Highway Contractor: Open for bids

| May 1, 2010

Open for bids

Auctions not only offer lucrative tools for asset management, but also perhaps even professional partnership in conducting your equipment business

By Mike Anderson

It may be April Fool’s Day, but the movement of construction equipment on this day is certainly no joke.

 

April 1, 2010 is, after all, a Thursday … and that means iron users, sellers, buyers and speculators from Lima, Ohio to Lima, Peru, from Dubuque to Dubai, are watching their computer screens flash back at them every time a member of their industry brethren clicks a new bid on a ripper-equipped chunk of earthmoving beef otherwise known as a 2002 Caterpillar D8R II dozer. The granddaddy of Internet equipment auction companies, IronPlanet hosts a live “Featured Auction” at least each Thursday, when hundreds of excavators, wheel loaders, pavers, dump trucks and other types of construction equipment, attachments and parts are up for bids. For mainline pieces of equipment, generally anywhere from seven to 10 are opened for bids at once, every six minutes, and each machine will stay on the board at a minimum until the next group goes live. Popular equipment will stay up for 15-20 minutes. The Texas-based Cat D8R II, requiring an opening bid of $110,000, stays open for bids for 24 minutes, drawing 39 bids, topped off by one for $174,000 by a bidder in Mexico.

“What we generally like to tell our customers, large and small, is that because IronPlanet does auctions every week, we can tailor the time of asset disposal to their needs, instead of forcing them to do it on our timetable,” says Paul Hendrix, IronPlanet equipment pricing analyst. “If a guy has a job completion on April 1, and the local traditional auction company doesn’t have another sale for 90 days, why would you want to have those assets sitting idle for 90 days? Or, as a job completion is progressing, with IronPlanet you could even sell three or four pieces this week, and five or six pieces in two weeks.”

That sure sounds like asset management.

Indeed, once most often considered among the “rogue” businesses of the equipment industry, auction companies are increasing part of the fleet management professional’s arsenal of tools … and perhaps even among his most trusted allies, advisors and confidants.

“Tuned in” fleet managers

A more informed market is a better market, says Ritchie Bros. Auctioneers’ Peter Blake, who credits private and public fleet managers alike for being “tuned in” to both the ever-changing status of their assets and the factors that affect the value of those graders, rollers and trucks. “People are just getting a whole lot smarter, with both more data available and more ability to assemble the data to make better decisions to help manage their businesses,” says Blake, chief executive officer of the world’s largest industrial equipment auction company. “People are starting to look a little more objectively at their fleets and making sure that they are getting the return they need and, if they are not, then what are their options.”

“Ours is very much a relationship business,” says Ritchie Bros. Auctioneers chief executive officer Peter Blake, seen here working the auction crowd himself. Sharing data with Ritchie’s customers only helps those equipment owners and managers make value-enhancing decisions on assets, he explains.

This, says Blake, falls right into the “mitt” of Ritchie Bros., the Vancouver-based worldwide auctioneering behemoth, which in 2009 alone sold close to 283,000 lots – or items – from 37,000 consignors, generating about $3.49 billion in gross auction proceeds. The company held 195 unreserved industrial auctions at sites in 14 different countries, drawing more than 330,000 bidder registrations, both on site and via the Internet. On-site and online registrants alike bid live on the gear that rolls across the famed Ritchie ramps.

“The one thing that we have always said internally here is that we don’t really control or perhaps even influence the issue of when somebody wants to sell something,” says Blake, pointing out that factors to be considered by sellers include equipment utilization and replacement. “For us, our job has always been the awareness that, if someone wants to sell something, then we are an option for them to utilize.”

For veteran industry observers Donnie Wiggins and Fred Darnell, the equipment auction as a tool for fleet management professionals has evolved from primarily a place for manage’s to disperse of assets. “On the acquisition side, I definitely think they look at auctions now more than they have in the past,” says Wiggins, general manager of Top Bid, a Randall-Reilly* business that publishes assorted traditional and online industry reference materials. The key is having buyers who have work ready to start, says his colleague Darnell, crediting the combination of a buyer’s immediate need with the availability of quality late-model used gear – the latter being what auction companies espouse in this era of reduced production of increasingly costly new equipment. “When somebody needs it, they are going to pay for it,” says Darnell, regional sales manager with Top Bid.

While setting up his table on site at a recent Louisiana auction, Darnell was repeatedly approached and queried about what he as an independent observer was estimating a specific piece would sell for that day. “There were four or five people there who undoubtedly had an upcoming job and needed that one particular piece of equipment. And they needed it right then,” he says. “How many people who are at the auction or on the Internet who need a particular piece of equipment or more for a particular job, that’s what’s going to determine your value.”

In this regard, the realms of the old-school auction yard and sit-at-my-desk Internet bidding are one in the same. “The very first guy who puts a bid on that piece, he owns it. Even if it’s for 30 seconds, he owns it,” says IronPlanet’s Hendrix. “We found that the more people we get on board with that little fleeting sense of ownership, typically the better the end result is. That’s just a market mentality, an auction mentality, that’s been going forever.”

