August 2008 Vol. 63 No. 8
Business
Online Equipment Auctions Growing In Popularity
There’s something exciting about bidding and buying equipment at an auction, and experienced auction buyers seem to have a knack for acquiring good machinery at bargain prices. What’s more, equipment auctions are big business. Auction giant Ritchie Bros. reported gross auction proceeds in 2007 of $3.19 billion.
Popular internet auctions allow anyone to participate without leaving home. However, it’s one thing to buy a camera, painting, personal or household items on line, but quite another to bid thousands of dollars for a piece of construction equipment without ever seeing it.
Even so, big equipment auction companies have incorporated on line auctions in the businesses, and report that buyers are acquiring more and more equipment over the internet. Stephen Branch, vice president, marketing and sales strategy, Ritchie Bros. Auctioneers, and Mike Groves, senior vice president, North American sales, IronPlant, recently discussed their on line auctions of construction equipment. (NOTE: IronPlant conducts on-line auctions only; Ritchie Bros. holds both conventional and on-line auctions).
Here’s what they had to say:
Underground Construction: What role do on line auctions play today in the sales of construction equipment?
Stephen Branch, Ritchie Bros.: Analysts that watch our industry estimate that approximately $100 billion worth of used equipment changes hands each year around the world. Auctions – onsite and on line combined – probably account for about 5 percent of that. The first on line unreserved equipment auction was held by Ritchie Bros. Auctioneers in 2002. That year, we sold close to $77,000 worth of trucks and equipment through internet purchases. Just five years later – 2007 – we sold more than $600 million worth of trucks and equipment over the internet in one year.
On line auctions make it easy for customers to choose if they cannot attend one or more live events. This role has been increasing over the years as customers demand the flexibility of both on site and on line auctions over traditional auctions that offer just one or the other.
On line auctions enhance our business model – we hold an unreserved auction event that hundreds and often thousands of unique bidders attend both in person and on line. Our on line bidding service, rbauctionbid live, allows qualified bidders the ability to participate over the internet, live and in real time, in Ritchie Bros. unreserved auctions around the world. Close to 12,800 unique customers from 79 countries purchased over $600 million worth of trucks and equipment using rbauctionbid live in 2007, an increase of more than 35 percent over 2006. More than 86,000 unique customers from 167 countries have now registered and received approval to use rbauctionbid live.
Ritchie Bros.’ auctions attract more than 250,000 bidder registrations each year. On average, internet bidders represent approximately 25 percent of the total registered bidders at Ritchie Bros.’ industrial auctions and in 2007, they were the buyer or runner-up bidder on 28 percent of the lots offered on line at these auctions.
Approximately 75 percent of participants at our auctions still prefer to go to the auction site and “kick the tires,” and “taste the oil,” so to speak, especially when dealing with late model, specialized equipment and trucks used in underground construction. Unlike many traditional auctions, our customers know that everything sells on auction day at our unreserved auctions, and that every item sells to the highest bidder, regardless of price.
Mike Groves, IronPlanet: On line auctions have significantly changed the way equipment is bought and sold, offering a level of convenience previously impossible for both buyers and sellers. Buyers no longer have to leave their business for extended periods of time to find the right equipment and sellers have a more streamlined and efficient way to sell. In addition, on line auctions have provided a global platform for equipment resale, allowing equipment owners to take advantage of international demand.
IronPlanet held its first auction in April of 2000, selling 23 items for $1.5 million. We knew immediately that building trust was a critical factor in the success of our on line auctions, so we offered the industry’s first guaranteed equipment inspection reports. This level of detail was seldom, if ever, available when purchasing used equipment and is a significant component of buyer confidence.
By taking advantage of the global marketplace, on line auctions consistently deliver higher prices while being less susceptible to domestic economic conditions. Equipment owners that sell equipment through on line auctions have immediate access to thousands of interested buyers from around the world. By maximizing demand for used equipment on a worldwide level, on line auctions create a more competitive bidding environment and have become the true standard by which to measure equipment value. With many developing countries rapidly building infrastructure and a depressed demand for equipment in the U.S., international buyers continue to make up a larger percentage of the buying pool. In addition, these buyers are often able to take advantage of a favorable exchange rate against a weakened U.S. dollar.
For owners selling equipment at a non peak production time, on line auctions provide access to potential buyers all over the world looking to immediately employ that machine in a revenue generating capacity. In many cases, international buyers will pay more for equipment than local or regional buyers because they need it immediately.
