The first nine months of 2009 were tough for many construction-related industries, and that was reflected in a general decline in the value of used equipment around the world. This was to be expected when supply suddenly exceeded demand, but what was unexpected was the lasting effect this had on seller behavior in the United States.
The decline in the U.S. economy understandably had a huge effect on the construction industry. But while times were tough, during the first nine months of 2009 many owners were holding on to their big equipment waiting for the market to rebound. The combination of market uncertainty, softer prices in some markets and low interest rates reduced the impetus to sell during the first nine months of 2009.
Instead, equipment owners left machines idle, running older fleets and in many cases delayed the replacement cycle. What they were not doing was making a decision to sell their directional drills, piercing tools and other trenchless machines — either through auction companies or other used equipment channels — in what they viewed as a depressed market. Rather than take the risk of selling in an uncertain market during the first nine months of 2009, equipment owners, specifically within the United States, chose to wait for signs of sustained stability.
“The ongoing uncertainty in the market impacted our customers’ decision-making, particularly in the United States,” said Peter Blake, CEO of Ritchie Bros. Auctioneers, in a news release following the announcement of the company’s third quarter results. “In some regions, a significant number of used equipment owners delayed the sale of their surplus assets waiting for a rebound in the economy or more certainty about the future.”
During the first nine months of 2009, there did appear to be some confidence in Canadian and European markets and Ritchie Bros. Auctioneers, the world’s largest industrial auctioneer, saw growth in the number of consignments — and purchases — there. In fact, at the company’s auctions during that time period, bidder registrations — potential buyers looking to buy quality used equipment — were up 25 percent to 247,000 from 198,000 for the same period in 2008.
The auction company sold $2.6 billion worth of equipment for its customers at its auctions around the world by the end of September 2009.
However, while the used equipment market in general was difficult in the first nine months of 2009, online auction participation grew.
Ritchie Bros. customers sold more than $600 million of trucks, equipment and other assets to online bidders around the world in the first nine months of 2009. Since launching its internet bidding services in 2002, well over 100,000 unique bidders have been registered and approved to bid using the service and the company has sold in excess of $3 billion worth of equipment to online participants at its live auctions. Onsite bidding continues to be a method of choice for the majority of the company’s buying customers, though many appreciate the convenience of being able to participate in a number of Ritchie Bros. live auctions at any one time.
“The first nine months of 2009 were challenging for many people,” said Peter Blake in a news release. “We can’t fix the economy, but we can continue to give our customers the certainty of a fair, transparent and efficient means of buying and selling used equipment.”
The million-dollar question is: What happens next — or more accurately, when will all this used equipment finally come to market? That’s tough to predict, but at the end of the first nine months of 2009 signs were indicating that pricing may have hit bottom in the United States. If and when prices start to inch up in a meaningful way, expect to see some freeing up of the used equipment market.
While some equipment owners managed their fleets well during the first nine months of 2009, many equipment dealers had an overhang of inventory as of Sept. 30, 2009. It seems like many of the rental companies right-sized their fleets earlier in the year, but usage rates were still sub par on Sept. 30. These rates would have to tick up and capital would need to be allocated before rental companies could start to consider renewing their inventories, which would have a positive impact on the levels of equipment coming to market.
“As economies around the world start to improve, expect to see more active buying and selling,” said Ritchie Bros. president Rob Mackay in a third quarter conference call. “When construction activity increases, existing contractors will need more equipment and new participants will enter the market. New contractors often start with used equipment, and the existing contractors often buy used until the supply side of the equation stabilizes, which will drive used equipment prices.”
While online auctions alone cannot solve the challenges experienced by the used equipment market in the first nine months of 2009, they may be an increasing part of the solution.
Rob Blackadar is divisional manager of national and major accounts with Ritchie Bros. Auctioneers.