April 26, 2010
Just how much is your used fabricating equipment worth? How is its value determined? What's the best way to go about selling it? Should you try to sell it directly to an end user, or should you sell it to a dealer?
Do you remember when you bought your last car? I do, and I couldn’t help but feel disappointed when the dealer gave me the trade-in price on my car. Although it had 125,000 miles on it and a few parking lot dings, I expected to get more from it.
Fast-forward to a sale I was involved in. I was selling and had come to an agreement with a fabricator on a new press brake. It was a great unit, with quick-change tooling, a CNC backgauge, and a laser safety system. Then it came up: “Can you take my brake in trade?” It was a mechanical brake from the ‘50s. It didn’t have a backgauge or an air clutch. You could see the ram had been set in that sweet spot right by the ram adjuster; the pile of Lufkin tape pieces on the floor also hinted at a problem.
I found a used-machinery dealer that was willing to offer a few thousand for it—an offer which all but offended the fabricator. I knew how he felt. That brake had served him well for a number of years and helped him build his business. How could you put a price on that?
The reality is that the market for his used brake is very small. Sure, it bends metal, but does it do it as efficiently as a new brake? On a single bend, maybe the brake is competitive. But surely it can’t compete on a complex part that can be programmed on a CNC brake.
So, was the offer on the brake fair? Let’s look into what is involved with a piece of used equipment, and the options a fabricator has to sell it.
Where does the offer come from? A dealer trying to buy the machine for the lowest price possible? While it can be argued that everyone, when buying anything, tries to get the product for the lowest price, dealers would not be in business very long if they continually low-balled their customers.
If a machinery dealer buys a piece, he usually is responsible for transporting it from the customer’s shop to his warehouse. He pays the customer, then picks up the piece and stores it. The machine then is marketed to the dealer’s network of customers. Once a buyer is interested, the machine needs to be powered and demonstrated. If the new customer accepts the piece, the dealer loads the equipment on the customer’s truck. In most cases, the dealer warrants that the machine will run at the customer’s facility. If it doesn’t, the dealer will attempt to fix it, or it can be returned, less the cost of shipping.
Many variables are involved in this scenario.
One is storage. How long will the dealer have to store the machine? A week? A year? Having his money tied up for any period of time has a cost. Storage also costs. Warehouse space isn’t free.
A second variable is the purchase process. Advertising the machine costs money, as does demonstrating it multiple times before a customer is found.
Before the machine leaves the facility, most dealers run it to ensure that it is in good working condition to avoid more costly repair in the field. Any repairs fall on the dealer’s dime.
Machinery dealers have learned from experience what to look for when evaluating equipment for purchase. The value of the equipment is determined by a few variables.
Manufacturer. Brand plays a big part in a machine’s resale value. Machines built by manufacturers known for producing quality equipment are more desirable, as they are built to last. In recent years, an influx of lower-quality equipment has reached the marketplace. While the initial cost may be less, the equipment typically doesn’t last as long as higher-quality units, which makes it less desirable on the used market.
Further affecting the resale is the manufacturer’s status. Is the mother company still in business? Can parts still be obtained? This is becoming a real factor as controllers that rely on printed circuit boards are being replaced by PC controllers. Many boards are no longer in production, and replacements are limited.
New Technology. As newer, more productive machines are introduced into the market, the value of older technology is reduced. Think of your cell phone or PC. Technology advances so quickly that the life cycle of a PC is two to four years. Can you use a PC longer? Sure, but at what price? The unit is slower and less productive. Luckily, the life cycle of machine tools is typically longer than computers’ or cell phones’ life cycles.
Specialized Equipment. While most fabricators have no problem trading in a 175-ton, 12-ft. hydraulic press brake, they may find it more challenging to trade in a 3-in. by 6-ft. plate roll. Why? Simply put, there are fewer users for the plate roll. Dealers will weigh the risk of how long they will have to tie up their capital before a suitable buyer is found.
Specialized equipment sometimes works in the customer’s favor—for example, large press brakes of 1,000 tons and higher. New machines typically take six months to a year to make, and the price is affected drastically by the cost of raw materials. A used 1,000-ton brake’s value is elevated when steel prices rise.
Many fabricators have the option of selling their used equipment themselves through eBay® or by using their networks of relationships to market the machines. Most fabricators choose to work with a professional dealer. Why? For the same reason that most homeowners choose to work with a real estate agent, fabricators choose machinery dealers.
Every business has its strength. Fabricators are strong in fabricating skills. Machinery dealers are strong in understanding the facets of a used-machinery deal. They are used to handling the liability, shipping arrangements, and repair costs.
Timing is also important to the process. In many cases, the equipment needs to remain in service until a new unit arrives to avoid lost production. Dealers simplify the process by removing the equipment when the owner is ready. End users buying used equipment generally are buying for an immediate need and are less flexible.
Capital also is a large factor in used equipment. In many cases, customers would like to use the cash from the trade-in to apply to the sale of the new equipment. Offers from dealers are different from end-user offers in that they aren’t subject to financing. Dealer purchases are cash transactions.
Finally, competition is a big factor in offering equipment to a used dealer. Many companies do not want to compete with their old equipment. They would prefer to have it removed from their market. Good used-machinery dealers have the network to ensure the equipment is not placed in the seller’s market area.
Similar to fabricators quoting work, dealers do not like to share their formulas for determining machine value. But, come common components can help a dealer determine a price. Dealers track a number of variables to come up with fair market value for their offers.
Market. This is the largest factor in determining the price. If there are no 4-kW lasers available on the used market, it means that there is a demand for them. This demand raises the trade-in value of similar machines. Conversely, if many used units are available, the value is diminished.
Immediate Need. Good used-equipment dealers have an extensive network of clients. They obtain their clientele through marketing and word-of-mouth and keep it by maintaining a good reputation. This network calls on dealers to locate equipment needed immediately. If the dealer has a customer with an immediate need, he doesn’t need to store and transport the equipment, which reduces the fixed costs and can lead to a higher trade-in value.
Conversely, if the need isn’t immediate, storage costs will have to be factored in the offer. If the machine owner does not need the capital and is willing to store the piece until the dealer finds a buyer, a brokerage fee can be agreed upon.
Used-machinery dealers are a valuable cog in the machine that is American manufacturing. Are they out to make money? Sure. But they do provide a specialized service that is important to the advancement of manufacturing.