An important part of any fleet manager’s responsibility is the remarketing of used vehicles. For a growing number of fleets, the highest used values are being realized by turning to auction companies that specialize in the disposal of used utility vehicles and equipment.
In a recent roundtable discussion with Utility Fleet Professional Editor Seth Skydel, representatives of three leading auction companies discussed the trends that are impacting their remarketing choices and success, and the reasons that utility fleet managers should consider auctions as they manage their fleets’ remarketing efforts.
Richard Aldersley, Divisional Manager, U.S. Southwest, Ritchie Bros. Auctioneers (www.rbauction.com)
Armando L. Camarena, President/Owner, US Auctions (www.usauctions.net)
Jake Josko, Vice President, PPL Group LLC (www.pplgroupllc.com)
Please detail industry trends that are impacting used vehicle values and either limiting or enhancing remarketing success.
Camarena: The biggest factor affecting the utility industry in California is the California Air Resources Board (CARB) initiative on emission control standards. This regulatory activity has forced utilities to sell off older units much sooner than anticipated. That’s having a financial impact because fleets would have normally kept these vehicles on the books for 10 years and now they have to replace them several years before they are fully amortized. At the same time, the CARB environmental protection initiatives have been met head-on by utilities, which have taken steps forward in their use of alternative fuel vehicles. In some cases utility companies in California are moving faster than the agency.
Aldersley: CARB emissions standards have dramatically devalued used equipment in the California market. Basically, they have restricted lower tiered-level vehicles from being sold. While these stringent regulations devalue equipment locally, the majority of noncompliant CARB utility fleet vehicles in the California market will leave the state and a good number will also go out of the country. Newer or late model utility fleet vehicles meeting CARB emission standards are more likely to stay in the local market.
Josko: Government regulations can play a large part in secondary remarketability. In the last four years we have seen some great auction prices on used fleet vehicles, as buyers don’t want to incur the EPA tax expense associated with new vehicles. In some instances, we’ve sold 2-year-old vehicles for more than they cost when they were new.
What other issues are impacting utility fleet remarketing efforts?
Aldersley: Smaller utility companies and government agencies are experiencing budgets cut as a result of the economic downturn and are under severe constraints about how much money they can spend on vehicles. As a result, they are looking more closely at the used equipment market as an alternative. These days, more utility companies and government agencies are coming to auctions because they see them as a legitimate place to source the equipment they need.
Josko: The vehicle’s application and configuration play a role. Things like four-wheel drive and air conditioning can have a large effect on remarketing to specific geographical regions. We are also seeing a lot more fleets going toward quad cabs these days as they want to get more employees to job sites with fewer depreciating assets on the books.
Camarena: We’ve seen a downward trend in resale prices since 2005. However, demand for late model Tier 2 trucks has increased prices since the beginning of 2011, and the resale market for utility trucks has improved along with the sale of older alternative fuel vehicles.
When selecting an auction services provider, what should fleets consider about the company’s expertise in specialized vehicles used by utilities?
Josko: I always recommend to prospective clients that they come to a sale, walk around, talk to buyers and sellers to get their opinion of the event, observe the operation for themselves and even call past clients for their experiences. Most importantly, ask the auction company to take the risk out of the market. If the auction company says the equipment has a specific range of value, it should be willing to make a reasonable cash offer or guarantee to earn the business. The auction company needs to be big enough to serve its clients’ needs, but small enough to want to still earn their business.
Camarena: The first consideration to review is how long the auction company has been in business, who is operating the company and whether they have experience with utility fleet vehicles. To effectively auction utility line equipment, you must have personnel who have the experience to sell boom trucks, backhoes, digger derricks, etc. Do your homework before you choose an auction company. Meet the owners and staff, visit the auction site and attend a live auction. We also recommend starting with no more than 10 pieces of mixed equipment to be sure you’ve made the right choice.
Aldersley: Fleets should consider what audience the auction company is targeting. They should also look at the method by which an auction company sells utility vehicles and make sure that prospective buyers are able to inspect the equipment they’re interested in buying. That includes allowing customers to come to the auction yard before and on auction day to inspect, test and compare equipment. We even encourage them to bring along a mechanic.
What benefits do auction companies bring to utility fleets compared to other used vehicle remarketing options?
Camarena: Auction companies are using a variety of remarketing strategies on behalf of utility companies. For example, we’re not just conducting traditional land-based auctions. We also have online capabilities where we can offer equipment across the U.S. This can require sellers to complete accurate condition reports and take pictures and to coordinate with the buyer to deliver the equipment. On our part we have to qualify bidders and ensure they can pay for the vehicles. Overall, buyers are now more comfortable using online sources.
Josko: A live auction, unlike online or retail sales of utility fleet vehicles, is naturally more competitive. An auction will always beat out other methods because it captures the human emotion of competition and the price always goes up, rather than a negotiated sale where the price almost always goes down.
Aldersley: Auction companies provide fleets with easy and convenient bidding options on-site or online. Auction companies can also connect utility fleets to a large and diverse number of buyers worldwide. Where else can you go where you have 2,000 units for sale and know that every item will be sold by the end of the day? For utility fleets there is not a better resource.