The belief that the used machinery sector would prosper in times of economic crisis has been somewhat of a paradox. The economic slowdown over the past two years has had a profound impact on the retail price of new machinery, with reports of prices coming down by as much as 30%. Contradictorily; used machinery prices have resisted falling at the same rate and timing as those of new machinery; hence the gap between the respective asking prices has narrowed, making the price of used machinery less attractive than in previous years.
The main reason for this price depreciation is that whilst Used Machinery sellers base their asking price according to the book value; the price of New Machinery is determined according to supply and demand. When demand is high, prices are set at a lot higher than book value. When demand significantly decreases (e.g. due to economic crisis) then the prices of new machinery will be significantly lowered so as to shift the supply. These prices are lowered to such an extent that they are very close to the price of the book value that Used Machinery is being sold at. Moreover, for different sellers, the same machinery may yield varying prices because of different depreciation techniques used.
To compound issues further, the demand vs. supply scenario is fluid, and can often change without notice.
Factors that affect the demand vs. supply:
• Induction of new technology which can free up the machinery that utilises existing technology for the reseller market
•A shortage of new machinery in a particular market can make used machinery an attractive proposition
•Regulatory changes in one region can render old machinery non-compliant in that particular location, but retain its use in other markets
•A strong presence of OEM after-sales in a market will boost the sale of used machinery for that particular brand
If we take the example of plastic machinery, factors that affect the price of used plastic machinery include brand, auxiliaries and other equipment accompanying the used machinery; age of machine, state of maintenance, extent of refurbishing, documents available, and whether the machine is in dry cycle or dismantled.
Due to the aforementioned factors; price variation is evident throughout different regions in the used machinery market.
As a buyer you need to know if the used machinery you’re interested in is offered to you at the right price. It is well advised to take the help of an experienced assessor who can place a tangible figure on the various aforementioned influencing factors. You can save an appreciable amount, and more importantly; get apprised of the best deal for you whilst it is available by choosing the services of a good broking firm.
A broker in the know will be able to quickly assess whether going for the cheapest machinery available is best suited for your needs. Very often it is not quite the right solution. Furthermore, an agency that specializes in buying and selling can judge and value the impact of a major technology advance on the price of existing technology; often the introduction of new technology can devalue used machinery much more than what the book value will suggest.
Expertise in judging the used machinery market is pivotal on account of the high fragmentation of the market and its many varying aspects. For instance, in the used beverage machinery segment, the market value of expensive machinery is far lower than the book value; in some cases as much as 75% less than the book value. An expert would be able to alert you to used machinery that is being sold directly by the OEM; and not by a dealer. Whilst such machinery might preliminarily cost more; it is more likely to be refurbished, fully working, and carry the OEM’s guarantee.
There are valid reasons for the high depreciation of used machinery. The risks associated with purchasing any second-hand item will always affect the demand, and then there are always logistics and engineering costs to take into account. Nevertheless, industrialists can reap manifold benefits if they can lay their hands upon the right type of used machinery at the right price.
All these factors are as important a consideration for the seller as they are for the buyer. Sellers ought to bear in mind that a dismantled machine will immediately lose 50% of its value in comparison to an identical, yet assembled, used machine. A dismantling job carried out without the OEM’s involvement will likewise bring down the price/value. The revenue flow from the sale of used machinery is certainly not insubstantial, yet most companies do not have a specific department dedicated to plan and execute the sale of their used machinery. In a hurry to release useful floor space on the shop-floor, the selling process can be carried out without forethought and hasty decisions made.
An experienced broker will always have a clear idea about the aspects that are of particular consequence for different brands, machinery type, and markets. This is an invaluable insight available only to experts and it can make a huge difference to both sellers and buyers. Information acquired by the assessment of the direction in which the market is moving gives one the leverage to pre-empt scenarios and get valuable first-mover advantage. Very few brokers have the wherewithal and skilled manpower to study and forecast market behaviour based on market size, number of machines entering the market, market value indicators, market share of various brands, etc. Whether you are interested in selling or buying used machinery, you should get in touch with those that can do this.
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