Back In Demand

Feb. 20, 2004
If the crystal ball gazers are correct, and 2004 does bring about a positive turnaround in the economy, then the gluttonous used equipment market may

If the crystal ball gazers are correct, and 2004 does bring about a positive turnaround in the economy, then the gluttonous used equipment market may soon begin slimming down. If you're in the market, the time may be now to complement your fleet with a few used machines.

Of course not just any used equipment will do. There are generally various makes, models and ages of equipment available for purchase. NationsRent, for example, describes an ideal piece of used equipment as 12- to 18-months-old with less than 1,000 hours on the hour meter, combined with a documented maintenance history and remaining manufacturer's warranty, and priced at a reasonable discount from retail value.

Another rental company may have a different idea of that ideal machine, but having some guidelines set in mind will help narrow your search.

According to Alastair Robertson, owner of Chicago-based Universal Equipment Inc., prices on used units will likely firm up this year and he doesn't expect there to be nearly the same number of machines on the market by spring and summer. Robertson, who specializes in aerial equipment, recently found 18 to 20 JLG booms at auction very cheap.

“You can still buy the right stuff if you look hard enough,” Robertson says.

John Jurasek, president of High-Lift Wholesale, echoes that sentiment, noting that the strong economy is bringing more buyers. “Equipment is flowing and orders are up,” he says. And furthermore, Jurasek expects 2004 to bring a lot of capital expenditures from the national rental companies. In the meantime, he says, some of the big guys are planning to dispose of some fleet — mostly '94 to '98 vintage — so some trade-ins will be coming in.

According to Jurasek, pricing on used equipment has stabilized except for on 2-wheel drive units and equipment whose manufacturers have gone out of business. Prices in those two categories have plummeted. In the high-reach sector, JLG and Genie machines, and anything with 4-wheel drive are the units people want to buy, he says. In fact, some lift manufacturers are already backed up on orders for new equipment until spring.

If production of new equipment can't meet the order demand, Jurasek expects that buyers will have to start buying even older used equipment ('96 and '97 vintage) to meet their needs. The late model used equipment market will dry up causing prices on used equipment will inflate even more.

This phenomenon has already begun with used forklifts and scissor lifts, says Jurasek. Prices have already started to rise because demand for these units is so high. He predicts that pricing on these machines will be stabilized by summer. But for now, rental companies can take advantage of the high demand to dispose of some of their older forklifts and scissors at a good price.

Beyond aerial equipment, the supply of other types of used construction machines may already be depleting. According to Charles Snyder, executive vice president of fleet and asset management for NationsRent, the supply of good condition, one- to two-year-old units just isn't there.

Trade impact
The effect of national rental companies trading in their used equipment to the manufacturer for new units has dotted the market with a healthy supply of used machines available to end users and retail buyers. That availability has influenced some end users to buy used equipment rather than rent and, in some cases, that just makes more sense. If these end users are going to rent frequently, they should take into consideration the transportation costs involved and determine if it may be more economical in the long run to just buy, taking advantage of the current good prices on used machines.

“End users want a good deal,” Jurasek says. “Right now you can buy a 40-foot boom for less than a good pick-up truck.”

Is this hurting the rental industry? Jurasek says “No.” Actually, he believes the exact opposite is true. “The more equipment that gets out into the marketplace, the more exposure it gets and the better off it is for the industry as a whole,” he says.

Jurasek reasons that the more people who are exposed to that equipment, the more they will want to buy or to rent down the road. For example, the day of RER's interview, Jurasek had a customer buying two 20-foot scissor lifts that he was taking home to Iowa. “When he gets them home he may have a friend or competitor that sees them and then decides to go out and rent one as a result of that visibility,” he explains.

“The big guys have raised the visibility of this equipment to an all time high,” he adds. “Buyers want a good price and a good machine and usually because they've rented something from the big guys that they liked.”

But trade-ins, if not done carefully, can hurt the resale value of a manufacturer's equipment. “The manufacturer with large inventories of used equipment has reduced prices in an attempt to move large quantities of units, thus reducing the resale values,” says Rick Vollmer, vice president of rental operations for Little Rock, Ark.-based Hugg & Hall Equipment.

NationsRent sees a lack of cooperative planning for the rental fleet lifecycle of buy/rent/sell as a growing problem for the value of used machines. Instead of forecasting and planning their acquisition and disposal needs, many companies just let it all happen as it may, often reducing the value of the equipment in the process.

“Managing your fleet, including asset disposal, is a daily responsibility,” Snyder says. “NationsRent has established comprehensive fleet sales goals for its sales team to drive enhanced price realization and to reduce the need for trade packages with manufacturers.”

Like automotive manufacturers, equipment producers have also been affected by the incentives they've offered, including trade packages, which have led to depressed market prices. According to Snyder, however, equipment manufacturers have become more proactive in dealing with the issue and many have established re-marketing departments that assist in the disposal process. “These teams evaluate and appraise each unit, then utilize more profitable disposal methods such as incremental unit sales, geographic dispersion and international market channels,” Snyder says.