The primary goal for equipment managers is uptime – having the machines available for work exactly when they are needed. To that end, traditional and Internet-based auctioneers agree, the auction’s the place to be. If you’ve got the work, the auction company will get you some quality gear, pronto!

As the chief executive of the industry’s largest traditional auction company, but an organization that has also embraced the Internet to leverage an increasingly international marketplace for North American-sourced equipment, Blake likewise says he can’t emphasize enough the role that pride plays for those equipment sellers and buyers who look to Ritchie Bros.

A sense of pride

“You have to keep in mind that when someone is selling that piece of equipment at the auction he is saying goodbye to it, but there is another person there who is saying hello to it. That’s a brand new piece of equipment in that new person’s fleet, and there’s a sense of pride that you just can’t measure,” says Blake. “That’s why the guys want to come and inspect and test the equipment. These are income-producing assets, but they have the guys’ names on the side of them as well.” Equipped with “sophisticated business acumen,” these equipment owners and managers have a very real understanding of their assets.

“Business is run today based on more information, transparent data, a global market view … and really these are things we’ve been talking about since Dave Ritchie and his brother started the company in 1958.”

The philosophy may not have changed in the past 50-plus years, but some of the tools have.

“That connectivity of the Internet world and the real world – that coming together – has been a real positive for us,” says Ritchie Bros.’ Blake. “You’ve got data at hand now that you can help your customers manage their fleets all the better, and the transparency of information out there is exactly what we’re all about.”

On the eve of this April’s launch of an updated website with additional customer services, Blake noted that www.rbauction.com drew 2.8 million unique visitors in 2009, during the worst recession since The Great Depression. Those visitors made 30 million inventory searches, up from the “low 20 millions” made by 2.2 million unique visitors in 2008.

“What we’re able to do is look at the level of interest on various kinds of product, including where that’s coming from and how that measures up,” says Blake. “It’s a pleasure to be able to provide even more information to some of our customers who need it and use it, and help them run their businesses better.”

There is more partnering happening between fleet managers and auction companies, agrees IronPlanet’s Hendrix.

“We tout it every time we walk into a contractor’s office: Faster time to market. We allow you the flexibility of putting out a piece on your timetable instead of forcing you to dance to our music.

“That last leg of the equipment management stool – the asset disposal part of that – over time has been a little bit of an afterthought. Now, there’s a lot more thought going into that from the very beginning, from the time they buy the asset, through the management of it,” he says. “Take the life cycle of a dozer, for instance, says Hendrix. If a fleet manager has to replace the machine’s undercarriage before auction, he’s probably spending any potential return he’ll get on the piece. By acting sooner, both he and the buyer can win. Advises Hendrix: “Plan so that you can sell that dozer where it’s got anywhere from 30- to 50-percent of the undercarriage on there, so that the guy who’s purchasing that realizes that he doesn’t immediately have to go and capitalize an expense on a machine he just purchased at auction. He can immediately take it a job and go to work with it without having to worry about a large undercarriage expense. On the other hand, you have received some benefit from the expense that you have put into it,” says Hendrix, whose history prior to IronPlanet includes in the traditional auction business and at the equipment dealership level. “This is a real management and real timing issue with equipment managers.”

Set your own pace

With the weekly live unreserved Featured Auctions and the ongoing reserved Daily Auctions offered by www.ironplanet.com, “you can time it with us,” says Hendrix. “You can sell that dozer this week because it’s ready. And you can sell another dozer a month from now or two months from now whenever it’s ready. You can trickle the stuff in.”

IronPlanet’s Featured Auctions operate “much like the traditional auction business does,” he says. “Everything sells on that day. It’s an absolute auction: We don’t allow any minimums; we don’t allow any reserves. There is a sense of urgency about the sale of that piece. Every buyer knows, every potential buyer knows, that piece is going to sell that day.”

This service works well for commonplace equipment types and makes, be they Case 580 backhoe loaders or John Deere 724 wheel loaders or Komatsu PC300 excavators, all examples of machines that are operated in most if not all applications and geographical markets. And later-model gear is bringing very good money right now,” says Hendrix.

As part of a giant Featured Auction held March 25-26, six-digit sales were literally jumping off computer screens worldwide. A 2007 Komatsu PC400LC-7E0 excavator based in Maryland drew 54 bids over 16 minutes, before selling for $170,000 to a bidder in Quebec. A 2006 model of the same machine, based in Georgia, sold for $122,000 to a buyer in the United Arab Emirates. Four 2007 Caterpillar 345C L excavators based in Ohio sold for $152,000, $168,000 $162,000 and $168,000 respectively: three went to Tennessee; the other, one of the two top money draws, to Colombia in South America.

If the asset’s “clean and ready to sell,” the process from the seller contracting IronPlanet to that seller receiving his money for the asset runs 45-55 days. This includes equipment inspection, processing, report uploading and posting for usually at least two weeks of online previewing, actual auction day, and then payment within two weeks of sale.

