger tractors. Too much money already spent on figuring out these engines. The 4 thousand dollar figure I used was really a little conservative on a 89 hp KUBOTA the difference in DEALER cost vrs the tier 3 engine is $ 4863.00 or closer to 5 grand. How do you say sticker shock???????

Well on JD Ag equipment the dealer average cost is 77% of list buttttttt the actual cost depends on what program is in effect at the time.

Example: Corn Planter sales programs end at July for the next spring. So you have several choices. Lets say A) 7% cash discount B) 24 months financing at 1.5 % C) 36 months financing at 2.5%

These are just made up deals but this is how they look. The cost or savings of any of the options is usually real close to what the cash discount is.

The sales programs are what drive sales. The only things ever sold at "list" are attachments sold alone. These can have install cost that are high so the item has to sell for close to list.

Believe it or not the net profit on most dealers total sales volume, this is parts and whole goods sold is usually around 4-5%. This is with all of the overhead cost covered.

Parts usually average around 25% margin. The shop usually just breaks even on it labor cost and other over head but makes the store money on the parts sold through the department. The whole goods sales are not the profit center in most mainline dealerships. The "new" equipment sales over a long period of time usually are the least profitable of all of the things a dealerships sells. The parts department carries the whole store in bad times.

The sticker shock many are getting on the smaller tractors is the cost of the tier 4 engines. It can easily be $5K. Which on a $100K tractor is not as noticed as on a $20K tractor.

Thanks for the explanation. Guess I am not earning enough money, and the numbers are not adding up for me. It makes no sense to spend a thousand to make a hundred....

Is the mark up the same on track loaders? I had Heard that there was $10,000 mark up in the Kubota SVL 90.

Reed somebody is blowing smoke. KUBOTA did go to protected area on the skid steer sales to prevent inline completion but still not 10 thousand to be made on a skid steer. Competition ie other brands will just not let you mark things up that good.

people love to point out the billions in profits that the oil companies are making, yet they are operating at lower percentage margins than any other industry. people also love to throw rocks at the drug companies for what some drugs cost, but they can easily dump millions down a rabbit hole that ends up never making a dime. When they or a relative get sick they sure want that new experimental drug that no one has bought any of yet.

the solution to over priced equipment is simple, leave it sitting on the dealers yard and the prices will come down, the manufactures for sure don't want it back

I can usually get a 22 to 23 % off list on new equipment outright.Tried that at a Deere dealer last year. They wouldn't come close to that kind of a cash discount.

JD,
If dealers are making large profits, why are there fewer and fewer dealers? Did they all make so much money they don't have to work?

(quoted from post at 04:57:53 02/11/15) JD,
If dealers are making large profits, why are there fewer and fewer dealers? Did they all make so much money they don't have to work?

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In part because of demographics. Not enough farmers in an area to really support a dealer? The company closes or forces them out. That reduces competition between the same brand dealers. They are not cutting each others throats. Plus JD/CaseIH/NH/AGCO has fewer places to deliver too, both new equipment and parts. That saves a lot of money by reducing the number of trucks and drivers. The companies want dealers to do well. They want dealers who carry a complete line. Both are good for bottom line. Farmer drives an extra 50 miles looking for a better deal on the same brand tractor and now a dealer, who may not normally support that size tractor, has to order one in and won't see that customer again until they again are looking for a deal. So the dealer makes a very small percentage on the sale because he had to beat the other dealer and gets none of the service or parts sales.

Here in the space of 60 miles you can go from the biggest quad tracs to 150 HP row crop tractors and smaller. JD to the west of me mostly carries only the biggest equipment as a large part of his area is the Red River Valley in west MN. JD about an equal distance to the east is in a much different boat with much smaller farms. Distance between the 2 dealers is right at 60 miles. The dealer that was 6 miles away is long gone. Imagine what the prices would look like if all 3 were fighting for the same sale. Sure, great for the buyer but bad for the dealership. No JD doesn't own the dealership but it's in their best interest to keep both going. If that means they have to eliminate the 3rd then so be it. They did.

