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MAY 2013 issue of
Rental Management

Finding the value in used construction equipment
05/03/2013

Maintenance with an eventual sale in mind can yield higher profits

Managing fleets requires ongoing diligence to ensure that underutilized equipment can be easily and quickly replaced with different items. When developing a fleet management strategy, understanding the benefits of online used equipment auctions can help fleet managers better maximize value. Maintaining equipment with its eventual sale in mind and knowing its present market value are variables that can help yield higher profits when it’s time to rotate the fleet.

Using inspections. When planning on moving older inventory to make room for the latest models in your fleet, consider the most integral selling point for buyers of used construction equipment: purchases must be free of maintenance issues.

To identify whether a piece of equipment has issues in advance of an auction, sellers should work with their online auction site to ensure inspections are conducted. With a stamp of approval from an inspection, the seller is able to highlight the true value of the equipment, thus increasing the audience of potential buyers and obtaining the best value at auction. Depending on the age and wear on a particular piece of equipment, inspections can be instrumental in showcasing that an older item still operates at full capacity, which can further increase the final sale price.

Sometimes the decision to put work into equipment that will soon be sold at auction can be tough. Minor repairs and maintenance, such as touching up a paint job, changing the fluids in an engine or replacing a cracked window are relatively simple and won’t break the bank regardless of how old or worn a piece of equipment is. Not only will these small touches increase the value of an item, they also can attract more potential buyers.

For major fixes or replacing expensive parts, sellers should weigh their options. For an older item that may not have a high resale value, repairing an issue might not increase the profit margin. This means the money spent will detract from the profit a seller makes when the item sells. For items with higher resale values, making a major repair can improve the market value of an item. To understand when repairs should be made, sellers should calculate the anticipated cost of the repairs and subtract it from the current market value of the equipment. This can help them make a more informed decision and reduce the risk of spending too much to repair used equipment. In addition, it can identify instances in which keeping equipment in-house presents a greater value than selling it.

Increasing resale value through ongoing maintenance. Ongoing maintenance is important for increasing the ultimate
resale value of equipment. As the years progress, equipment pieces will accumulate wear in particular areas based on the type and frequency of use. During the sale of new and previously-owned items, it’s in the best interest of the dealer to explain essential upkeep tips to prospective buyers.

Consider a long-term approach to planned inspections and maintenance to help ensure the extended life of the machinery. Detailed analysis of the equipment material will determine maintenance procedures. Varying on the conditions of operation, equipment managers can anticipate different expected wear patterns and potential future issues. To preserve maximum efficiency, it is important to have a proper inventory of available parts, so that those in consistent need of replacement are always on hand. If possible, have in-house staffing at various levels to keep the time equipment is spent in maintenance to a minimum.

Regular inspections and maintenance are not just beneficial for current projects, but also will increase the items’ resale values. For rental fleet managers, selling items at top value that are no longer of use is important, so that additional pieces can be easily acquired. Through the use of online auctions, inspection reports, repairs and maintenance, fleet managers can more easily
and quickly change their inventory.

Paul Hendrix is an equipment pricing analyst for IronPlanet, Pleasanton, Calif., an online marketplace for used heavy equipment. For more information, visit ironplanet.com.


Gaining value through used equipment auctions

While the construction industry is beginning to recover, some companies still prefer to be conservative in their spending. Investing in inspected, previously-owned equipment can potentially be more fiscally responsible than purchasing brand new products. Buyers of new machines also may feel pressure to keep the equipment in their fleets for many years to justify the purchase, even if the items are not being regularly utilized.

As an alternative, used construction equipment auctions can offer quality items at a better value. By being able to bid on items at a lower price point, buyers can use the savings to purchase additional equipment. For sellers, online auctions allow them to reach a wider audience than on-site auctions and avoid the risk of having poor turnout or little interest. Since sellers can use the Internet to auction equipment from their yard or warehouse, rather than shipping to a physical auction site, they save on transportation costs. In addition, online auctions occur more frequently than traditional auctions, allowing sellers to quickly unload equipment from their fleets.

IronPlanet also offers its IronClad Assurance® program, which shows the machine has been inspected and that the report is an accurate description of the condition of the machine. The IronClad Assurance symbol signifies an inspector has personally seen the item and conducted a visual inspection of key components, taken photographs and measurements, and retrieved oil/fluid samples for lab analysis. It also provides buyer protection by guaranteeing that if the buyer finds a discrepancy between the inspection report and the equipment, IronPlanet will help settle the issue.


 

Inspection checklist

Inspection checklist

When inspecting used equipment, keep it simple by scoring the equipment based on the following five categories:

  • Mechanical (engine, transmission, power train, hydraulics). Crank the machine and look for things like leaks, blowby and smoke. Move the machine forward and reverse in all gears to check the steering and brakes and to identify any unusual noises. Then, operate the hydraulics — raise and lower the boom, look for excessive wear and again listen for noises.
  • Structural. Inspect the main frame and work equipment structures — boom, stick, loader arms, loader tower and linkage. Look for plates or welds, excessive wear and loose or missing hardware.
  • Cosmetic. Is the interior of the cab clean? Are the seats in good condition and free of tears? Is all glass intact? Are there visible signs of corrosion? Is the paint faded or chipped? Is sheet metal dented, damaged or missing?
  • Features or options. Is it a 4x4? Cab or canopy? Ripper? Are there special attachments, couplers, additional forks or buckets?
  • U/C or tires. Look for wear and damage and record the tire size. Are tires a matched set? Are they recaps? Are they radial or bias ply?

This process works on all used equipment. For the big ticket items — a bad engine or transmission, structural failures, corrosion, worn tires and lack of popular features — affect the value the most.

 

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