How the industry is handling a record volume of used equipment.
Case-by-Case Decision
Whether
it pays to completely remanufacture a certain type of machine or not depends to
a large extent on how much technological change has occurred since the older machines
first came out, says Ed Collins at Deere & Company.Collins is manager of equipment
remarketing at Deere's Equipment Remarketing Services, a department within the
John Deere Construction Equipment Division. If new machines are much more productive
than older candidates that need remanufacturing, then remanufacturing quite often
does not make economic sense, says Collins.
"A
10-year-old excavator that is eligible for remanufacturing might not have any
advantage because a new machine is so much more productive," he explains.
"The new machine's pins and bushings are 20% larger, its lift capacities
and crane ability are 40% greater, the engine's fuel efficiency is improved by
30%, and its cycle times are 25% faster. So there probably is not much advantage
to completely remanufacturing a 10-year-old excavator."
By
contrast, often there is an economic advantage to rebuilding a rigid-frame haul
truck, Collins says. If a new one costs $750,000, an old one can probably be rebuilt
for 65% of the cost of a new machine. "These haul trucks have high potential
for economic remanufacturing," he notes.
What
about remanufacturing bulldozers? Collins says very little remanufacturing of
dozers is done because the component costs to rebuild the entire bulldozer are
prohibitive when compared to the costs of a new one. On the other hand, circumstances
can make it economical to rebuild one or more components of a bulldozer. "If
a three-year-old dozer blows an engine, sure, it probably makes sense to rebuild
the engine."
Loader-backhoes
are in plentiful supply in the marketplace and according to Collins, usually are
economically prohibitive to remanufacture. "You can buy a new one for 50
grand, and it might cost you $25,000 to remanufacture one. In all these cases,
your equipment dealer can help you find the sweet spot in terms of the most economical
time for rebuilding a component or a machine."
At
Caterpillar, the dealers are the experts on the used-equipment market, observes
Mike Duncan, a consultant with the rental
equipment and used-equipment marketing division of Cat's North American Commercial
Division. "The dealers have the shops, and they have the expertise on what
the marketplace wants."
That
means the rebuild-or-not decision is made by Cat dealers. "The equipment
dealers (rent/sell) are in a unique position to prepare machines for resale
that will meet the needs of their territories," says Duncan. In regard to rental
equipment, the rebuild-or-not decision is also in the hands of the Cat dealer.
"Our primary entry to the rental market is through existing dealers that
have Rental Stores," he explains.
Caterpillar has strongly encouraged its dealers to establish separate rent-to-rent
stores, and the majority of dealerships have done just that.
Caterpillar's
volume of used equipment sold in 1999 probably was close to the 1998 figure-perhaps
a bit less, reports Duncan. In 1998, there was a large influx of used Cat
equipment that came into the US when so many Asian projects either folded or went dormant. That
influx swelled the volume of used equipment for 1998 and could explain why a more
normal volume would be lower for 1999.
Caterpillar's
used-equipment sales growth has been consistent with the economic condition of
the various industries that the company serves, Duncan notes. For 1999, sales have been good-to-strong
in homebuilding, commercial site development, highway and heavy construction,
and aggregate production. Sales to the mining industry, however, declined somewhat
in 1999, he says.
How Auctions Work
Ritchie
Bros. sells equipment for consignors in three ways, explains Bob Armstrong, manager
of finance and corporate relations for the Vancouver, BC-based auction firm. First
is the straight commission: Ritchie Bros. might sell a machine for $100,000 and
take a 10% commission. "Two-thirds of our business is straight commission,"
says Armstrong.
The
second method is to sell by what Ritchie calls a guaranteed gross contract.
Say Ritchie Bros. and the equipment owner agree that a fleet is worth $1 million.
"We'll guarantee you that the fleet will sell for one million dollars, but
we get 12% with that deal," says Armstrong. "You're guaranteed to get
$880,000, and if it sells for more than one million, we can share the savings.
We might negotiate that you get 60% of the money over $1 million and we get 40%."
Third,
Ritchie will buy the equipment outright, in effect. "Given the same fleet
that is expected to bring $1 million," says Armstrong, "I give you cash,
say $895,000, which is more than the $880,000 guaranteed gross deal. But if it
goes for over one million, I keep all of that portion over my purchase price.
Now I own all the equipment. Very few deals end up being purchases; some people
take the guaranteed price."
Ritchie
Bros. takes pride in making it as easy as possible for people to buy and sell
equipment at its auctions. Minor repairs can be done by subcontractors at the
auction site. "We'll help you decide what you should fix," says Armstrong.
