by Denis Prevost
When it comes to selling non-performing assets such as used construction equipment and trucks, the number of decisions to be made can be overwhelming. How to sell. When to sell. Whether or not to outsource. Doing some research and weighing your options will help you sell these types of assets for the highest possible return in the shortest possible time.

 

Options for selling
The unique nature of the used equipment marketplace should be taken into consideration when deciding how to sell. When selling, it’s important to think globally: you’ll generate better returns if you seek buyers from different regions and sectors. Expensive equipment is rarely bought as an investment or on a whim. Its value fluctuates as a result of changing economic and industry conditions, as well as the item’s condition, maintenance history and application. Buyers are typically looking for well-maintained machines that can be put straight to work. If they can’t find what they are looking for in the local market, they might purchase a machine from the other side of the world. Therefore, the most important consideration is not WHEN to sell but HOW to sell, because there is generally always someone, somewhere who wants to buy the equipment you’re selling. Private sale, dealers and auctions are the most common means of selling used trucks and equipment.

 


Private sale

Putting an ad in a magazine or newspaper or on the Internet is a simple, low-cost means of selling: just pay for the ad and wait for buyers. The catch: the limited local audience limits your potential returns; you have to invest time and resources that could be better spent on your core business; and you have no guarantee that the equipment will be sold in a reasonable time frame.
 


Dealer

Equipment dealers take a lot of the work out of your hands. They
specialize in equipment sales, so they know how to market your assets
and reach the right kind of potential buyers, although their customer
base is often limited to a specific geographic region. Some will charge
a commission for this service; others will buy your equipment outright.
If selling on commission, try to secure a certain sale date and time.
If it’s a purchase, shop around and consider the dealer’s room for
markup.


The auction option

Auctions were once regarded as the avenue of last resort. In
recent years, however, they have been accepted as one of the most
cost-effective and  efficient means of selling surplus trucks and
equipment.  At an auction, equipment from many different sellers is
gathered in one place and sold through a competitive bidding process at
an appointed time. Prices are not set by the seller but rather, the
bidders, although some auction companies will place “reserves” or
“minimum bids” on the items being sold. At an auction with reserves, if
no one offers a bid at that minimum price, the item is not sold. At an
unreserved auction, every item is sold on auction day, regardless of
price.
The competitive bidding process is one of the primary benefits of
selling by auction: buyers are in control of the process and the
prices. Because they are in control – and because they can see that
other people are bidding on the same item – they are more willing to
buy now, for a higher price than they would if they thought they were
the only interested buyer. In general, the more interested buyers you
have bidding on a particular item, the higher the eventual sale price.

Another benefit of auctions: the certainty of sale. As long as the
auction is unreserved, you know that a consigned item will be sold on
auction day. This certainty is especially important when you’re selling
a non-performing asset, such as construction or transportation
equipment. These types of assets not only lose value over time but cost
money to store, maintain and insure while you’re waiting for them to
sell.

Choosing an auction company

Auction companies differ widely in their capabilities and services.
Choosing the right one will help you achieve maximum returns on auction
day. Ask these questions before making a decision:


What type of assets do they auction?

Every auction company has its own specialty. For optimal
efficiency and results, look for one with the market knowledge,
customer base and capacity to handle all of the assets you need to
sell. Does the auction company specifically market to and attract
serious buyers of the equipment you’re selling? If not, you may have to
sell different items through different auction companies or risk
achieving lower returns.

How many people are bidding at the auction – and where do they come from?

The competitive bidding process relies on the participation of
multiple potential buyers. In general, the more people bidding – and
the more diverse the bidding audience – the better the prices on
auction day.

Look for an auction company that routinely attracts large numbers of
the right bidders. Ensure the auction company is counting the number of
individual people who registered to bid, not the number of bids they
each placed or the number of observers.
Another important factor: where are those bidders from? Because
companies often look outside their local market to find the right
equipment for their needs, the true value of a piece of equipment is
not the price it will achieve in the local market, but the price it
will achieve in the global market. Reaching buyers from outside your
region is especially important in soft economies, when demand is low.


Will the auction be unreserved?

At an unreserved auction, there are no minimum bids or reserve prices;
every item is sold to the highest bidder on auction day. Unreserved
auctions truly reflect the market, because the buyers, not the sellers,
set the prices. They tend to attract larger bidding crowds from farther
afield than auctions with reserve prices, because potential buyers have
the confidence of knowing that every item will be sold for its fair
market value: the highest bidder will take it home. As a result,
unreserved auctions tend to return higher prices overall – which
ultimately benefits sellers. The certainty of sale also helps
consignors manage their assets more effectively and efficiently.


Does the auctioneer allow bid-ins or buy backs?

Some auction companies allow sellers to bid on their own items –
artificially inflating the sale price – or to buy back an item that
does not meet their desired selling price. This offers comfort to
consignors, because they feel like they have greater control over the
auction results, but the practice deters many bidders. Knowing that the
bidding process is fair and transparent—that the buyers determine the
sale price—attracts the greatest number of serious buyers from far and
wide to an auction, resulting in better prices.


