Alex Weaver and Ron discuss the history in the Industry of the Used Parts Business.

Yes, sir.

That's correct.

That's absolutely right.

OK, well, it was a wonderful opportunity. Texas, the oil fields were booming. It was a great time to be in to be in all those businesses, used equipment, used parts and all together. Having been in used parts. Literally, for lots of years, my first job was in the industry was in a used parts, very small used parts, used equipment house. And back in those good old days, back in the 60s and early 70s, used parts was kind of a takeoff business. It was much like the automobile junkyard, salvage yard. Someone would get a piece of equipment and. They might not even tear it all the way down. They just sold pieces off of it as someone needed it. Over time, used parts got more sophisticated and many people started disassembling machines and inspecting parts and putting them in inventory on a shelf. But it started with just used takeoff. During that progression, people just started taking parts off and repairing them. using them for cores to rebuild them, selling complete components, and then attachments and work tools were always a healthy part of the used parts business. The little company I started with got their start in life in that after World War II, people were buying government surplus. And one of the most... active products at that time, besides the Jeep, everybody wanted World War II Jeeps, was the old half-track. The front rubber-tired steering wheel in the back of the truck had a track system on it, much like the tractor you and I know today. So there was a core of individuals that were buying those surplus and rebuilding them, repairing them, and selling them. Ranchers in Colorado bought them because they live wintertime. They could throw hay in the back of the crawler truck and get it out into the field where the livestock wasn't back. But those people, those eight or 10 people were kind of the core of starting the used parts business in this country, as best I know. Many of them became a founding. fathers of an old group called Associated Independent Distributors, which still exists now. They've changed the name. And at the same time, some of the non-OEM manufacturers, and I'll mention Berco, was in the independent after carriage business. Having visited them a couple of times, they had machine tools and presses back in, again, in the early 60s that were beyond anything that many other manufacturers had, including some OEM. So the associated independent distributors, some people just sold new wheel fit parts, some sold used parts. But out of that was kind of the core that grew into a very complete distribution system, really, primarily in the United States and Canada. So it was used parts. It was some non-OEM new replacement parts. Some people ended up staying primarily just in the used parts business. Some kind of got into all things for all people. Used parts is kind of a function of machine population and the demand it creates as it ages. My favorite example is in the early 60s. A very popular and very available tractor was a D6-8U or 9U serial number prefix. The original D6s started being built by Caterpillar in the 1940s, and they had an RD prefix. And sometime in the early 50s, they introduced this 8U and 9U,8U being, they called it a narrow gauge tractor because the oil field people wanted something they could put on a truck. and haul around 9U a little wider gauge and a more stable tractor. It weighed 33,000 pounds. It had a diesel engine, a D318, with most of them gasoline starting engines. Before the days of hydraulics, it had a number 25 cable control. And there were well over 30,000 of just the 9Us built. So there was this huge population of tractors. They all had similar parts. And so when you bought a tractor to tear it down for parts, almost everything on it was in demand and for sale. As the business has gone forward over the years and manufacturers have updated products more often, that is not necessarily the case. Sometimes people will ask, well, why use parts? Is it important? I mean, I don't know that I've ever bought any. So if you look at it as a business, there are really two groups that are impacted, right? The user or the contractor and then the people that decide to be in the business and sell them. From a user's perspective, used parts really offer the chance to lower the basic owning and operating cost of a machine. And then maybe today is important to support obsolete or older equipment. As manufacturers change models and upgrade, it's easier to have obsolete equipment. I live in Central Texas right now. I'm the elevating scraper. Caterpillar, for years, built a 613, a 615, a 623, and for a while a 633 elevating scraper. The 613s and 615s are still alive here in Central Texas. Almost every contractor has one. Caterpillar has not built a 615 in 20 plus years. Well, both. 613s or 615s in 20 plus years. So if you're running those machines, then any parts that you can get often used in a salvage situation are absolutely perfect. For contractors, lowering operating costs and then supporting obsolete equipment. And today there's more, I quote, obsolete equipment, meaning non-production models that are running. And there may have been a batch made of 5,000 or 10,000 or how many, but they provide then cores for used parts. For a seller, it is a little different. Depending on who the seller is, there are a few OEMs in the used parts business. It may be about more share of a customer's wallet, more price points. If you can offer a new price, a used price and everything in between, a rebuild, repair, certified. And then an interesting question for a seller, is this a profit center or a cost center? And then it's a possible source, of course, for many people that like to rebuild powertrain components. Which brings me to the issue of core value. Some people favor the used parts business as a source of cores to feed their rebuilding and repairing of exchange transmissions, engines, final drives. And again, it gives them multiple price points to go to market with. You look at a used machine and you go, gosh, what's... What's there that I can sell? And it's different today because one, there's a lot more different kinds of models and different kinds of machines, but drivetrain parts, any wear parts that aren't worn out, any attachments, work