Used Tier 4: Y2K or Caveat Emptor?

Used Tier 4: Y2K or Caveat Emptor?

September 7, 2012

Dealer principals, manufacturers and allied industry folks recently met outside O’Hare Airport for the 2012 AED Executive Forum. The Forum has always had informative, high-level presentations, but I always key in on the panels that feature their customers, the equipment managers and buyers.

Neal Winberg, director of equipment purchasing and sales at Kiewit Corp., sat on a panel discussing potential effects Tier 4 engines will have on the used-equipment market in coming years. Along with Winberg was Peter Blake, Ritchie Bros. Auctioneers CEO.

Winberg called the price increases on Tier 4 equipment a “right jab,” then likened the potential losses in resale value a “left hook.”

Kiewit is far along in its emissions compliance strategy. Winberg said they rely heavily on their distributors and manufacturers to help them with emissions compliance, and the company itself has a cadre of in-house experts that work with its legal and compliance departments to ensure their fleets are in compliance.

But, he said, Kiewit is concerned about the resale market for Tier 4 machines.

Blake, on the other hand, played down the concern. Tier 4 resale could be like the Y2K issue that worried the world in 1999 and came to naught. He cites JCB’s EcoMax engine that can be recalibrated for use in areas not requiring Tier 4 standards as an example of how engine builders may address the issue.

The dwindling supply of pre-Tier 4 machines is driving up current used-equipment prices, he said, and Ritchie Bros. does not anticipate any effects when Tier 4 machines hit the market.

Frank Manfredi, Manfredi & Associates, moderated the panel. Manfredi is currently conducting research on the potential effects of Tier 4 engines on the used-equipment market. He suggests the globe could be divided into “emissions regimes,” regions in which Tier 4 machines are sold and Tier 3 are sold. Those borders would rarely be crossed.

During the panel session, AED conducted two real-time polls regarding Tier 4 machines. The first asked what dealers how their customers were reacting to the Tier 4-Intermim machines. In order:

  • They are renting more
  • They are accelerating purchases of Tier 4-Interim machines to avoid Tier 4-Final (a surprise to me, and to most in the room)
  • They are buying more pre-Tier 4 machines
  • They are delaying purchase of Tier 4 machines.

A second poll summed up the discussion. Attendees were asked which scenario would describe the used equipment market 10 years from now. The response:

  • No effect whatsoever (about one-third)
  • Emissions regions across the globe (about one-third)
  • Buyer beware; you will have to be very careful about what you’re buying (about one-third).

Tier 4 is upon us. Equipment managers have no way of knowing what effects these engines will have on disposal rates or residual values—nor do manufacturers or dealers. Those with solid asset-management plans will continue to acquire, maintain and dispose of machines. Winberg said as much.

Those, with an asset plan, such as Kiewit, will see the trends ahead of time and adjust accordingly. Those without will not.