Regulations Squeeze Owners (p.2)

September 28, 2010

"I'm keeping track — some of it's going to Mexico, some of it's going to other states. But I'm going to lose maybe $400,000 in value on my equipment on what it would have been worth a year ago. Nobody wants it here," he says.

"I got dirt for it, but oh well, I can't control that. It is what it is. I'm stuck."

Upon reflection, that resignation does turn to frustration: "I shouldn't be penalized," says Richter, "for having a late-model fleet of equipment that is not even paid off yet that is in non-compliance with current regulations."

His grandfather, an immigrant father of 12, turned over a bakery business into his own roller and pick-up truck, and began paving driveways in Sierra Madre, Calif. From those humble beginnings, F.W. Richter became a major multi-divisional contractor.

"Because I come from a contractor family history, I have to convince myself it's OK not to do it anymore. You just have that worker mentality," says Richter, whose own sons have worked hard day in and day out for him, he says, but do not want the headaches of owning and operating the business. When he told one of his own uncles he was packing it in, Richter heard what he has always known: "You can't — this is what we do."

But he recalls his dad telling him that most contractors, despite how hard and how well they work, do not go out on top. Rather, they are driven out.

"Right now, I'm living that."

For those contractors not at that point, it's still time to act, says Richard Aldersley, Ritchie Bros. regional manager, based in Perris, Calif.

"Generally we're trying to tell people, 'take action now, because you need to.' It's not going to get any better," says Aldersley. "It's going to happen, so 'get used to it, guys.'"

That doesn't mean that Aldersley is at all impressed with the official approach to dealing with environmental concerns surrounding off-highway equipment.

"For sure, one needs to clean up the environment, and we certainly don't want everything polluted," he says. "But I think that the way they're going about it is onerous, and it's going to take a lot of these guys out of business. It's going to require huge amounts of capital investment for these guys to be able to comply. And the official approach is, 'well, just pass that cost through to the guy you're doing the work for.' That's not feasible.

"From the EPA's point of view, they are believing, 'oh, well you just have to ship it to Arizona.' Ethically, how does that really solve the world's problem? In addition to that, you've got a number of states and jurisdictions that as soon as California enforces it are going to follow suit."

The fact that, only a few yards away, one of about 2,000 pieces of equipment up for bids at this particular auction was still rolling off the ramp into the hands of a new owner is "heartening" from a market standpoint. Locally, work has slowed down, and "apparently" the equipment is all bad, but there's still a market, says Aldersley.

To help buyers, equipment descriptions in Ritchie Bros. auction catalogs are increasingly including engine Tier compliance, where and when applicable.

"We've tried to be as thorough as much as one can be," says Aldersley. "Obviously, if you have a California customer and it's a Tier-0 piece, he's probably going to sit on his hands."

Much of the California equipment "is going to other states in the U.S., as well as to Mexico and the South Pacific," says Nick Nicholson, Ritchie Bros. senior vice president, U.S. Central and Latin America. "You see it scattering around as if we're breathing different air."

The construction market worldwide is booming — something that Ritchie Bros. with 122 offices in 29 countries can tap into for its California customers, says Nicholson.

At the Perris, Calif., auction, which attracted in excess of 2,000 on-site registered bidders, off-site Internet bidders typically faired well, securing or finishing runner-up in about one-third of items available to them. Bidders were registered from 40 U.S. states and 25 countries and, of the more than $24 million in gross auction proceeds, more than half was accounted to buyers from outside California.

This effect is a known commodity at IronPlanet, the California-based global equipment auctioneer that conducts its events entirely via the Internet. IronPlanet's Jan. 31 auction, the company's largest at that time by a whopping 38 percent over the previous high in gross sales, attracted a shade under 15,000 "visitors," more than 12,000 bids, and international buyers for about 25 percent of the total gear up for offer.

"You need to keep moving that equipment, and IronPlanet gives you the ability to easily do that with auctions every two weeks," says Andy Betts, territory manager. "No matter how much you tell that to equipment owners, many still decide to wait, which affects equipment values substantially.

"But there's an advantage to moving the equipment quickly as CARB rules give credit to equipment owners retiring older equipment early, which helps ensure better values."

There are national motivators, also, to acting sooner rather than later, says John McClelland, American Rental Association (ARA) vice president, government affairs. The recently announced economic stimulus program provides "tremendous" tax opportunities to write off purchases of new equipment.

"If I was a fleet owner in California and I was looking at my replacement schedule, I'd definitely see if there is an opportunity for me to move some of that schedule forward."

But just how many of those fleet owners are paying attention is anyone's guess.

"From one contractor to the next, no matter what size, each has different requirements and deadlines for fleet compliance that are quickly approaching, and many are hoping that something will change, which is not likely," says IronPlanet's Betts. "There may be some small changes in regulations, but many will still face difficult decisions.

"Some contractors are deciding to roll their entire fleet out, and go to strictly rental gear. Others will simply sell off their older equipment and operate from a smaller fleet of new equipment."

At Ritchie Bros., Aldersley has observed a wide range of compliance preparedness and emotion from his customers, ranging from the fleet owner who bangs his fist on the desk defiantly, to the contractor who is in full panic mode, to the one who's "solidly" in the middle and trying to efficiently move his assets.

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