tools are automatically items that just you can sell. Items that I think of as frame and function, cabs, mainframes, trackframes. Back to the D69U days, everybody was still learning metallurgy and manufacturing, and track frames often cracked. It was not uncommon to find used machines with plated track frames, both inside and out. Today, that's not much of an issue. Historically, track frames were a pretty good selling item. So today, if you get to a hydraulic excavator, there's not a lot to sell. on a hydraulic excavator compared to a track type tractor or other types of equipment. But drivetrain, wear parts, attachments are always a part of that. And then machine population and utilization kind of drives the whole business. Back to my D69U example, if there were 30,000 built and there with first, second, third, maybe even fourth owners, there was always somebody that needed parts off those units. So the opportunity in used parts, again, is high population and high utilization. Often old machines get used to backup status. Utilization is not as many hours as when they were new. So it's perfect to find used parts to help a contractor bridge that gap. But the whole business is driven, again, by machine population and utilization. and the resulting wear and tear and what's needed. Lots of people in the used parts business today approach it with, they'll sell multiple things. Yes, they'll remove a part as is and they'll sell it to you. But often they'll repair or rebuild. And sometimes some of the rebuild stuff even has warranty. Many used parts dealers today are actively exchanging drivetrain components. So used parts has come a long way from the 50s and early 60s when it was, you know, have a farm field full of tractors and just start taking parts off of them. The key, people often ask this and discuss it, the whole business is, it's like the equipment business, it's like the car business, you got to buy it right to sell it right. Sourcing is a key to success in this business. The demand for it, the costing, the pricing, and then people are in the business. How do they manage their costs, their labor, their storage, their inventory? First question that comes up is, do you do stuff on the shelf or do you leave it on the machine like in the old days? What's your disassembly and cleaning process? And then how do you price? Almost everybody prices as a percent. of new dealer net. And depending on the demand for that product, then they factor that price up or down. Then the last topic that usually comes up around this business is, well, okay, sounds kind of interesting, but where do you find this stuff? How do you get product to sell? For OEM dealers, often existing customers can be one of their best sources, particularly where they're selling new or used equipment, and they can take a used parts core in trade. So existing customers, other contractors and owners, insurance companies and government agencies, as military operations have wound down around the world, the United States government has been selling large quantities of used equipment, much of it. suited for the parts business. Then there are brokers and dealers. But there is a network that if you can tune into, you can find used parts cores. So as you and I start this discussion, that's kind of an overview. We've talked about what is it, where do you find it, what's important, the impact of a population machine or machine population and utilization. It has grown from a one machine, take off the parts and sell it to people that have large inventories and they do rebuild, repair. They source cores. So used parts is a multifaceted business today as opposed to when it started. It's a fun business. The people that are in it like it and they like it for a We used to call ourselves junkies, different use of the word today. But it was, you know, it's just it's fun. And customers that buy used parts often come in and inspect them and look at them. A lot of chance for human interaction today in the marketplace with online e-commerce. It's not like it once was, but once upon a time. Customers liked coming in and just, I'm going to call it kicking the tires, moving up and down rows of displayed things and looking at something and seeing, is that in better condition or worse condition than the one I have? At one time, that D6-9U later became the D6B and then the D6C. That was a very popular tractor in much of the country. And a lot of people did what they called farm work and they built ponds. And the U.S. government or the state government or even the county had funds for water conservation. And from those water conservation jobs, a lot of single machine owners got in the business and got their first. experience with how do I operate or how do I run a track type tractor or a track type loader. And then they were really the early customers for the used parts because they were using them in a lot of cases. They could work on them themselves. It's not like some of the computer systems that are the coordinator or the orchestra director on our systems today. But used parts is an interesting, fun business historically. It's been kind of in the right place at the right time. And as we look forward, and I've talked to some people recently, there's a huge population of the compact construction equipment. And when that came out, Bobcat being really the first manufacturer 25 or 30 years ago, no one thought that it would ever be possible to part a skid steer loader. Today, we have companies in the business. whether they're a traditional used parts company or someone that is an agricultural related business that does a skid steer business. But if you Google, you can find people that are in the used skid steer or the used mini excavator parts business. And it's back to what I said a while ago. It's machine population and utilization. And there have literally been millions, millions. of those little machines sold over the last 30 years. So there is a huge population. It fits the model. And just now there's some suppliers getting more involved and coming to it. So it's like everything else in evolution, right? What drives it? Why does it work? But it worked in the late 40s,50s,60s. Now here we are in 2021 talking about it. It's still a very active business and the new small equipment, again, because the machine population utilization is coming into the formula.

