Selling Used Equipment

When you need to sell a piece of used scrap processing or handling equipment, an auction is often a smart way to attract the largest group of buyers. 
   But first, you—the equipment owner—might have to overcome a bias against auctions.
   Until recently, auction sales often had a negative connotation.
   Equipment owners worried that selling through auctions could lead people to assume that the sale was a forced liquidation, that perhaps they were going out of business, even that they’d neglected the equipment being sold.
   Today, though, auction sales are an accepted means of selling many types of used industrial equipment. Auctions, which are best conducted by professional auctioneers, can be held right at the scrap plant or in cyberspace—in fact, many of the e-commerce firms that now trade in industrial equipment have their roots in the traditional used equipment or auction
business.
   It should be noted, though, that auctions historically don’t produce a particularly great return on larger items of scrap-plant equipment—such as shredders and shears—because such machinery is usually worked until it’s quite old. Likewise, mobile equipment from scrap facilities—such as wheel loaders—often brings less at auction than similar equipment used in other industries because the scrap units are assumed to have handled heavier, more abrasive material than, say, a unit that simply moved dirt at a construction site. Scrap recyclers are also believed to run their equipment for higher operating hours and cycle times.
   However, in defense of auctions, such scrap equipment is often even harder to sell by other methods.
What’s It Worth?
   Once you’ve decided to sell a particular piece of equipment, figuring out what it is worth is perhaps the most important question. In some cases, for instance, it might be more cost-effective to just scrap an old piece of equipment than go through the time, effort, and expense of trying to sell it by auction or other means.
   That’s where a professional equipment appraiser can help. Appraisers offer an unbiased and independent assessment of what your equipment should be worth based on numerous factors ranging from the projected maintenance costs and downtime of keeping the equipment running to the overall demand for such older units on the used equipment market, even the potential of replacing the unit with a newer, more productive machine.
   Professional appraisers ultimately produce a written report based on their activities and, like certified public accountants or attorneys, have a code of ethical behavior to which they must conform—in this case, the Uniform Standards of Professional Appraisal Practice (for details, visit www.appraisalfoundation.org). For example, an appraiser must acknowledge that he or she has no present or prospective interest in the property being appraised and that any compensation isn’t contingent on his or her conclusions regarding the equipment’s value.
   Be sure, though, to factor the appraiser’s fee into the potential resale value of equipment. Experienced appraisers often charge a per-project fee based on professional time spent conducting inspections and research time in the office, plus travel and other expenses.
   The appraisal process can begin with a physical inspection of the equipment offered for resale. In one case, a company had a 6-year-old 1,000-ton hydraulic shear that it felt was underutilized and could be sold—if the price was right. In addition to examining the shear bed, ram, and housings to determine the extent of wear and tear—such as scoring of the main hydraulic ram cylinder—I inspected the hydraulic pumping system, electrical substation, and controls. Various documents also played a role in the appraisal, including a copy of the original OEM proposal, company purchase order, and an inventory of operational specs and maintenance records.
   Following the physical inspection, I also studied various approaches to valuing the shear based on cost, sales comparison, and income. The cost approach considered the estimated replacement cost of a new unit. The sales comparison approach compared this particular shear to other shears, adjusted according to age, condition, type of sale, and the regional market. The income approach considered the shear’s earning ability.
   Furthermore, I investigated the current market demand for large shears, exploring the range of asking prices for different units based on size, age, manufacturer, and conditions of sale.
   Appraisals can also take into account information such as the historical costs associated with maintaining a particular piece of machinery, as well as key information that might not be evident from the physical inspection. For example, a relatively recent engine rebuild or swap may increase the value of a wheel loader—albeit not necessarily in proportion to the cost of making the improvement.
   Key market information can also be uncovered. On one occasion, I appraised the liquidation value of surplus equipment following a steel mill demolition project. The equipment included many units that typically can be found at a scrap plant, such as mobile hydraulic shears, wheel loaders, rough terrain hydraulic cranes, magnets, and grapples.
   The majority of this mobile equipment was two to three years old and had been purchased specifically for the mill demolition job. Unfortunately for the seller, the appraisal report revealed a softening of the mobile equipment market due to a recent influx of equipment from Asia. The report detailed several recent auction sales in which equipment of a similar model and vintage had been sold at significant discounts. The accuracy of this report was confirmed when the demolition firm did auction off its equipment at prices that were within a few percentage points of the appraised value.

