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Some say the Internet is the way of the future in the disposal of used construction equipment. Others regard it as just another value-added service in the used-equipment market. As e-commerce continues to make its presence felt throughout the equipment rental industry, one thing is certain: the Internet will change the way equipment is acquired, used and disposed of — somehow.
To what extent and exactly how the Internet will change the process remains to be seen. But it is clear that rental operators will have to watch these developments closely and not be the last to incorporate into their business plans those practices that fit their operations best. There is competitive advantage to be gained if they find the right match of current or future Internet capabilities to their asset-management strategy.
Dan Kaplan, president of Daniel Kaplan Associates in Morristown, N.J., says it’s too soon to predict how the Internet will be involved. “In my opinion, disposal of used equipment via the Internet began in the year 2000,” Kaplan says. “Right now, it’s impossible to chart where it will go. It could be the next best thing, or it could be something a long way from that. But you have to assume that it will be a viable source.
“The amount of equipment moved over the Internet is minimal,” Kaplan points out. “It’s less than $10 million, but that doesn’t mean it won’t emerge.
“The beauty of the Internet is that the marketplace is the world. The Internet allows you to reach every corner of the globe and it will certainly function as a means to expand the market, but I don’t think anyone can accurately say how.”
The Internet will continue to offer buyers and sellers more and more flexibility, says Bob Armstrong, corporate relations manager for Ritchie Bros., headquartered in Richmond, British Columbia, Canada — the world’s leading auctioneer of industrial and construction equipment. But Armstrong predicts that traditional, live auctions will remain the preferred means for buyers and sellers to dispose of used equipment.
“The Internet is a very powerful tool for gathering information about used equipment prior to the actual transaction,” Armstrong says, “but I don’t believe it will ever replace live auctions.
“When we look at the Internet, we view it as a tool to enhance all aspects of the buying and selling
process, but not something that really alters the actual transaction. It will be the means for preliminary research, but I do not see it evolving into the primary transaction vehicle, because there is so much more to selling used equipment than the final bidding process.”
This is not to say that Ritchie Bros. has ignored the Internet. In fact, Ritchie Bros. has begun to use the Internet to add new levels of service to its existing operation. Armstrong says Ritchie Bros. views online disposal of used equipment from a sort of hybrid perspective. He says Ritchie’s Web site —
www.rbauction.com — functions as an integral part of the company’s current and future business model.
From a seller’s perspective, Arm-strong says, the Internet allows more buyers in more places at greater distances to find out what’s coming up for bid.
From a buyer’s perspective, the Internet gives a buyer much greater access to sources of equipment and more information in order to make wise purchasing decisions. Using the Internet as a tool, buyers can “virtually” inspect the equipment in advance of the actual auction and then bid remotely on auction day. In this scenario, the Internet enhances, rather than replaces, the traditional model.
“That’s exactly our business model,” Armstrong says.
Simon Newman, CEO of Tradeyard.com (www.tradeyard.com), and Ray Bundy, chief strategic officer of Iron Planet (www.ironplanet.com), both predict that the Internet will evolve into a full-service, virtual-reality, online auction tool.
Armstrong points out that used equipment purchases require more effort than new equipment purchases — the buyer has to give attention to such things as inspection, review of maintenance records and a host of other determining factors.
But Newman and Bundy have attempted to meet those challenges. Both Tradeyard.com and Iron Planet.com contract with independent outside inspectors to perform standardized equipment inspections, take oil samples, photograph the equipment, determine its mechanical condition and basically do whatever necessary to answer the questions of both buyer and seller.
The two companies also provide buyers and sellers with other value-added services such as transportation, classified advertising and a variety of financial assistance and warranties.
“A lot of rental companies have grown through rapid acquisition and they are looking to dispose of aging fleets at the lowest possible cost,” says Newman. “We have a database of 30,000 buyers and we know what they want and the type of work they specialize in. We can target specific states and then market specific equipment to the most likely buyers. We are not expecting that 90 percent of the industry is going to be buying online, but even if it evolves to 20 or 25 percent, that’s massive.”
