Question for pro wrenches using pro tools

[yellowbox]

You know, I wonder if the really significant mark-up isn't from the truck driver to the mechanic but from SO to the truck driver. The truck driver only marks up 30-something percent. I wonder what kind of margin S-O makes?

i think the driver marks up more than 30 percent ...more like 40 -45 percent
i have a brother who sells matco tools and for what it is worth he said tools and boxes are usually marked up 45 percent ,give or take a little bit depending on the item , lets say he sells you a box that cost 5000 , gives you 1500 for your used box you pay 3500 , he still made roughly 800 on box he sold you PLUS he will sell your old box for at least what he gave you in trade
so now he made 2300 on sale of 1 box , not a bad deal for him . hes happy and you are happy most boxes are financed with interest so he is paid in full by who ever finances box while you make payments

 

[Vinko]

^^^^my SO dealer said he makes a 30-something markup on hand tools and I didn't ask on boxes. So maybe that 30-something doesn't apply to everything. For boxes, SO Corporate or some Credit wing of same finances often his sales. I don't think he carries the sales of boxes himself. Except used boxes.

 

[krusty the clown]

i think the driver marks up more than 30 percent ...more like 40 -45 percent

matco's dealer mark up is 40% on hardline 50% on toolboxes. snap on is 33% on everything.

 

[Chris Adams]

OK I take this back. This discussion led me to wonder just how much interest SO is charging the new mechanic, and I suddenly realized it was possible to estimate. The interest charges are pretty significant.

There are certain tools that SO buys and rebrands, and I'm about 99.9% sure that Precision Instruments supplies them with several of their torque wrenches. I have both a SO and a PI torque wrench and they're identical, same case and everything.

The list price of the 20-100ft-lb split beam torque wrench is $175 from Precision Instruments, and $250 from Snap-On.

Let's say the SO guy allows you to buy the $250 wrench for $25 per week for ten weeks. If you imagine this as an amortized mini-mortgage, this is like paying back $250 on a loan for $175. In any kind of loan you always pay back more than you borrow, but the question is: what is the equivalent annual interest rate? I used an amortization calculator to estimate this, and it's about 467%

Of course, with the SO guy you're getting the truck and the warranty and everything, so the wrench from SO is worth more. Let's split the difference and assume that the wrench from SO is really worth $212.50. In this case, the interest rate drops to about 198%, better than before but still way deep into ******** loan shark territory.

So I guess there's two ways to look at this: one is that if you're a young mechanic with high credit risk, you're going to pay sky-high interest rates. Second, I love the Snap-on tools that I have, but man they're pricey no matter how you look at them...

*****
Note: I assumed here that you made the payments at the "beginning of the period", that is you paid the first $25 when you got the wrench. The rates drop to something like 365% and 175% if you take the wrench and make the first payment the next week (paying "end of period").

I should also point out that I've only looked at one rebranded tool and these results might not be typical.

You do know you’ve stumbled across the secret of the Tool Truck prices, right?
And you better hope people with ‘pushed over noses’ doesn’t stop around and adjust your kneecaps?
It is unlawful to charge interest rates like that. So since lots of money is to be made charging rates like that, there is always a way around it.
Like Rent-To-Own is actually a way to buy stuff at 200-400% interest, which would be unlawful.

If Snap-On gave a regular cash discount, the difference they charge on payments would be legally defined as interest.
And thus would be regulated. And it would have to be a LOT lower.

So the fictional pricing structure exists solely to cover the usurious rates.
The truck, the ‘on-site service’ the rest are merely covers for the loan shark in the truck to hide behind.
Which is what has been discussed but delicately, so as not to point out the actual criminal activity engaged in by everyone’s favorite tool company…

Seriously, anyone that has dealt with the trucks and run a business knows this, but most are too polite to comment on it.

 

[Coach James]

Because he gets his money right now; he doesn't have to wait for a check to clear or a bank to credit his account if he's using an old fashion credit card machine; he gets his money right now. The other reason is that if I'm paying a premium price for a tool, I expect something in return.

Not being a wise guy but isn't a premium quality tool the something in return you get for paying a premium price?

Most people I know that give cash discounts do so to avoid the income tax obligation.

Coach

 

[Vinko]

merely covers for the loan shark in the truck to hide behind.

OK. But I'm not sure that the truck owner/independent franchisee is the "loan shark" in this case really. He's not making the exorbitant interest rate is he? If he's making his 33% (in the case of S-O) on a set of wrench and those payments are spread out over a series of weeks, it actually takes while for him to recoup his costs, let alone his 33% profit. Or am I missing something here?

 

[Chris Adams]

OK. But I'm not sure that the truck owner/independent franchisee is the "loan shark" in this case really. He's not making the exorbitant interest rate is he? If he's making his 33% (in the case of S-O) on a set of wrench and those payments are spread out over a series of weeks, it actually takes while for him to recoup his costs, let alone his 33% profit. Or am I missing something here?