What are the most frequently listed types of underground construction equipment offered on your on line auctions?
Branch: We sell thousands of these types of machines each year at our unreserved auctions. For example, in 2007 alone, we sold more than 10,500 excavators worth over $400 million with close to 1,700 of those selling to purchasers on line. We sold more than 1,500 trenchers and over 200 directional drills last year, with 25 and 37 percent selling to on line buyers, respectively.
We always have a wide variety of equipment at each of the more than 350 auctions we conduct each year around the world. Not only do we list types of equipment that are used cross industry, like thousands of excavators, loader backhoes and wheel loaders, we also sell very specialized equipment at our auctions. We sell thousands of trenchers, plows, directional drills and other specialized underground equipment each year.
Groves: We regularly list many different kinds of underground utility construction equipment. Our most popular underground utility machines are excavators and loader backhoes, of which there are hundreds of items regularly featured. Many underground utility companies sell equipment through IronPlanet because of the cost savings and operational efficiencies available through on line auctions. For equipment owners looking to move several items, on line auctions allow them to more precisely schedule equipment disposition to coincide with production needs.
How do buyers locate and purchase equipment from your on line site?
Branch: One of the best methods is to search our web site: www.rbauction.com. For instance, during the week of June 15 22, 2008, there were more than 188,000 unique visitors to our web site and they were busy. During those seven days, they did more than 600,000 equipment searches, looked up past auction results, and bid live and on line in our auctions held around the world.
Purchasing equipment on our web site is a very straightforward process. The real time service creates an environment in which internet bidders and live bidders compete against each other on a level playing field live and in real time. On line bidders are able to hear the auctioneer and see the bid price increment so that they know what they are bidding on and when it’s their turn to bid again. Our auctions are conducted very quickly, with an item selling in under a minute. No time is wasted at a Ritchie Bros. auction, and both onsite and on line bidders feel confident knowing that every item sells on sale day to the highest bidder, regardless of price. One of the main reasons we have had such success with rbauctionbid live is that our customers know they can trust us to treat them fairly.
Groves: IronPlanet lists all equipment coming up for auction on its web site along with detailed inspection reports and photos of equipment. Interested buyers can visit us on line at www.ironplanet.com and search by auction, equipment type, make, model and location. Inspection reports are usually guaranteed and represent the equipment in its true condition at the time of inspection.
Buyers must register and qualify to participate in IronPlanet auctions. Once a buyer is qualified, he or she is free to bid on equipment during the two weeks before the auction or on auction day. Bidding increments are usually $500 to $1,000, depending on equipment type and value.
How are payment and equipment delivery arrangements handled? Problems with buying satisfaction? Does your company assist in financing?
Branch: Many customers already have arranged for their own transportation, whether they have purchased on site or on line. In the event they do not have these arrangements pre made, transportation companies attend our auctions and are there to help them out. Payment is convenient; with our on line payment system (we accept Visa or MasterCard for on line payments). We also accept debit card payments at our auction sites (in person) and our customers can also wire transfer money directly to us. For customers that require financing, we have a relationship with CitiCapital. They have an Auction Credit Express service which gives U.S. and Canadian businesses a fast credit approval for applications made on line or at most auction sites in the United States and Canada. The credit can then be applied to purchases made at Ritchie Bros. auctions.
Regarding buying satisfaction, we encourage inspection of the equipment ahead of time and our customers appreciate the fact that they can come to the site, bring a mechanic and do their own full inspection and testing of the equipment. We provide full descriptions of equipment on the internet with photographs as well to make sure that customers are fully aware of what they are bidding on. We’ve been in the auction business for 50 years and are proud of the reputation we have achieved for conducting fair and honest auctions.
Groves: IronPlanet facilitates the sale and purchase of each item on its Web site to provide a secure transaction. Once a buyer wins an item, IronPlanet sends an invoice to the buyer and a sales receipt to the seller so each knows the transaction occurred. When the buyer has paid IronPlanet in full, IronPlanet notifies the seller that the item can be released. The buyer then picks up the item, or arranges transportation, and verifies that the equipment has been received in the condition in which it was listed. Finally, when the buyer verifies the equipment’s condition, payment is released to the seller.
Disputes are rare, but IronPlanet mitigates any dispute that arises based on the unique situation to ensure that a fair solution is reached. IronPlanet works with companies that specialize in equipment financing and helps connect interested buyers to these companies to get pre approved and to obtain financing when needed.