Vollmer also sees the growing trend of remanufactured and refurbished equipment as a positive trend. “I believe this approach has some merit for rental companies attempting to increase their fleets with some quality equipment while reducing some capital costs,” he says.

Start me up
As confirmed in both Frank Scarborough's column, Frankly Speaking (page 16) and Ritchie Bros. Auctioneer's Denis Prevost's Outlooks interview (page 58), former owners are continuing to come back to the rental industry post non-compete agreement expirations. One reason re-entering the market is so appealing right now is because there is still good used equipment available to build a solid fleet.

“The time is still right to do it,” Robertson says. “There are more and more start-ups now than there's ever been.”

Just in the Chicago area alone, there are four new independent rental companies that are doing very well, according to Robertson. One of them just started up four or five months ago and they are all new within the past four years. These start-ups are taking advantage of the cheaper used machines to get their businesses going.

Jurasek notes that some areas are already experiencing a shortage of reasonably priced and well maintained used equipment, but says that start-ups can “definitely” outfit a fleet with relatively little-utilized equipment for a lot less capital than new units.

Vollmer agrees. “Absolutely. Although most companies buying used equipment for their fleets tend to buy the larger ticket items used and buy new on the smaller items.”

One can never predict exactly what used equipment will be available at a given time, but depending on the parameters that a buyer sets, the likelihood of being able to outfit a fleet with good used equipment is always an option, according to Snyder. “If a premium condition unit can be found at a significant discount from new cost, then it makes good economic sense to purchase used equipment,” he says.

Shop talk
A concern for all used equipment buyers is the maintenance issue, but NationsRent's Snyder believes that, as a whole, the used equipment that is now available is better maintained than in the past.

“This is due to the fact that most large rental companies have the infrastructure to maintain rigorous maintenance schedules, and have most likely taken advantage of manufacturer technical training to keep service technicians' knowledge current,” Snyder says. “NationsRent leverages manufacturer resources, based on our purchasing volume, to ensure our fleet stays in top condition. Ultimately, this leads to a better product for the used equipment buyer.”

Certain brands of equipment, however, have a reputation for specific maintenance concerns. Consider the reputation of the manufacturers of the equipment you are interested in and confirm that they are still in business. Make sure there is a good supply of parts available on the market. One thing that eases the concern of some maintenance issues is the fact that a lot of competing brands of equipment share common components.

“There is a lot of cross sourcing that goes on,” says Robertson. “Some manufacturers will supply the same part supply number to several other manufacturers.”

If the manufacturer is still in business and maintenance issues are largely aesthetic or parts related, then maintenance shouldn't be an overwhelming concern because those types of parts are usually readily available. If you have a structural issue or a problem with the computer board of a unit, then you may be in trouble, Robertson says. That type of repair is not as cut and dry.

Any kind of repairs to used equipment, of course, require both valuable time and manpower. A lot of the things, Jurasek says, are cosmetic and not a big deal — just time consuming. He often hears, “I'd like to take advantage of the bargain but I don't have time to fix it.”

Generally, used equipment repairs include tasks such as oil, filter and tire changes, and packing cylinders so it takes one to two weeks to get a unit rental ready. Buyers need to allow time and money to do the repairs.

Beyond borders
International equipment sales are a growing channel of opportunity for used equipment, especially with the exponential growth potential of the rental concept in Asian countries such as India and China.

To be successful selling equipment overseas, Snyder recommends staying abreast of a number of dynamics, including current exchange rates, political stability and general trends within the country to which you are selling. Developing a strong relationship and a high level of trust is the key, he says.

Robertson also sees a strong potential for sales to international markets. “There were some steals a few years ago,” he says. “I don't know that the steals are still out there, but there are some good buys.”

Jurasek, who generally does business with customers near the Pacific Rim when he chooses to sell used machines overseas, says that buyers in the international market are very shrewd. They know exactly what they want and have a specific idea about what they will pay for it. They know what equipment to buy and what to avoid.

Overseas purchasing is also very active with older equipment that requires a little more fixing up. Jurasek has found that he can generally sell a piece of equipment in the United States for more than the overseas buyers are willing to pay.

Internet sales and auctions also make selling used machines internationally easier and more manageable. The increased accessibility of information, including pictures, details on the equipment's condition and hours logged has enhanced purchasing opportunities for buyers all over the world.

“Picture the buyer in Argentina who can search the websites of rental companies located in the United States, then select the exact unit that meets their needs,” says Snyder who adds that NationsRent is taking steps to improve its Internet sales through website enhancements and attractive financing options.

Hugg & Hall's Vollmer expects the Internet sales trend to continue to mature over time.

No matter which channel rental companies choose to shop for used machines, one thing is sure: Certain types of equipment may already be harder to find than they used to be, and the bargain basement prices brought on by an oversupply in the last few years may soon be a thing of the past.