 

“We allow you the flexibility of putting out a piece on your timetable instead of forcing you to dance to our music.”

Iron Planet’s Paul Hendrix

Particularly for but not restricted to more specialized equipment types, such as curb-and-gutter pavers, material transfer vehicles and crushing plants, the Daily Auction route is an alternative IronPlanet has offered since the early days of the Pleasanton, Cal.-based company’s arrival more than a decade ago. These pieces stay open for bids for week-long intervals, and the seller has the right to place a reserve bid. If the reserves aren’t met or beaten, these pieces don’t sell. “They have a smaller community of buyers typically and they have a very high initial cost, so it tends to make the owners a lot more nervous about the outcome of the auction,” says Hendrix.

Daily Auction pieces will often reappear, having not met their reserve bid the first time around. With Daily Auctions, the amount of time a piece is on the IronPlanet site and available for bids allows the seller to leverage both the site’s traffic and members of IronPlanet’s inside sales group, who will notify potential buyers based on past bidding activity. Sometimes, an item that starts out for bids in Daily Auctions, yet did not hit the reserve level, will find its way into a Featured Auction. “They’ve run it in the Daily Auction for a period of time and didn’t get enough activity, and they were motivated to sale,” explains Hendrix. “They’ve been watching our Featured Auctions. And, ‘With the traffic you guys are getting , with the number of viewers you are getting, I’m just going to roll the dice and put it in there anyway and take what it gets.’ ”

And traffic these days is good. When the last piece was sold in the April 1 Featured Auction, the attendee counter had hit 10,744. A week earlier, on the opening day of the two-day sale, the count was 14,432.

For Ritchie Bros., which has often held multi-day auctions, a new service being introduced strategically and methodically at locations throughout the world will make two- and three-day events much rarer in the future … and, says Blake, make more efficient use of time for already overworked equipment owners and managers. Typically small pieces including attachments and parts, items in the new Timed Auction are available for bids throughout the day of the live auction, while the big rolling iron still chugs across the Ritchie ramp to the barks of the company’s renowned blazer-donning ringmeisters. “The Timed Auction piece is not live-called,” says Blake, “but is still sold unreserved and it is still on the site so attendees can inspect and test it.”

Strength in a down market

In 2009, Ritchie Bros. Auctioneers held strong at about $3.5 billion in transactions, despite a down equipment market. The company’s bottom line was up about 8 percent. What that says to Blake is that, “ultimately, people will always flow to the most efficient channel to get them what they need.”

And just how big is Ritchie Bros.? This one single company, peddling used iron, alone moves $3.5 billion among the $100 billion in transactions globally in construction, mining, material handling, transportation and agricultural equipment. That $100 billion represents all equipment, new and otherwise, moved by manufacturers and dealers throughout the world. And, to think, the auction house is traditionally considered the strange, weak little nephew to the dealership!

“A lot of the larger contractors I’ve known over the years really viewed the auction channel as sort of a last resort for dispersal,” says IronPlanet’s Hendrix. “They’d park their retired stuff out on a busy road somewhere. They’d clean it up, park it out there, and would try to retail it themselves locally and regionally. They would allow their equipment superintendent to manage that thing … and that guy would have to deal with the tire-kickers and all the headaches involved with that.

“You’ve got retail pricing, you’ve got wholesale pricing, and then there’s something in the middle. What they’re trying to do is get up from wholesale pricing – or what they consider to be auction pricing – and get closer to the retail numbers. They hope that they can do it, or they think that they can do it, by remarketing the piece themselves,” explains Hendrix. “And I can tell you that some of them have more success than others, because they’ve got a reputation in the industry for maintaining those machines throughout their life cycle and they produce a product that, when it comes out and is retired, it is better than average.

“There are some of those guys who still kind of look at the auction business as a last resort. It’s for the stuff that they can’t move themselves.”

But, as Top Bid’s Wiggins and Darnell point out, if you need a certain piece of equipment, and you need it now, there’s no better place to find it than at auction. Recently, Wiggins watched in awe at a J.M. Wood Auction Company event in Alabama, where top-notch, late-model, county-owned dump trucks were put up for bids. One buyer, with immediate clean-up work to do in Haiti, walked away with 26 of the year-old, tri-axle Mack Granite dump trucks, which would normally go for about $95,000 each. “Now, because of the need and the availability of those trucks,” says Wiggins, “they went for a brand new truck’s price: $126,000.” Certainly, the seller there is a winner, as is the auction company, but so too is the buyer, says Darnell. “First of all, he knew those trucks were there. He knew that if he paid enough, he could get them and then get out of there with them.”

That, in late 2008, a group collectively long considered the best in equipment marketing, Caterpillar dealers, would themselves launch Cat Auction Services speaks volumes as to where the auction business now ranks. Cat Auction Services conducts live on-site unreserved auctions, complemented by Internet bidding at www.catauctions.com, for equipment of various makes and types.

Old school or new technology, the game’s the same.

“Anytime you have buyers competing for something,” says IronPlanet’s Hendrix, “your potential for a better realized price is always higher.” v

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