What JD said was that parts sales generate the lions share of profit, not equipment sales. I know that car dealers make most of their money in parts and service. Margins on vehicle sales are not that great. Plus where the manufacturers use to actually own the car until sold now after it sets on the lot a certain amount of time the dealer has to pay for it. Most on revolving bank notes which means interest payments too. Advertising, building and grounds upkeep, sales and administrative staff all cut into profits. Then I can get online and price the same vehicle from 5 or 6 different dealers making all of them try to become the lowest bidder to get that vehicle sold cutting into profit. Can do the same thing when buying new equipment too.

Years ago (60's70's) on cars they reportedly had about 10% of the base price and 50% of options to play with. Plus people were not going to drive the whole state looking for a better deal. Today a lot of things are no long options. Plus fewer people are doing their own work. No add in the internet. No, they are not selling at a loss. But them making 2-3% total on what they pay after sales commission is normal. That don't leave a lot of money to actually run the business. Now when I worked as a mechanic if we had to get a part from the dealer as a business we generally paid about 15% less than a customer walking into the parts department off the street. And they were still making a profit on us. Bet profit margins on parts at Deere, AGCO or CaseIH are about the same.

Rick

(quoted from post at 20:41:16 02/10/15) Any of them, Deere included. I question the Tier 4 engines too, adding that much "extra" to the cost....I think in time, tractors will be running on natural gas anyway....

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What are you going to mount those NG tanks on the tractor? How are you going to re-fill ?

It makes technical sense and dollar sense to operate small and light duty equipment on modern gasoline Direct Injection engines . I find however that the general public can't tell the difference or the advantages between a gas engine from 1970 and the direct injection gas . Used in today's boats, ATV's , yard equipment and highway vehicles.
The public also seems to think of Diesel engines in 2015 as being no different in cost and reliability as they were in 1990.
Bubba going down to the dealership for a compact utility tracror is going to be all offended if the engines are DI gas instead of diesel.

(quoted from post at 17:04:42 02/10/15) Such a guarded secret, like buying a new car or truck. I understand it's business, but prices seem high for tractors that aren't made in this country.

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I've worked for manufacturer & importer, and spent a year as a tractor dealers salesman. The manufacturer/importer will create a retail price for their products and give their franchised dealer an X% discount.

Nobody buys tractors at retail price, the dealer can offer a discount off that retail price to his customer. Dealer #1 may offer 10%, dealer #2 offer 12.5%, dealer #3 offer 15% , so a discount war starts.

Dealers HAVE to make a profit on sales of machinery, on spares & on service to survive & run their business; to look after their customers & machines they have sold. If they don't the dealership fails and farmers lose out because there are no dealers in their area.

What most dealers do is take their actual buying cost of the machine in $, and add either a $ profit or a % profit on that cost to arrive at the selling price to the farmer.

The dealer needs profit to be able to buy the farmers' trade-in tractor which until that is sold, that is owing the dealer big money. If that tractor is not what the dealer would like in his yard, he will try to get the trade-in price under-written by a secondhand tractor dealer. So as soon as it comes in, it goes out and the dealer isn't stuck with an expensive "lemon" on his books.

Tractor manufacturers operate a sales franchise in each area. The dealer must conform to the manufacturers terms in stocking parts & offering trained service men. The manufacturer sets an annual sales target for the dealer in that area to achieve to maintain that brand's market share. If the dealer fails to sell that number, he risks loosing that franchise.

Tractors are too expensive for any dealer to be able to purchase stock themselves. The manufacturer owns the tractor until they are sold, the tractors in the dealers yard are put there on low interest finance. No manufacturer could afford to lose that much money if the dealer fails. Every month the stock is checked, anything not in the yard has to be paid for - if its not already been done via finance to the farmer.

Occasionally the manufacturer may have some surplus models/specification tractors which they want to liquidate. These are offered at a small extra discount to the dealers. The dealers usually offer these special offer tractors in the farming papers - either a special price or 0% finance.

I worked for a john deere dealer in centeral Maryland for a few years. They have their top ag,commercial and residential customers and then there is the others. When it comes to there top customers they are treated the best,best pricing,service ect. The rest have to beg and plead to get a good deal and as far as good service haha. It's pretty sad that's how a dealer operates.

Another thing that people seem to forget when they complain about corporate profits is that most of those profits go to the stockholders. So if a company isn't giving them a good enough ROI in their mutual fund they'll dump it and go after something that pays better dividends.
All the while complaining about corporate greed.