What are the most significant advantages and benefits of on line equipment auctions?
Branch: The most significant advantage and benefit of an on line auction is the added flexibility and choice. It is a hard decision to have an on line only auction; the new paradigm for equipment managers is whether you can leverage that decision with the other 75 percent of the market that buys equipment in person, on site. For us, it’s about providing as much convenience, choice and value to both selling and buying customers, the way they choose to receive it.
Unlike traditional or on line only auctions, Ritchie Bros.’ auctions give the seller a broad market for selling equipment, providing the best of both worlds with equipment being sold both at a live auction event in conjunction with the on line auction. The on line capability of our equipment auctions allows our out of region and international buyers to participate live and on line, saving travel costs and time on auction day.
Groves: We have found that customers consistently experience a faster time to market and lower selling costs through on line auctions. IronPlanet reaches a global audience of interested buyers and offers guaranteed inspection reports with its equipment listings.
• Faster time to market – While traditional auctions are often held once a quarter in a given region, on line auctions can be held at any time. IronPlanet holds featured auctions at least every two weeks, enabling equipment owners and managers to consign equipment, sell and receive payment within a matter of a few weeks. Holding frequent auctions helps to streamline equipment disposition, and reduces carrying costs on non productive machines.
• Global audience – In today’s market, one of the most significant advantages of on line auctions is the ability to reach a global audience. Not only does this generate more interested buyers, it also creates a more competitive bidding environment. On line auctions also offset local and regional markets struggling because of a sluggish domestic economy and damaged construction industry. IronPlanet shipped 37 percent of all equipment to international buyers in the first quarter of this year. With significant international demand and developing countries rapidly building infrastructure, on line auctions will continue to generate premium prices on used equipment.
• Lower Selling Costs – On line auctions also offer up to 11 percent lower selling costs. Without the infrastructure of a traditional auction, on line auctions can charge customers lower commissions and fees. Transporting equipment to auctions can cost tens or even hundreds of thousands of dollars, depending on volume. IronPlanet sells equipment straight from the customer’s lot, completely eliminating the cost of transportation. We also allow sellers to decide how much make ready work a machine needs, further reducing cost.
How have on line auctions impacted traditional auctions?
Branch: It’s hard to say how on line auctions have impacted traditional auction companies that have not embraced the internet, but as the largest on line and on site industrial auctioneer, we know that they are an important part of our business. Our customers are anything but traditional. The 450,000 active customers we know are a smart, savvy group who are constantly open to new and leading edge ways of participating in our auctions. The on line auction will never completely replace our live events, but the two work hand in hand together as long as our customers value that advantage.
Groves: Customers tell us frequently that on line auctions are a quicker, more profitable way to acquire and dispose of used equipment than on line auctions. By reaching a much broader audience more frequently, and by selling equipment on line, IronPlanet auctions generate market value or better while reducing selling costs by up to 11 percent.
How fast are on line auctions growing in terms of machines listed? Sales volumes? What about the future?
Branch: On line auctions are growing like our complete auctions, not only in the volume of transactions but also in acceptance by the underground construction industry. Our customers are buying more underground construction equipment, more valuable underground equipment and more of it on line. In the past five years, the amount of underground equipment in significant categories – cable plows, boring and drilling machines, trenchers, crawler and wheel loaders, pipe layers and track tractors, etc. – in our on line and on site auctions increased almost 50 percent, from more than 18,500 units to more than 27,500 units. The total value of that equipment increased 88 percent from more than $454 million to more than $850 million. The proportion sold to on line buyers doubled from 10 percent to almost 20 percent. We’re also seeing increasingly global markets accessing our global inventory of specialized underground equipment – about 65 percent of all underground equipment leaves the region of the auction, meaning state, province or country.
Groves: IronPlanet has been growing at a phenomenal rate. During the first quarter, IronPlanet gross auction sales totaled nearly $80 million, an increase of 135 percent over the first quarter of 2007. We held our largest auction in company history on Jan. 31, with more than 12,000 bids placed and gross auction sales of $19 million. Our future growth potential looks equally promising as we look forward to growing our new operations in Canada and Australia with further expansion planned in Europe by the end of the year.
Ritchie Bros. Auctioneers, USA (800) 663-8457, Canada (800) 663-1739, www.rbauction.com
IronPlanet, (888) 433-5426, www.ironplanet.com
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