Correct.

Yeah, it was a little different. We actually facilitated a dealer transfer, dealer ownership transfer between the Peterson Company in San Leandro, California, and the dealer in Portland, H-A-L-T-O-N. Halton. And so Halton was big in the used parts business. And as a result of that dealer consolidation, that used parts business was kind of left over and left out. And so it was an opportunity to keep that going and to help our dealers.

Well, your first stop is the suggested A dealer net on the new part.

So if you start there, then as a percent of that price, if I can go to the OEM dealer and buy a new one for $10,000, then where is a good deal? What interests me as the writer of the check? I'm not going to pay you $9,900 for something I can buy for $10,000. So the old rule of thumb was 50%.

Yes.

Now, there's exceptions to that. High demand good items might go to $60,000 or $65,000. Track frames or push arms sitting out there with the weeds growing around them. might be a lot less, but you need a place to start. So when you bought your machine and you said, I've got these 10 components and I'm valuing them thus and so, you would also be comparing those pieces to what it would cost if you went to the local OEM store and bought them new. And so every time you buy a machine, because the condition of some of those things will be different. But you will use this rough methodology. I can sell it for 50% of a suggested consumer list. Probably. I might get a little more. I might get a little less. But that's always your first stake in the ground.

exactly right. With the systems today, in the old days, a parts counter guy was actually knowledgeable about what it was, where it fit, how it went. So coming backwards into your used parts situation. Yeah, folks got to know what they're selling, what the condition is. They've got to understand when that machine was running, you know, what kind of environment they may be worked in. And there's all kinds of little things you'd want someone to know if they were going to sell the part and not just take an order for a part number and package it and ship it. There's the shopper, particularly the smaller the customer. The more inclined that man may have been or that person may have been to be the operator of that machine. They're going to use the word feel, but there are there you do set the seat of a machine and and you feel things. Well, now when you're buying a used part for that machine, you kind of know where where it wears and where it doesn't. And if yours is broken and, you know, others is broken. I mean, there's a whole. accumulation of knowledge that comes from interacting with and being around the machine as a customer, then you take it the other way. Then you'd like your salesperson to have some of that knowledge. They can't have it all because they're not out there doing that. But you would like there to be a juxtaposition, if you will, between experience of the buyer and the knowledge of the seller. Make sense?

There is no training ground. I think you have to find the people that have an affinity. They like it. They like being around it. I talked about the used parts of business a little earlier. I talked about it being a relationship kind of a business. Well, there are people and young people, you know, that like that stuff. Now, how do we find them? I would. That's a whole nother discussion. But there are people that that wear that hat proudly. I've worked around them in various businesses, various parts of the country. And they tend to stay with it. They don't come into the used parts business and leave the parts business. They tend to stay there. They love it. They love what they do. They love the customers. They love interacting with the customers. That is different than someone that's trained just to interact with technology. So a challenge is to find and bring some of those people in. Somehow it's being done because they're very successful businesses today being run by, a cadre of people. And so, you know, they're managing to recruit some of those people. Some of those people, you know, maybe more rural background, maybe off a farm or ranch, maybe somebody that's interacted with agriculture machinery. I mean, it's just, but there are people that it's like, I don't know, people that drive race cars, that you get things in your blood. And I think the construction equipment business, I think the used parts business are both. pieces of degrees of in your blood. You know, it's what I want to do. I don't want to sit in front of a computer screen all day. I want to get up and walk outside. I want to pick the part up and look at it. I want to say, you know, is it half worn? Is it all worn? I mean, it's just part of that now is an inspection process before it goes on the shelf. But some of it. you leave to individuals so they can accurately describe it to the customer and the customer feels like receives it as accurate information. Yeah.

So I'm going to go backwards just a minute. A while ago, we talked about the progression of a machine from an original owner to a first, to a second, to a third, and a fourth. If you're around many of the auctions these days, there are... third and fourth generations picking up these compact machines. They're not being thrown away. A lot of people thought they were a disposable commodity. And that is not turning out, in my opinion, to be the truth. Somebody somewhere will take that machine and do something with it. So keeping track of that machine is important. And one of these days, we'll talk about something else, another little project I'm involved in called Agility One. But tracking ownership and keeping up with people as these machines move from original owner to fourth level owner is very, very important. And there are ways to do that. But those machines are not dying. Many of them are living on. Years and years ago, we'd find an old dozer parked behind a barn and a farmer had used it to build his pond. And after that, he just kept it because what the heck, he might need it again someday. Well, the fourth, third and fourth level owners of some of these combat construction equipment are kind of the same way. You know, I bought it. I didn't put all that much in it. I needed it to do one thing. I'll just hang on to it. But the machines are not dying, I think, at the rate everybody thought they would.

Absolutely.

Yes.

So as we wind down for today, there will always be a used parts business because there will always be owning and operating cost constraints. I don't care if it's one owner who runs it once a month and doesn't have much in it, or it's a production guy that owns a dozen machines. As long as there's owning and operating cost constraints, there is a natural alignment with used parts, rebuilt parts, components. It'll always be there. So now we've got this population shift, as you just pointed out, and we still have huge mining equipment. But if you look just on a per unit basis, what's selling in the United States or the United States of Canada or in the world, it's the small machines.

Yes.

Well, no, but I would add maybe another discussion is the distribution channel, because all of this is forcing the channel. to behave differently and to be structured differently. And that's a whole, I mean, there's all kinds of things going on that is some combination of electronic and technology and personal. And how do we get this done? And how do we get that done? But this has been a great discussion, Ron. I really appreciate that chance to just visit with you. Thank you.