Merging Traditional Trade-In Fundamentals with Current Trends to Maximize the Power of Equity
Posted on: 13 Aug 2019
There are core fundamentals to optimizing heavy equipment trade-in value that construction business owners typically operate under. However, in today’s environment of varied warranties, catered payment programs and innovative technology, there is a balance to considering many trade-in factors when it comes to maximizing the value of your equipment.
The Fundamental Building Blocks
First and foremost, it’s most pragmatic to trade-in your equipment when you have maximized production, but before it starts costing more from a maintenance perspective. Some fiscally conservative operators believe that running equipment until it dies is a best practice, but that isn’t true when considering value and equity.
Say, for example, you run a CASE backhoe into the ground. At that point, you have certainly gotten value out of the lifetime of that piece of equipment, but it’s only going to be worth whatever you can get for it in scrap. In most cases, that is not going to net you the most value.
According to a wide swath of customer data, CASE owners trade-in their equipment between 36 and 42 months. That timeframe is reflective of when the equipment’s depreciation curve levels off while loan value is decreasing. It is that sweet spot in which the investment holds the most equity value.
Additionally, that trade-in window also coincides with the end of a traditional three-year warranty. It’s smart business to balance the expiration of your warranty with the optimum timeline created when your equipment’s depreciation curve and cost of operation meet.
From a strictly financial perspective, when it comes to making a trade based on specific technology features, we recommend trading equipment outside of the aforementioned fundamentals when the equipment no longer meets your needs, or the productivity/efficiencies of a new technology provide a significant advantage in owning and operating costs. One popular feature set that has bucked the trends of trade tradition is precision construction — telematics and machine control.
As the construction industry – especially in the road and bridge sector – requires telematics and machine control to be awarded certain bids, it becomes critical to your revenue streams to have adequate technology in your equipment and/or fleet.
So, in an instance where you purchased a piece of equipment that is still not at the 36-month window, depending on your financial position and cash flow, it would be a savvy move to make a trade for the equipment you need to ensure that you’re able to continue winning bids and contracts if you’re at risk of losing them without the specific feature.
Understanding Your Financial Position
Before you even take the first step in initiating the trade process, know the value of your trade. Just like buying, selling and trading cars, there’s going to be a significant difference between the retail value of your equipment (if you were selling to another buyer) and the trade value (trading to your trusted CASE Construction Equipment dealer).
Next, consider your payment schedule. Nearly all OEM financing organizations, including CNH Industrial Capital, will work with customers on setting up payment structures around your cashflow seasonality, known as skips.
Many customers initiate trades at the end of their cash cycle, before hitting their skips. This helps maintain cash flow and the same financial cadence that has been customized for the seasonality of your business while maximizing equity.
The final point of consideration is whether there are any extended warranties that exist with the equipment. All warranties stick with the machine, not the customer. So, if you decide to trade with multiple months left on an extended warranty, such as CASE ProCare or another CASE Protection Plan, you will receive the value for that warranty.