Increasing Cash Flow Though Online Auctions

Online auctions assist equipment owners in the efficient disposal of equipment.

Many rental companies are facing increased pressure to place a higher priority on cash flow due to a variety of economic factors. In an industry that has so much money tied up in capital equipment, this is no easy task.

According to Felix Rodriguez, national accounts manager, rental industry, with online auction company IronPlanet, the need for some rental companies to realign their fleets is critical. "You need to determine what assets to dispose of. You do this by identifying the slow movers, the high-maintenance pieces. In other words, you figure out what's eating your lunch," he says.

Once these items are identified, equipment owners need to find a valuable sales channel through which to dispose of this equipment. Traditionally, equipment owners have had limited options when it comes to selling used equipment: trading it in to a dealer or listing it in the classifieds.

Like buying a new car, many owners believe they will get the best value by trading used equipment in to a dealer when they purchase new equipment. While this might provide leverage for price negotiation on the new equipment, it doesn't always yield the best price realization on the used item. To remain viable, dealers must create acceptable profit margins on each piece of equipment, making it difficult for owners to get premium prices for their used equipment. Geography can also limit owners' choices as many are unwilling to get competing offers from dealers in other locations.

To increase resale value, many owners are now trying to sell their used equipment through classified advertisements. Sometimes this approach yields a higher resale value for the owner. It can often be a time-consuming process, however, creating headaches for sellers who must be available to answer questions and handle prospective buyers.

Advantages of online auctions
Today, online auctions can provide a hassle-free, profitable sales channel for those looking to sell their used equipment. Because they are not tied to a specific location or region, online auctions can reach a global audience of interested buyers, ensuring more bids per item than traditional auctions. As buyers compete to "win" items, owners realize better prices for their used equipment.

Some online auctions also take on traditional seller responsibilities such as fielding calls and handling questions from prospective buyers. In addition to listing the equipment and necessary information, online auctions can actively market items to better connect buyers and sellers.

"Our velocity of reaching a global market of 10,000 to 12,000 bidders is second to none," says Rodriguez, noting that it is this combination of market breadth and speed that is key in helping rental businesses offload equipment most efficiently.

Strictly online auctions also offer enhanced convenience over other methods of equipment disposal. Sellers are able to list their equipment from their workplace or home. Once the equipment is consigned, the seller can have little to no responsibility to find interested buyers, and often does not even need to transport the equipment until after the sale is final. Specifically, IronPlanet's auction model does not require the seller to be involved in equipment transport at all.

A different model
Ritchie Bros. Auctioneers, the world's largest auctioneer of heavy equipment and trucks, offers online auctions in addition to its traditional physical auctions.

"Every Ritchie Bros. auction is conducted at a physical auction site - either one of our 38 auction sites around the world or at an off-site location (usually the customer's property)," explains Denis Prevost, vice president, national accounts, Ritchie Bros. Auctioneers. "Most of those auctions are also broadcast live on our website. Interested buyers that are unable to make it to the auction site to bid can register to bid on our website using our real-time internet bidding service, rbauctionBid-Live.

He continues, "Since we introduced this service in 2002, our customers have had even greater access to the global equipment marketplace. They can bid on and buy the equipment they need, whether it's located in their own state or on the other side of the world."

Prevost notes that Ritchie Bros. distinguishes itself from other online equipment auction companies by offering on-site and online bidding. "The majority of our customers still prefer the experience of bidding and buying in person at our auction sites," he says. "Many of our customers will even travel thousands of miles to bid at a Ritchie Bros. auction. Still, people like choices, and we are committed to giving our customers options that meet their individual needs and preferences."

Inspection brings peace of mind
Detailed inspection reports provide an invaluable service to online auction participants. Since sellers cannot physically show their equipment to interested buyers all over the globe, a detailed equipment inspection report on the company's website provides a way to communicate the exact condition of the equipment.

IronPlanet, for example, has a team of 350 trained equipment inspectors that average more than 23 years of experience. Nearly all equipment listed on IronPlanet comes with a detailed inspection of key components, photographs, selected wear-related measurements and, when appropriate, oil/fluid samples for lab analysis.

For increased peace of mind for customers, IronPlanet offers the IronClad Assurance, its guarantee that equipment is in the condition listed online.

"The biggest distinction IronPlanet has over other auction companies is our IronClad Assurance," says Rodriguez, noting that no other company offers the same type of guaranteed inspection services.

Auction companies that provide inspection reports ultimately generate better prices for sellers, Rodriguez says, especially when accompanied by a guarantee.

For its part, Ritchie Bros. offers registered bidders photos and descriptions of each piece of equipment weeks before each auction. "We post photos and details of every item being sold in upcoming auctions on our website, but most of our customers still like to visit the auction site to test, inspect and compare items they're interested in buying," Prevost says. "Many people will come to the site to see the equipment before an auction, then go back to their home, office or hotel and bid over the internet if they cannot attend the auction in person."

He continues, "If they can't make it to the site to inspect an item in person, our online bidders often use the on-site bidders they're competing against as validation: they know that those on-site bidders have seen, inspected and tested the equipment they're bidding on, which gives them added confidence when they bid online."

How to sell equipment online
When deciding which online service to use for selling equipment, visit auction company websites to get an understanding of how the auction company does business. Look for pages that clearly explain auction formats, policies and features. This will give sellers an opportunity to place themselves in buyers' shoes. The site should be easy to understand and use and have plenty of information on equipment offerings, including equipment makes and models, product categories and locations.

The next step is to meet with an auction company representative. Many online auction companies have regional representatives who will meet with prospective sellers. In the event that it is not possible to meet in person, contact customer service to address any remaining questions.

Next, consign the equipment for sale. If meeting with a representative, in many cases they will bring the necessary paperwork to sign or direct you to the website for those materials. A consignment agreement legally recognizes the right of the auction company to sell the item(s) and obligates the seller to deliver the equipment.

It's also important to understand all options. Sellers might have the ability to establish the price at which an auction opens, or set a "win it now" or reserve price, depending on auction type and relevant policies. Rodriguez, who notes that IronPlanet offers both reserved and unreserved auctions, points out that setting a reserve price allows sellers to retain equipment that does not reach a prespecified bidding amount. "Win it now" prices designate the amount buyers are required to pay to end the auction early by purchasing the product immediately.

At Ritchie Bros., however, every auction is unreserved. "That means there are no minimum bids and no reserve prices on any item we sell," Prevost states. "Every piece of equipment is sold to the highest bidder on auction day, regardless of price."

Increasing cash flow
According to Prevost, unreserved auctions are one of the most efficient and effective ways for rental companies to manage their assets and cash flow - whether the bidding is done on-site or online.

"The uncertainty of waiting for an item to sell is taken out of the equation, giving sellers the ability to manage their assets and cash flow," Prevost says. "At an unreserved auction, prices are set by the bidders - by the market - so the key to realizing good returns is choosing an auction company that attracts the greatest numbers of potential bidders from the widest range of industries and places."

Rodriguez states that it's the speed of the IronPlanet auction process that helps rental businesses increase cash flow. "We're not regionalized and we hold auctions biweekly," he says.

In the end, time is money. "Equipment rental is not the only revenue stream for most rental businesses," Rodriguez says. "They're in the used equipment business too, and when assets sit around, they drain money."