Customers Locking in 2019 Purchases Early to Avoid Looming Price Increases
Compelling Purchasing Opportunity for 2018: Chinese Tariffs and Section 179
Why Now is the Time to Buy:
Pricing is as good as it will get for the next 6 months at least, and maybe for the next several years: this is EOY, when pricing is always good, and current prices are likely to explode come January based on the new tariffs going into effect – no amount of financing charges would outweigh a 20% increase in product pricing based on the new tariffs, and the financing carries tax benefits that paying more for a unit does not. Consider this: 7% interest on a $100k deal paid over 36 months equals $10,520 (payable monthly) – a 15% price increase costs $15k more (+ sales tax) on DAY 1.
Interest rates seem to be going up between now and EOY: the Fed raised rates in September and indicated it would do so again before 2019.
Section 179 provides a tremendous tax incentive to put equipment into service this year: the deduction limit for HW (“off the shelf” software also qualifies) in 2018 was increased to $1MM (here is a Section 179 Deduction Calculator from our financial partner) Customer doesn’t have to make a payment in 2018 to claim this deduction: they only have to put the equipment into service.
So, looking at the big picture, even if there is no available budget this year/until January, our customers would be best served to lock in at today’s rates and product prices – even if you don’t have the budget for the two monthly payments, you will incur between now and January. You can do a payment deferral, so you don’t even see a bill this year. BUT you do get this year’s prices, at the current interest rates. Now is the time!
US / China Tariff Update:
On September 17th, the U.S. government announced a 10% tariff would be applied to over $200B of Chinese imports, effective September 24, 2018. Please see the announcement and tariff list posted online at ustr.gov by the U.S. Trade Representative for more information on this policy and its scope.
Many manufacturers have updated their prices on hardware products in the U.S. with price increases, effective from the date of this memorandum forward. While most manufacturers affected by this tariff have published price increase notices ranging from 5%-10%, some product categories will incur increases that are higher.
The U.S. government has also announced it will raise the tariff further to 25% on January 1, 2019, which is likely to cause additional price increases.