According to Bundy, Iron Planet has sold more than 80 pieces of used equipment valued at $3.6 million since April. Compared to the total used equipment market, that figure is miniscule, but it does signal that some buyers and sellers may have begun to accept the Internet as a means to access used equipment.
“We have an auction every Tuesday,” Bundy says. “In the six months we’ve been in business, we’ve had as many 40 pieces available, all the way down to 10 pieces.”
Similarly, Tradeyard.com completed an online auction with Nations-Rent in September at which eight pieces of equipment were sold for a total of $574,700.
NationsRent had about 40 pieces available, but NationsRent Senior Vice President Gary Stewart says he was satisfied with the results nevertheless.
“We would have liked to have sold more equipment,” Stewart admits, “but we consider it a good first start. I think it is the case with any technology or new way of doing business that there will be an adoption period.
“As more people experience auctions via the Internet, I predict you will get more and more buyers.”
Stewart says that prospective buyers were informed well in advance of the actual auction date and were given the opportunity to inspect the equipment before the auction.
Tradeyard.com also provided warranties on the equipment that guaranteed drivetrains and all mechanical parts, specific to negotiated time frames. In that sense, the Nations-Rent/Tradeyard.com model mirrors what Armstrong described: a more efficient proxy method in which prospective buyers can inspect equipment in advance and then bid on the equipment via the Internet at a time convenient to their schedules.
“It certainly makes the whole process a lot easier,” Stewart says. “Rather than having to sit at an auction all day and wait for a particular piece of equipment to come up for bid, the prospective buyer can get online at a more convenient time. The Internet makes the whole process a lot more customer-friendly.”
Bundy agrees that the Internet can serve as a more efficient means to conduct proxy bids, but he also points out that he has already seen some customers move beyond that.
“Out of the 80 pieces of equipment we have sold, only one piece was inspected by the actual buyer beforehand,” Bundy says, “and that was because they were right across the street.”
Steve
Paradis, president of Ironmax.com, bluntly predicts that the Internet will not soon replace traditional used equipment disposal models: “We don’t participate in the auction environment, and we don’t anticipate the online auction arena will be there for used equipment anytime in the near future. Based on customer response, we believe that people want to be able to control the environment, and the way they control it is by attendance and through their own inspections.”
Paradis does think the Internet will play an important role — he says the Internet can and should function as a means to provide buyers and sellers with a method to dramatically increase the amount and quality of information necessary to make an informed purchasing decision.
“We do believe that the construction equipment segment is in dire need, and has expressed a serious need for relevant information and knowledge,” Paradis says. “By that I mean products to assist in asset management — things like maintenance records and those things that allow buyers to make a more informed purchasing decision.
“If you look at the results that have come out of the automobile industry, 70 percent of all buyers are using the Internet for research, but only 4 percent are using the Internet to actually purchase.
“Ironmax.com is service-based firm that focuses on construction equipment,” Paradis says. “We provide Web-based access to information that focuses on enhancing return on assets for construction equipment.”
Access to information, according to Paradis, is the key to understanding the role of the Internet in the purchase of construction equipment, whether new or used.
“We believe online auctions are intriguing but far from proven,” Paradis says. “It is our feeling that online auction tools will work in conjunction with live and real-time auctions. It’s an adjunct to the brick and mortar approach. If you look behind the curtains of those companies offering online auctions, you will discover that they haven’t sold very much equipment. We think it’s three to five years out. If you want to wait that long, it may be a viable market.”
Everyone agrees that if the Internet auctions are to evolve into a viable alternative to traditional auctions, a reliable marriage between the inspection process and the purchase process must occur.
But the Internet is already functioning as a powerful marketing tool that brings more buyers in contact with more sellers at greater and greater distances.
“If you go back 10 years, most people sold to customers in a 50-mile radius from the seller’s location,” says Newman. “Today the buying radius is bigger and getting bigger. Buyers and sellers are talking three, four and more states away from each other.”
Many rental dealers have built a reputation as a provider of high-quality used equipment and have established a solid base of repeat clients. They should be able to establish a similar reputation among online buyers.
All that seems certain now is that the Internet will play a role, and owners and managers of rental companies should pay close attention to the emerging possibilities it offers for enhancing their existing asset-management strategy.
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