Pros and Preparations
Once you’ve assessed the value of your used equipment, you can get on with the business of selling it.
   Let’s say you decide to sell it through an auction. The auction process usually includes creating a brochure and placing display advertisements in trade publications and selected newspapers. While scrap recyclers can certainly do such marketing on their own, it often pays to turn to a professional who might have access to publications that are unknown or unavailable to the equipment owner. Likewise, a professional will likely have a larger mailing list of potential buyers to contact, as well as easier access to purchasing lists of potential buyers.
   Used equipment dealers and brokers can also bridge the gap between advertising and selling through their experience, industry knowledge, and proprietary lists of known used-equipment buyers.
   Last year, for instance, I was able to find a particular size of hydraulic press for a company that had tried and failed to locate the equipment on its own. As it turned out, I had recently inspected just the sort of machine the buyer wanted at another firm’s plant and knew that the unit was scheduled to be retired as part of a product line change. The result was a successful sale between two firms that didn’t regularly read the classified advertisements in trade publications and thus wouldn’t have known of each other’s desire to buy or sell the used hydraulic press.
   In preparing for the auction, scrap recyclers can take proactive steps to ensure that their used equipment brings in close to its appraised value.
   One such step is presenting the used equipment at its best. Take a used wheel loader, for example. Replacing severely worn tires or cracked window glass, putting in a new operator seat, or giving the unit a new paint job will make the old machine much more attractive during the auction. Also, make sure mobile equipment is ready and able to be driven past the assembled bidders and auctioneers to demonstrate that the equipment definitely still runs.
   Such cosmetic and functional attention can result in higher returns than if you offered the equipment on an “as-is, where-is” or “removed-from-service” basis.
   Consider the opposite approach: One scrap processor I know recently undercut the value of a used shredder by removing it from its installed location and transferring the unit to a remote outdoor storage site. It then sat in a field with components such as the motors, hydraulic pumps, and electrical controls exposed to the elements. The unit’s connecting bolts had been torch-cut rather than unbolted, and its connecting wiring had been cut rather than disconnected at the terminals. Though such steps reduced the scrap company’s removal costs, they also reduced the potential resale value of the unit.

A Big Event
While auctions can focus on a single piece of equipment, the time and setup costs involved often convince owners to wait until they have multiple units for resale. When a particularly large amount of equipment is for sale, the event may take months to plan and then the actual auction could be spread out over multiple days.
   The equipment owner assumes the responsibility for costs associated with advertising the sale, printing brochures and other documents, travel by the auctioneer and his staff, as well as various setup costs, insurance, temporary labor, permits, supervision, catering, equipment rental, and other incidentals. The auctioneer, in turn, is responsible for collecting all proceeds from the sale, supervising equipment removal, and paying all sale-related expenses.
   Before the auction begins, each asset being offered should be tagged with a lot number that’s then published and distributed to registered bidders. Grouping equipment by lots also makes it easier for the auctioneer to offer several units at once to earn the highest return for the owner.
   Electronic bids are also part of many industrial equipment auctions nowadays. The electronic bidding can be conducted separate from a physical auction, with a set period of time for interested parties to place their bids—much like auctions on eBay. Or the electronic bids can be timed to coincide with the live bidding process during the physical auction.
   Last year, for instance, I arranged for a four-day public auction of surplus machinery and equipment from a closed shipyard. The auction ultimately featured several hundred thousand square feet of machine tools and fabricating equipment, along with thousands of lots of minor and general plant equipment such as welders, torches, supplies, hoists, and tools. Selective, representative equipment was offered for sale through Internet bids, which actually produced several winning bids during the live event.
   Unfortunately, no statistics on Internet bidders exist. So while experienced auctioneers suspect that these electronic bidders would have shown up in person anyway, it’s hard to say whether or not e-commerce will provide an expanded market of potential buyers. •

Editor’s Note: Scrap recyclers can also try to sell their used equipment via the Internet through Web sites such as Recycler’s World (www.recycle.net) and Scrap’s Used Equipment E-Marketplace (www.scrap.
org). Such sites enable recyclers to post online classified ads that describe their used equipment and, in some cases, include electronic photos of the equipment.