"We subcontract that work at the yard. It is not a profit center for us.
You get a check at the end of the day: the price the equipment brought, less our
commission, less the new tires, less the glass you had fixed. We arrange for three
or four finance companies to be at the auction, and three or four trucking companies
are there to take your equipment home."
Ritchie
Bros. does not do credit checks on prospective buyers. To buy equipment, you need
only present identification or a driver's license and the name of your bank. "We
get around bad debts because we control the equipment until we have our money,"
says Armstrong. "We'll take a personal check, but we check funds at banks
to make sure you have the money to cover your purchases."
Role of the Internet
Virtually
everyone who's selling used equipment-from auctioneers to equipment
dealers to rental firm-advertises
that equipment on the World Wide Web. For all of those businesses, the Web site
has become an indispensable tool to reach prospective buyers.
Two
of the most extensive used-equipment Web sites are put up by Ritchie Bros. and
the Associated Equipment Distributors' (AED) Machine Mart Ritchie Bros.' site
allows you to search, by type of equipment, the total inventory of equipment being
collected for all upcoming sales. Or you can search just for a certain sale in
your area.
It
is very easy, for example, to bring to your screen all of the Cat 416 loader-backhoes
for an upcoming Ritchie Bros. auction in Houston, TX. For most individual machines,
the listing includes the make, model, serial number, and basic attachments that
are included, such as a hoe bucket or a loader bucket. Naturally, no price is
listed; that's decided at auction.
"The
Web site is a critical tool for us," states Armstrong. "We attract people
from around the world to our sales. We get 2,000 visitors per day to our Web site,
and the average time spent on the site is 11 minutes per visitor. Our site is
updated every day with equipment to be sold."
Is
Ritchie Bros. selling equipment on the Web, with the machines unseen by buyers?
Not really, but you can submit an absentee bid through the Web site and Ritchie
Bros. will, in effect, bid for you. If you submit $120,000 as an absentee bid
for a machine and the bidding stops at $75,000, you've bought it for $75,000,
explains Armstrong. Ritchie accepts absentee bids in two ways-on-line or by fax.
With absentee bids, a deposit is required. Armstrong also encourages absentee
bidders to send a representative to the auction site to inspect the equipment
at issue.
"Our
ultimate goal is to allow people to bid on-line in real time at our auctions,"
says Armstrong, but the company has no time frame attached to that goal. "We
still believe in live auctions," he adds.
AED
has been operating its Machine Mart for about two years, says Matt DiIorio, vice
president of marketing. The Mart is a marketing service offered to AED's members
at no extra charge. And now AED is opening up the Mart to others and will charge
them nominal fees to advertise their equipment. As of the end of 1999, AED had
equipment listed for a total of $833 million-plus. DiIorio estimates that by the
end of the first quarter of 2000, the total will surpass $1 billion.
With
the Machine Mart you can search all of North America for the equipment you want or you can narrow
your search by manufacturer, product category, price, and year(s) made. A search
by this reporter, for example, brought to the screen 11 wheel loaders across the
country, selling for prices ranging from $8,000 for a 1967 Michigan 175 to $1.5
million for a Cat 994HL.
If
you're shopping by price, the Machine Mart can bring up comparative price information
at the touch of a finger. "You can narrow down your list a lot faster than
by calling 20 dealers," DiIorio points out. "The Machine Mart gives
the customer access to the specific piece of equipment he needs when he needs
it."
Quite
often, the Machine Mart serves as a beginning tool for a distributor who's looking
to sell used machines but doesn't have his own Web site. Once the distributor
becomes familiar with the value of the Machine Mart, he can put up his own Web
site and list equipment there.
DiIorio
says the two sites can work in tandem to maximize exposure for a distributor's
used equipment. In fact, AED will create Web sites for member dealers. "Even
if we have not created a member's Web site, we will [move] equipment information
from Machine Mart to their Web site and vice versa. The e-commerce marketplace
believes that critical mass of information is king, so that's what we try to achieve."
He estimates that 80% of AED dealers have their own Web sites and that a good
percentage of those advertise used equipment on their sites.
So
it has developed that as more and more used equipment is available for sale, the
Internet has come along to help that equipment reach its next destination. Both
buyers and sellers can only benefit from the increased exposure that the Web offers.
Buyers benefit because they can quickly shop price and to some extent can learn
the details of each machine, and sellers benefit because they gain exposure to
a greater number of buyers, which ultimately has to improve prices received.
Originally
written by By Dan Brown