Actually it's the maker that is doing it.

The truck guy, even though technically a franchise vendor, is working under the auspices of the tool makers business plan.

If he wanted to sell cash only at 30% (or whatever) off he would lose his franchise due to contract violation.

The guy on the truck is a combination of salesman/bill collector. Neither one of which sets policy.

The 'loan shark' label I just used for effect, but the company, while strictly legal, is the one operating through a loophole in the law.

Realize, that if the people who monitor interest rates, i.e. government, were capable of actually understanding how this works it would be unlawful.


I'm not making a stand on this.
One person could say it's free enterprise and is right, another may say it's gouging and he could make a case.
I'm merely commenting on the actual facts of the business plan, not the morals, ethics, laws for or against.

 

[joeswamp]

First off, I agree with Chris here that it's the company that's setting the policy and not the truck guys. Again taking the example of the rebranded $250 torque wrench, if the truck guy is making 33% then he's paying the company $188 for a tool that lists for $175 -- and you know Snap-On is not paying list prices when they order a gazillion of these things from Precision Instruments.

So there are two interesting issues here: 1) Are the lending rates excessive? and 2) Are there other reasons (other than "they can") that the SO sets the prices so high?

I agree that the interest rates SO is effectively charging are insanely high, but I'm also not sure I agree with laws that limit high lending rates. Remember that "usury" originally meant interest rates above 0% -- this was dictated by the church. Who's to say at what rate of interest a loan becomes immoral? I just read an article pointing out that the rates of the new "micro loans" so talked about in the developing world are actually quite high (like over 100%), simply because it costs so much to administer so many small loans. Yet everyone also agrees that these loans are hugely beneficial in allowing people to pull themselves out of poverty -- the guy who came up with the concept won the Nobel Prize. Clearly most mechanics paying $25 per week love the Snap-On system and are not feeling exploited.

The other thing I was thinking was that the high prices of the tools could actually make them more desirable to the mechanic, because ownership of expensive tools serves an important marketing purpose. I was at a wooden shipbuilding museum one time and there was a guy there who carved elaborate figureheads. I asked him why all the old ships had these, as it seemed to be a considerable expense that served no functional purpose. He told me to imagine I was a merchant who needed to send a load of expensive goods on a risky trip around Cape Horn, and would I want to trust the guy who looked poor or the guy who looked successful? It's the same with mechanics -- do you want to hire the guy with a rusty dented Craftsman box or they guy with the 11 foot shiny SO box? The guy with $80k of SO tools is no doubt a very successful mechanic. So in a sense SO tools are a bit like expensive jewelry -- they are a sort of success advertising mechanism and they couldn't really serve that role unless they were significantly more expensive than the competition.

It's sort of paradoxical, but this line of thinking implies that if SO lowered their prices to match their competition they would probably lose market share in the long term.

 

[Vinko]

Actually it's the maker that is doing it.

That's what I was suggesting without coming out and saying it

If he wanted to sell cash only at 30% (or whatever) off he would lose his franchise due to contract violation.

He'd also , if I have all my facts straight -- and I may well not -- be broke, not able to even cover his own costs

One person could say it's free enterprise and is right, another may say it's gouging and he could make a case.

I'd say it's both free enterprise and exploitative. I think free enterprise is by definition exploitation in a neutral sense (and maybe in a pejorative sense too) But then, I'm in business, I think that free enterprise is probably the best system we have, but it's imperfect, and I don't always like it or buy into it.

 

[Chris Adams]

Joeswamp, that is well thought out.
Not sure I agree 100% on the 'guy with the big box is obviously competent, met a lot of incompetent guys with lots of expensive tools, but as a marketing move it makes sense.

 

[Chris Adams]

That's what I was suggesting without coming out and saying it



He'd also , if I have all my facts straight -- and I may well not -- be broke, not able to even cover his own costs



I'd say it's both free enterprise and exploitative. I think free enterprise is by definition exploitation in a neutral sense (and maybe in a pejorative sense too) But then, I'm in business, I think that free enterprise is probably the best system we have, but it's imperfect, and I don't always like it or buy into it.

I used 30% just as an example since it has been used several times in this thread. When I sold tools, as a retailer, the margin was WAY better than 30%. Tools cost almost nothing to make, but mention that and guys who pay 30 bucks for a wrench that cost 30 cents to make tend to get very angry...

Exploitative is in the eye of the beholder. If you are angry about doing something, or feel you should be getting something free because you are such a good person, you are being exploited...

Free enterprise works better than anything else. Everything else is even more exploitive. But it isn't perfect, but then, that’s why it works. Perfect systems always fail, and horribly, because humans ain't perfect.