(quoted from post at 08:08:35 02/11/15)
It makes technical sense and dollar sense to operate small and light duty equipment on modern gasoline Direct Injection engines . .

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b&d
Most SCUT's get operated very limited number of hours per year. What do you purpose is the solution to keep the gasoline from going bad in the low hour use units since IIRC you don't believe in gasoline additives??

(quoted from post at 21:54:12 02/10/15) I expect that you will see the reemergence of gasoline powered tractors unless the federales stop meddling, which, of course, will not happen.

Dean

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gas
hopefully that day will come soon.
IMO, under 40hp compact tractors don't need a diesel anyway.
I work my new/newer loader tractors very hard, and
a gas engine would do it just as fine.
In fact, with the newer tractors with HST transmissions,
dealers/manufacturers [i:6a23f79341]insist[/i:6a23f79341] that you keep the rpms way up to keep the trans/hydraulics happy.
So, the lugging power of a diesel is irrelevant.

It's just all the 'rich people' buyers that want to put on their trucker/farmer clothes to mow the grass....and want a diesel even though they need a diesel least of all......

manufacturers...to open the door....make a new model...gas powered....call it a 'North Country Special'
they [i:6a23f79341]will[/i:6a23f79341] sell

I don't know how it is now, but when Pop sold tractors we were darned lucky to make $500 on a tractor. The only thing that made us any money was volume discounts and kickbacks for signing the customer up for the credit plan. I know it's a lot different today, but with the cost of doing business today, I doubt if it's much different for the average dealer. Having said that, I have to agree that the cost of equipment is outrageous.

(quoted from post at 04:57:53 02/11/15) JD,
If dealers are making large profits, why are there fewer and fewer dealers? Did they all make so much money they don't have to work?

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In Britain MF & JD are consolidating the number of their dealers.

They both only want a few super dealers with multiple branches. So the "chosen few" dealers are taking over their neighbouring ex-dealers' sales areas.

Its not popular with farmers who are having to travel long distance to their nearest dealer depot; and often losing their friendly dealer whom they have dealt with for years. Plus they are having to pay big bills for mechanics travelling time to come out to do service work on farm.

(quoted from post at 08:12:22 02/11/15) I have to agree that the cost of equipment is outrageous.

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That's because today it's a specialized market. Back in the day just IH and Ford combined to sell over 2 million letter series tractors between 1939 and 1952 plus a heck of a lot of implements. Today US sales on actual farm tractors is a small fraction of that and I doubt very much that in the same time frame that JD/CaseIH/NH/AGCO sells 500,000 not including compacts. Back in the 40's there was something like 3,000,000 farmers in the US. Last thing I read said 85,000 today. That makes farm equipment specialty market stuff. That's always more expensive. Then add in all the federally mandated safety and EPA stuff that adds into the cost of building something.

Rick

They are making a killing! I don't understand how tractors prices were going up 6 - 10% a year when inflation was going up a couple of percent. Now things are beginning to fall into turmoil for them. Land prices are falling, farm income falling, too many gadgets, & safety features on tractors is making people turn the other cheek. & maybe worst of all... They pretty much all look the same! Also weight is an issue. Todays tractors weigh 1/3 - 1/2 less than something out of the 50's 60's, & 70's. It seems like You are buying a lot of plastic unless You spend over $100,000 for a 90 PTO HP tractor.

I have been retired from dealer for a few years now but when ever we had a meeting, the sales dept caught most of the heck. Service and parts were making money, sales was not. That was at Deere dealer and we were almost always very busy. Before that, what I heard for years at CaseIH and IH was shop was just a necessary evil. Wasn't doing a darn thing any different. What the difference was in the accounting dept. At Deere, any trade in that went through the shop was charged at shop rate for all work and parts. At IH it was charged against the shop and parts dept. To me , it seemed rather stupid. It was after all, the bottom line of the whole operation that shows you if you are making any money or not. Years ago, the dealer cost was 77 percent of suggested list price. It varies from that and I think it is a lot closer now days, don't know for sure. You could never sell for suggested list. Not even close. Estimating, guessing what the trade is worth is really the iffy part of it.

I would agree with you, a direct injection gasoline engine will probably enter the small tractor market.