Construction Equipment Rebates: Not So Much

By Andrew Agoos, Contributing Editor | September 28, 2010
Andrew Agoos has spent more than 40 years in the equipment, service and maintenance side of heavy equipment. He has held senior management positions with Neff Rentals, Hubbard Construction Co., Austin Industries, and Caterpillar. He has strong opinions about equipment management: Some are based on facts; some are intuitive; some are anecdotal. He doesn't ask that you agree with him.

I don't like rebates. Sure, they're great to get, and I've gotten my share of them over the years. And getting 3 percent, 5 percent, or even 10 percent is a big chunk of change. Some rebates come deal by deal, but most are based on an upward sliding scale. The more you buy with one vendor, the higher the rebates.

I strongly prefer discounts that I get on today's deal, and here are seven good reasons why. Let me explain from the perspective of the vendor. If I give you a volume rebate for purchases over a year's time, I'm a happy salesman.

1. I get the order and your check today. I don't have to share the profit margin until a year from now, or at least to the end of the rebate evaluation period, so the vendor gets the benefit of time value of money. That's real cash.

2. Once I sell you the first widget, you are semi-committed to buy the second widget from me to improve your sliding-scale rebate. I don't necessarily have to give you my absolute best deal on that second or third deal. All I have to do is match the price on the first deal.

3. You may not be in business a year from now. Your purchasing agent or buyer (or you) may have moved on. Your company may have merged with another company. If the right people in your company aren't around or following up, the earned rebate check simply doesn't get written.

4. Who keeps track of the rebates? Usually it's me, the seller. So maybe you got credit for all the oil you bought from me, but the grease purchases somehow didn't get included. Or maybe your company's branch in another state goes by a different name and no one realizes they are a part of your company. Most errors are not intentional. Most vendors are honest. But most errors will be in the favor of the seller.

5. All vendors don't live forever. What if we, the vendors, are not in business next year? That rebate check will never be written.

6. Vendors like rebates because they are time-specific. The rebates in place in 2008 may not be repeated in 2009. It allows me to hold my discounted price up while coming down during a competitive environment such as what we have today.

7. If you buy a tractor today for $100,000 and receive a $5,000 rebate at the end of the year, where does that $5,000 go in your company's accounting system? The $5,000 check probably gets to your company, but you will probably already have the tractor on the books for $100,000 as a basis for the internal rates. And that's not good or fair to the equipment-owner group or the construction-using group. For the next 10,000 hours of that tractor's life, you need to base all decisions on an upfront purchase price of $95,000.

Instead of a rebate with seven chances of going south, I want my discounts in each deal and at the time of purchase. If necessary, use this year's purchase volume as a guide to establish the expected volume for next year.

Rebates are a mixed bag, but mostly the seller gets the best deal.

Think about it.