Are the auctions open to the public?

Some equipment auctions are open to the general public; others are
exclusive, perhaps dealer-only. Look for auctions that are open to the
public and attract a diverse audience of bidders, especially end-users
(construction companies, contractors). End-users generally pay more for
equipment than dealers, because they need to put it to work straight
away. Dealers are looking to re-sell the equipment at a profit.


What is the auction site like?

If you have 50 excavators located in Alaska, it probably doesn’t
make sense to transport them to an auction site in Florida. Look for an
auction company with an auction site – or sites – in close proximity to
the assets you are selling, then visit the site. Is the equipment
displayed well? Can prospective buyers inspect or test the machines? Is
the site tidy, organized and appealing to customers? It’s worth
investing in transportation costs upfront if that means getting the
equipment to a location where more potential buyers will see it. You
may save money by consigning to an online-only auction – which has
virtual rather than real auction sites – but you are risking lower
returns by limiting your audience of potential buyers. Most people
still like to see the equipment for themselves and test it out before
they buy it.

Some auction companies also offer “off-site auction” services: they will conduct the auction where the
equipment is located, if that makes better economic sense than bringing
the equipment to the auction site. Ask about your options.


Is the auction company well established?

Conducting a successful auction takes experience and expertise. How
long has the auction company been in business? How many auctions has it
conducted? How much equipment has it sold? How much experience do the
individual staff members have? Is the company financially stable and
able to meet its commitments? Get answers to these questions—and then
choose a well-established auction company with a large network of
customers and sufficient expertise and resources to represent your best
interests.

What is the company’s commission and fee structure?

Auction companies offer varying commission rates and other fees. When
comparing contract offers from different companies, don’t just look at
the bottom line—look at the value you are receiving. A reputable
auctioneer that attracts large numbers of serious buyers and nets you
higher returns is adding value. Some auctioneers include services and
benefits that will help maximize your returns, such as extensive
marketing, buyer amenities, equipment refurbishing services and

flexible bidding options.

Also note: some auction companies shift selling costs to the buyer. The
discount looks good to you on paper but it deters many potential
buyers—the ones you need to achieve higher results.

What additional services does the auctioneer offer?

It goes without saying: you get what you pay for. At the same
time, make sure you’re not paying for services or “benefits” that don’t
deliver more bidders, or better prices, on auction day. When you’re
assessing an auction company’s services, look at what they offer
bidders as well as sellers: when bidders receive added value, they will
pay more for a piece of equipment—and that flows through to the seller.
Some of the essential services offered by equipment auction companies are:
Refurbishment: Like cars, heavy equipment needs regular maintenance, as well as painting, glasswork and new tires, to maintain its value over time. Buyers can usually finance an equipment purchase but find it hard to obtain financing for refurbishing services after they’ve bought it. Many will pay extra for a machine that has already been painted or had new tires put on it. Some auction companies offer on-site refurbishing services.
Title searches: Some auction companies conduct lien searches before selling an item; a clear title ensures the new owner does not inherit the previous owner’s title issues.
Accounting, legal and administrative services: Paperwork can be time consuming and – if it’s not your area of expertise – frustrating. Find out whether the auction company will take care of legal, tax,
title transfer, billing and collection of proceeds or if you’ll be responsible for these details.

Online bidding services: Most people still prefer bidding at an auction in person but will take advantage of a reliable online bidding service if they can’t make it to the auction site on auction day.
A choice of convenient bidding options (on-site, online and proxy) attracts a wider audience of bidders to an auction, making this a worthwhile value-added benefit.

How will the auction company market your assets?

To achieve the best results on auction day, an auction company needs to, (a) ensure that the greatest number of potential buyers know about the auction and (b) give those people a compelling reason to bid on auction day. An effective marketing campaign can achieve both those aims.

If you’re considering selling trucks or equipment by auction, look for an auction company with an extensive marketing program that reaches potential buyers from a range of industries and geographic markets. Equipment fluctuates in value based on supply and demand, so it’s important to attract the attention of potential buyers in “hot” markets where supply is low and demand is high.

A comprehensive marketing campaign targets buyers through a range of different channels: direct mail (email and regular mail), advertisements in trade publications (e.g. construction magazines), online ads and media campaigns. The best way to gauge the effectiveness of a company’s marketing strategy is to look at the results: does the company attract a large audience of bidders from different industries
and regions? Is the company growing and attracting increasing numbers of bidders and sellers?

Making a decision

The above questions will help you decide which auction company is right for you. But before making a final decision, attend one of their auctions. Talk to the customers. Talk to the staff. Would you feel
comfortable and confident if you were buying equipment at the auction? If the answer is “yes,” you’ve found an auction company worth selling through.
Reprinted from ASSET 2.0, the Investment Recovery Business Journal, Vol. 4, 2008

© The Investment Recovery Association