Fleet professionals have a challenging job with equipment, sell or trade aging equipment.
There are basically 5 options for equipment disposition: trade-ins, auctions, selling direct to another user, like-kind exchange, and equipment brokers. Fleet managers should understand and be able to evaluate the advantages and disadvantages of each method in order to decide which option works best for any given machine.
The advantage of trade-in, is convenience for the seller. Relationships with the dealer have already been established and so has the level of trust. Convenience is something that is very high on most contractors' list right now. This disposal method is quick and typically less hassle.
Trade-ins also provide a flexible transaction that allows fleet managers to trade multiple units or only one unit. Usually the deal can be done at one place, and a trade-in can become a negotiation point if new equipment is being purchased. The downside of trade-ins, is that the price could be at or below wholesale, especially if the seller doesn't know the market and the demand for that piece of equipment.
The way dealers show the numbers to a seller is through over-allowance. The number on the new unit is inflated and shows more for the trade than the actual number, which is much lower. That over-allowance is compensated for by the new piece involved in the trade-in. It all comes down to the seller's level of knowledge. In the present down economy, dealers may be more inclined to take more risks on what the trade-in is worth, but in a seller's market, you don't get your true value. The dealer has hidden pockets, meaning there is a lot of negotiating that goes along with a trade-in. Dealers tend to put more value on the new unit because they don't know what they are going to get out of the trade-in unit.
We would advise sellers to look at the entire deal when it comes to trade-ins. One reason, is because the seller is depending on the regional footprint of the market, which might not yield top value. You may sacrifice some residual value in that machine for the ease of disposal. However, a trade-in can be advantageous when it's connected with the purchase of a new machine. Trades on equipment offered by the dealer, you do not have to prep the machine for sale. You don't have to transport it a long distance. You don't have to market it, and you don't have to deal with third parties, that is, handling bills of sale and making sure you are covered through liability.
Two advantages of trade-ins.
One, a good relationship with a dealer allows the dealer to know a lot about the machine. They have historical records that show how the machine has been serviced, how often, and what was done. With this type of documentation, the dealer will give more value for the trade-in. On the other hand, if there are no historical files, a trade-in won't provide top value. If the equipment is in really bad shape and you don't have records on it, you won't get a good price at trade-in. A second advantage is that dealers know how much they can obtain for the unit, which means there is no question about what the seller receives for the trade-in.
By comparison, auctions are a crap shoot. The price may be good one day but not the next. Also, have your accounting folks look at the tax breaks both ways. Auctions do have advantages. Equipment is guaranteed to sell and provide a quick return on investment. There is a much wider audience of potential buyers, depending on whether the auction is online or local. Auctions are good when downsizing fleet and liquidating some equipment.
The biggest difference between online auctions, and traditional auctions, is that traditional auctions offer more services, such as painting, detailing, minor repairs, etc. The mark up for these services is pretty substantial. With online auctions, the piece of equipment stays in your yard, you maintain control over it, and you decide what repairs, if any, should be done.
An advantage of online auctions is the seller does not have to transport his equipment. They also offer inspection services that provide potential buyers with detailed reports on a particular unit. They touch on key aspects of the equipment and give you information that is substantial to help you through the bidding process.
Auctions can be reserve or no-reserve. No-reserve auctions usually have stringent guidelines to which sellers must agree, such as the seller won't bid on his own equipment, will not have a representative to bid on his equipment, and will not buy his own equipment. In a no-reserve auction, the seller is agreeing to sell the machine for whatever the highest bid is. A reserve auction allows the seller to set the lowest price he is willing to accept. If the bid doesn't reach that price, the seller is given an opportunity to sell the equipment at the highest bid that came in or to pull it from the auction and take the equipment home.
In the last three or four years, we have seen a large number of units go to auctions rather than direct sales markets. You get a pretty good return if you are dealing with an auctioneer who is plugged into the global market. But you do have to pay close attention to recent auction values, particularly a no-reserve auction. We would advise fleet managers to research prices in the marketplace and check recent auctions to see what a particular class of equipment sold for.
Auctioneers want to get your machine in the auction; it could sell below what you wanted. The auctioneer has limited to no risks, just the outlay for the service. If the machine brings only X amount, they still get 8-12 percent for performing the service. At auctions you have the least amount of control in determining your own destiny.
Another disposal method defers taxes. Like-kind exchange is a financial concept that boils down to how you get paid. The money you receive from the sale of a piece of equipment does not come directly to you. It goes to a third party, such as a bank or even an auction house to be used to purchase a piece of new equipment at a time still to be determined. On large sales where there is a chance of having to pay capital-gains tax, you get the funds transferred knowing that you are going to spend it on another asset.
Like-kind exchange has strict parameters. For instance, if you decide to trade or dispose of Asset A and buy Asset B after you dispose of Asset A, you cannot accept the funds directly. After the item sells, you have only a certain amount of time to complete the transaction by buying the new equipment. Like-kind exchange must be used in moderation.
Equipment brokers offer a fifth avenue for disposal. A lot of equipment moved through brokers leave the U.S. and go to other locations. They come in, look at the equipment, and typically already have another buyer who is looking for that particular unit. If you have something and are not comfortable with recent auction prices and want to get the machine out of the fleet, you might be able to get better value using a broker. A year and a half ago, calls from equipment brokers were more common, but in the past nine months' equipment has become easier to come by. Brokers come in and out of our business often. For the seller, one big advantage is just the relationship. Many brokers do a very good job connecting buyers and sellers. That relationship between broker and contractor is built on trust, and the only downside is if that trust is broken.
CraneNetwork.com has developed new life cycle disposition strategies and can assist you from buying or disposing machines. We have worked on our process in the chain and made it easier for companies to engage our services and find information, and take a lot of hard work out of the equation. We can help you in any step of the process and have partners in the industry to ensure smooth transitions in and out of equipment. We can show you how to market and advertise your equipment, research pricing, create rental opportunities, and so much more. We have developed a process from the initial selling process that customizes a package for your timeline to disposition. We can assist in every step of the process by providing fair and accurate appraisals, inspections, online and marketed advertising, and ultimately a broker or auction style sale for disposition. It has taken the better part of two decades carving out our niche in the Crane and Construction industry, but we definitely get it and can take the stress and pain out of both sides of the deal. Come and see the difference of the New and Improved CraneNetwork.com professional services team.
Clint Wood, Chief Operating Officer - CraneNetwork.com