The used equipment market, chapter 1

Diesel Progress North American Edition, Feb, 2004 by Charles R. Yengst

One subject that we have never discussed is used equipment. it is an area of great interest for most machinery people and one that is difficult to quantify. There isn't a lot of information available and when you want to study that market, you have to get very inventive and assumptions have to be made.

For now, we'll focus on the many ways a used machine may be sold in the marketplace. The original owner may sell it directly to another party, although that approach doesn't occur too much anymore except for rental houses. A second method may involve the machine as a trade-in for another new machine. A third is when an owner puts the machine up for auction either through a reputable auction house or on the Internet.

The most typical method of selling used equipment is though the dealer networks of the major OEMs, most of which are independent companies representing the manufacturers. Customers buy new machines and often trade older, used machines as a part of the deal. In the machinery world, OEM dealers are usually confined to their respective territories, which may be defined by state lines or certain portions of states where more than one dealer representative may operate. Caterpillar, for example, has a dealer network in North America that includes perhaps 45 to 50 dealers and an estimated 400-plus branch locations. These dealers have specific territories where they sell machines, both new and used.

Most OEMs have a dealer network and those dealers are one of the biggest assets for selling used machines in the aftermarket. We are probably looking at 1000 or so dealers in all in North America, but with 5000 to 7000 branch operations.

Independent used equipment dealers with no OEM affiliation also get involved in selling used machines. There are a large number of these dealers (perhaps several hundred) throughout North America who have inventories of used machines for sale that they have acquired in the marketplace or through consignments. The number of these dealers is not known exactly, but there are probably 20 to 30 that deal internationally and sell machines on a national basis, advertising nationally and operating with no boundaries. These bigger independent dealers are likely to have annual turnovers exceeding $20 million and some have revenues approaching $80 million or more.

A few of the big names include Hoss Equipment in Texas, PowerTrac in Florida, Newman Tractor in Kentucky, Stevenson Equipment in Canada, Emeco USA in Georgia, Dom-Ex in Texas and T-Quip of Florida.

Some of these independent dealers specialize in one or two aspects of the used equipment market. One dealer I know sells only slightly used or even "new" machines that have no hours or very low hours on the clock. Some of these machines would be considered "grey market" machines. Another dealer buys and sells primarily mining and quarrying machines. Others specialize in selling used Caterpillar equipment, which is the most popular brand name in the used machinery world. Others may lean more towards the Komatsu brand name or a combination of Volvo, Komatsu and Hitachi.

Rental houses have become a major seller of used equipment. All rental houses from United Rentals down to the smallest mom and pop operation sell used machines. The rental industry accounts for about 15,000 to 18,000 locations throughout North America and about 3000 to 4000 of these sites offer primarily construction equipment. Used equipment sold by rental organizations is advertised in trade magazines and sold regionally or through auctions.

Auctions have become quite popular over the past 10 years. The biggest auction house, Ritchie Bros., had gross auction revenues in 2003 exceeding $1.6 billion, of which about half was estimated to be construction machinery.

Other large auction houses in North America include Alex Lyon & Son in New York, Petrowsky Auctioneers in Connecticut, Martin & Martin in South Carolina and Deanco Auction, in Alabama and Mississippi.

All of the auction companies and dealers selling machinery use the Internet to assist in identifying equipment, showing pictures of the equipment and features of the machines being sold. The Internet has become an integral part of real time auctions, too. Ritchie Bros surpassed the $100 million mark in gross sales via the Internet in 2003 during its real time auctions. eBay and Iron Planet are holding auctions on equipment every day now.

If you're wondering why all this activity, it's became the used equipment market is big. Excavators, wheel loaders, dozers, backhoe loaders and skid-steer loaders comprise the biggest used equipment markets in North America. Looking at eight products this past year, I concluded that the used market for these machines alone came to about $5.5 billion. We'll look at this further next month.

CHARLES R. YENGST IS PRESIDENT OF YENGST ASSOCIATES, WILTON, CONN.