Business Matters: Auction action

This month central Florida is the mother lode of heavy equipment auctions. Four auction companies (see sources at the end of this article) set up their own week-long auctions that draw thousands of bidders. Now in its third decade, the Florida auction tradition continues to break records. What’s changed in recent years is the advent of bidding for this equipment over the Internet, live and in real time, along with the bidding taking place on the ground in Florida.

“The Internet is breaking down geographic barriers in the auction industry,” says Bruce Hoberman, CEO of Proxibid, a company that provides Internet auction services to what he calls “brick-and-mortar” auction houses. “A guy who wants to buy a wheel loader in Southern California used to have only one or two auctions within driving distance. Now he doesn’t even have to leave his office or give up his weekend. What’s it worth to be able to sit in your office and bid online?”

“What’s interesting is that Internet bidding has not replaced any of the action at our live auctions,” says Bob Armstrong, vice president of finance for Ritchie Bros. Auctioneers. “The Internet bidders represent more than 20 percent of the registered bidders at our sales, but the live crowds have not gone down in size.”

Fun and business in the sun
Tradition and the chance for contractors to escape the dreariness of winters up North continue to drive people to Central Florida for the auctions. “They come to Orlando, bring the wife and kids, buy equipment and write it off,” says Peter Clark, president and owner of Yoder & Frey. And the auction companies that set up shop there in February also attract a number of other vendors. You can get trucking and transportation arranged on site or contract with painters to sandblast and repaint your newly bought equipment before it leaves the area. You can hire technicians to inspect equipment or change blades and attachments. Leasing and finance companies are on site eager to lend you money. And trader magazines and used equipment price guides, such as our own Top Bid, are also available.

Plenty of parts, components and attachments find their way to the live auctions as well. “Probably half the lots we sell at an average auction would be in the attachments and parts category,” Armstrong says. “It’s low key and not the big-dollar stuff, but the manufacturers want access to the machine buyers so they bring new buckets and components in large quantities. We think of it as a supermarket for used equipment buyers.”

The Internet difference
There’s no doubt, however, that the Internet has changed this business substantially. Although IronPlanet doesn’t conduct or partner with live auctions, it has been doing Internet-only auctions since 1999. Rob Alleger, president and CEO of IronPlanet, says the overall impact of the Internet has been what some call the democratization of information. “With all the information that’s out there, consumers are much better informed than they used to be,” he says. “You don’t get crazy prices because you have well educated consumers.”

Armstrong concurs. “Everybody knows everything now,” he says. “Nobody has an advantage because of the information they have. They’re buying and selling in an informed way rather than based on unequal information.”

Most Internet auction houses understood early on that contractors weren’t going to buy used equipment sight unseen and have gone to great lengths to provide or encourage inspections and detailed reports. IronPlanet sends its own inspectors to create reports on each piece it sells, Alleger says. The reports include information on hours and general condition; the condition of the tires or tracks, hydraulics and the operator station; and oil and fluid analysis on machines more than five years old. Ritchie Bros.’s Internet customers will often inspect a piece themselves, prior to auction, send an equipment manager or hire an independent contractor to do the inspection before bidding.

Point-and-click convenience
Most of the companies with Internet auction offerings have other services. For example, at IronPlanet registered users can set up a “needs list,” Alleger says. You tell the company specifically what type of equipment you’re looking for and when something that matches the description comes into the system, IronPlanet alerts you, thus eliminating the need to troll various sites looking through long lists of equipment you don’t need.

Proxibid has a pre-bid service that allows you to put in the minimum and maximum you’re willing to pay for an item, and it will start bidding for you from your minimum point and increase your bid in increments until you’ve won the bid or reached your maximum. This eliminates the need for you to hover over the computer during the live auction, says Hoberman, and some buyers use it as a form of discipline. “If a guy has been to auctions before and spent too much money, he can put in a pre-bid to avoid going over his limits,” he says. The company, which started in 2003, also recognized that some people get frustrated with Internet systems where you can’t talk to a real person when you have problems. It staffs a call center an hour before, during and an hour after each auction to assist customers, both bidders and auction houses. “We will even bid for them if they’re having problems with their computer that day,” he says.

A seller’s market
With a robust economy, the dollar weak against many foreign currencies and equipment manufacturers straining to meet demand, prices for used equipment are high and likely to stay high, say the experts we talked to.

“It’s pretty much been a seller’s market for two years,” Alleger says. Used equipment prices, he estimates, have gone up between 10 and 13 percent a year and will probably show an increase again in 2006.

What does that mean for the owner of construction fleets? Don’t sit on your assets, Alleger says. “As you have product that comes back in and is not being used or is underused, it’s going to be parked at the fence. Don’t accumulate it. Have the organizational discipline to move that iron on a regular basis because there is a time value of money and invested capital you waste if you let it sit idle,” he says.

Auction Sources
Alex Lyon & Son, February 5-12, Kissimmee, Florida

IronPlanet, Internet-only auctions every two weeks and additional auctions as inventory comes available

Kissimmee Auction, February 22-25, Kissimmee, Florida

Proxibid, Hosts online auctions year round for traditional auction companies including Alex Lyon.

Ritchie Bros. Auctioneers, February 21-24, Orlando-Davenport, Florida

Yoder & Frey, February 13-21, Kissimmee, Florida