In the first post in this series, I shared background and perspective on the used asset market, including quoting a recent Food Processing article on the subject of how and why buyers and sellers of used equipment and plants can sell and source in a second-hand manner. Continuing on with the second installment of this post, I'll focus on how this market can serve as a leading indicator of parts, or all, of the economy. The story suggests that "surplus suppliers are optimistic about the economic recovery," quoting, among others, the president of an auctioneer who succinctly captures the cyclical nature of this market, and where we are currently in the cycle: "When you go into a recession, OEMs start to get slow first because companies aren't making those new acquisitions. Second, the used dealers slow down, and auctioneers get slow third. And then when you come out of the recession, auctioneers see the benefits first, then used dealers and then it gets into the OEMs."
This first-hand participant believes the food industry, in particular, is "faring better than other industries," at the moment, and will sustain itself "provided banks can avoid pinching-off credit." However, in my discussions with Tom Scanlan, publisher of Surplus Record, it's clear that the broader manufacturing trend in the US economy is still not a pretty overall picture. Sectors like food processing may show signs of growth and optimism, but the general observation Tom makes is that when the overall manufacturing economy is growing, the asset market is booming (for the auctioneers, dealers, etc.). In the current market, there are pockets of success, but a healthy recovery is completely dependent on US manufacturing growth (which ties back to overall policy and the role we believe manufacturing can -- and should -- play for the future of the country).
Interestingly, Surplus Record's advertiser base looks very similar to what it did decades ago. There are very few new faces getting into the used equipment business and many dealers have passed down their operations from generation to generation. But will the kids of today's dealer base end up getting involved in their parents' business? I suppose that's the $20,000 used asset question. But for buyers of used industrial equipment, what is even more important is factoring in the total cost of the buy and if the item goes to auction, "the purchase price of a machine is just the start of its cost. Transportation, part changes, engineering costs and other considerations all figure into cost justification and total cost of ownership. Cost and time -- delivery time as well as time to market -- are valuable commodities to weigh into any purchase decision." Which is why, perhaps, that the online ascending price auction vision FreeMarkets had many years ago for this sector, has only partially materialized. As the article suggests, many buyers like to "kick the tires" of their potential buys. But heck, if it's a signal of a healthy manufacturing market -- or a healthy different sector of the economy -- I'm just as happy if the transactions occur offline as on.