The Boom in Volume of Used Equipment

May 1, 2000

Not long ago, Mike Wolff, vice president of Lake County Grading in Libertyville, IL, auctioned off most of his equipment fleet. Sold through Ritchie Bros. Auctioneers, the fleet included scrapers, haul trucks, excavators, and compactors and brought more than $2 million-a “very good sale value,” remarks Wolff. Was Lake County Grading going out of business? Not at all, he replies.

“We converted our fleet to leased equipment,” explains Wolff. Now Lake County leases its fleet of equipment, including eight Caterpillar 627 scrapers, from Patten Tractor Inc. in Elmhurst, IL. “With the lease program we eliminated most of the maintenance of our equipment. We cut back on mechanics, we cut back on lubrication personnel, and we have brand-new equipment.” How much will leasing cost compared to owning? “Leasing should work out to be equal or better,” Wolff replies.

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By contrast, Kokosing Construction Company, a $400-million-per-year contractor based in Fredericktown, OH, maintains one of the largest equipment shops in the state, says Jack Butler, Kokosing’s field equipment manager. While the company usually sells off smaller equipment at 7,000-8,000 hours, “We usually keep larger equipment for a second life,” says Butler. Dozers that are D-5 size and larger and excavators of Cat 235 size and up, get completely rebuilt.

“We do most of the work ourselves,” says Butler. “It just depends on our workload-whether we do the work or take it to our dealer. We’ve got some Cat 245 excavators that are at least 20 years old.”

If Kokosing chooses to sell equipment, the company first tries directly selling the machinery itself. If that doesn’t work, it’s off to the auction block. Either way, Butler says Kokosing strives to protect the integrity of its used equipment. “Some contractors will dump problem equipment into an auction. We don’t knowingly sell somebody a problem.”

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The Big Picture

The mid- to late ’90s marked a sustained growth period in terms of new-equipment sales. Now, obviously, all that new equipment is being turned into used machinery. Construction demand is still healthy, but there are some signs that new-equipment sales are slackening as dealers cut back on inventories.

The used-equipment business is huge-it annually racks up sales of $100 billion worldwide, estimates industry analyst Frank Manfredi. He says sales in the United States account for about $25 billion of that.

And if the business of Ritchie Bros. Auctioneers is any indicator, the volume of used equipment is healthy and growing well. Last December, Ritchie Bros. announced it had achieved gross auctions of about $1.17 billion for 1999, a record high. The company held 114 auction sales in seven countries around the world. More than 116,000 registered bidders attended Ritchie Bros. auctions in 1999, compared to 109,000 in 1998, which represents a 6.4% growth. In 1999, the number of successful buyers rose 15% to 39,000.

Meanwhile, national and regional rental-equipment fleets have grown rapidly and are larger than ever. At the end of 1998, says Manfredi, numbers for five of the largest rental-company fleets totaled $2.9 billion in rental equipment. Clearly, rental companies are taking on more of the risk and expenses involved with equipment ownership-risk and expenses that contractors used to assume.

Similar to contractors, rental companies strive to maintain high utilization rates on the machines. Because equipment has fixed costs, such as depreciation and insurance, a machine can only make money if it’s working. So when rental companies get their big fleets rented, cranked up, and working sustained long hours, they can generate high-dollar cash flows.

What happens when all this growth levels off? New equipment sales will level off as well, yet there will exist a huge volume of used equipment in the marketplace. Some industry officials reason that, to some extent, equipment manufacturers and dealers will find a significant volume of new business in rebuilding and reselling equipment.

If the aerial lifting-equipment business is any indication, a trend toward rebuilding is already on, observes Chuck Miller of Sunbelt Rentals Inc. ( As marketing director of the large Charlotte, NC-based rental firm, Miller has observed that as some aerial-lift manufacturers have seen new-machine sales flatten, they’re offering to help large rental companies comb their fleets to find candidates for remarketing and rebuilding. In that way, finding machines for remarketing and rebuilding creates opportunities for replacements with new machines.

Meanwhile, JCB Inc.’s (White Marsh, MD) vice president of direct sales, Gary Walter, emphasizes that JCB’s primary business is building and selling new machines. He points out that the company ( recently completed a new factory in Savannah, GA, for loader-backhoe production. Nevertheless, says Walter, “We are being pressured by the rental companies to consider trade packages-deals where they would offer used machines against the sales of new ones. These would be purchases of multiple [used] units-25 or more. We are investigating setting up a remarketing department. That would allow us to begin working closely with the rental market to help them resell machines, either to our dealer organization, to other parts of domestic [channels], or overseas.

“We’re a new-machine manufacturer and we’re not in the used machine business, but the dynamics of the market might lead us in that direction. As we look at other players, there is a significant practice by the aerial work platform companies to take used machines in trade. That trend may have an impact on [our business]. To date, JCB has not decided whether, as a company, it wants to get into the business of rebuilding machines for resale. The new-machine business has been very strong.”

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- 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 dealers 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 Cat 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.

Big Volume Equals Big Business

One of the factors that’s sure to wield an influence over the volume (and to some extent, price) of used equipment is the huge volume of rental equipment. As mentioned earlier, Manfredi totaled the value of five large rental firms’ fleets at $2.9 billion. Not surprisingly, rental companies have various ways of disposing of their used machines. And rental companies commonly establish guidelines that define when each type of equipment should be sold. Such guidelines are usually defined in terms of a machine’s age, the number of hours on it, and the level of repairs that it requires.

“We sell equipment three ways,” says Phil Petrocelli, executive vice president of NationsRent Inc. in Fort Lauderdale, FL ( His first choice-the one likely to produce the highest sale price-is to have the local rental store move the machinery locally, which probably means a sale to an existing customer.

Petrocelli’s second choice is to use equipment brokers. Many of them specialize in one or more type of machines. An equipment broker brings together buyer and seller. The broker is selling the ability to match supply effectively with demand. The result is that the seller gets a good price and the buyer gets a machine needed to perform work at hand. “A broker may know that United Airlines needs 20 to 30 scissor lifts for some renovation work,” says Petrocelli.

Third, NationsRent sends equipment to sale at auction. Generally, selling equipment at auction tends to bring less money than using the first two methods, but depending on demand at the sale itself, an auction can produce sale prices as high or higher than any other method.

“We have a conservative depreciation schedule policy,” says Miller at Sunbelt Rentals. “That way we keep the option of selling equipment because it’s written down soon enough. If you don’t depreciate it fast enough, you have to figure out a way to keep it longer than you should to pay for itself. That risks running into higher repair bills, and in a worst-case scenario, you might lose money on the equipment.”

Miller says he expects that, in the future, manufacturers will increasingly take back used equipment in trade for new machines. “Sunbelt Rentals might work a deal with a New Holland or a JLG-do a trade directly with the manufacturer.” And like NationsRent and other rental firms, Sunbelt uses equipment brokers and auction houses to sell used machines. “We prefer to use a balance of all of the methods,” says Miller. “Success lies in picking the right method at the right time.”

By selling through auctions, “you never know what price you might get,” says Miller. “It works both ways. One day you can hit a home run, and another day you can think something’s going to sell well at auction and come home disappointed. Sunbelt’s volume of auction business is large enough, that for us the highs and lows average out and we end up getting good returns for our equipment.”

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 firms-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.