Internet Bidding Is Giving Auctioneers a Run for Their Money

Sept. 28, 2010

Ritchie Bros. eClerks follow the auctioneer's call and update the asking price electronically for online bidders and for displays like this one at an auction site.

Online bidders are able to follow the high bid and asking price while listening to the live call from the auction site. They can also scroll through photos of the lot for sale or other lots.

Sellers working with Ritchie Bros. benefit from the mature company's reach, now extended with buying-prone bidders on the Internet.

Growth of IronPlanet's dedicated online auctions relative to on-site auctions augmented by Internet bidding is unclear given the amazing volume of equipment currently being remarketed.

A consortium of Caterpillar dealers is backing a venture called Cat Auction Services that held its first auction a year ago. Internet bidders can follow the on-site auction and bid from their computer screens.

IronPlanet's IronClad Assurance program provides an exhaustive inspection report on each machine, with plenty of photos. The auctioneer stands behind the inspections and will rectify any discrepancies with repairs or, if necessary, refund.

It's no secret that the used-equipment trade is one of the few reliable growth sectors in construction today, but the magnitude of sales shifting to online auctions could change how used equipment is marketed even after the economy recovers. Auctioneers —IronPlanet, Ritchie Bros., a growing list of others — say the number of Internet buyers and volume of purchases they're conducting online suggest that the growth of Internet construction-equipment auctions compels used-equipment buyers and sellers to investigate online auctions.

Thirty-six percent of respondents to a poll said they've purchased machines via online auction. Skid steer loaders, compact track loaders, mini excavators and wheel loaders are the machines they are most likely to buy online. Forty-two percent of respondents have sold equipment in online auctions. They're most likely to sell backhoe loaders, wheel loaders, crawler dozers and light equipment such as welders, generators, pumps and compressors.

Ritchie Bros. Auctioneers, a 50-year-old company that added online bidding to its on-site events in 2002, sold $3.57 billion worth of equipment in 2008 — nearly 20 percent ($700 million) of that to online bidders. The company conducted 340 unreserved auctions in 2008, often holding two or three auctions around the world on the same day. All of the company's auctions are broadcast live over the Internet, so bidders can choose to participate in person at the auction site, or in real-time from their computer. Internet bidders listen to the Ritchie Bros. auctioneer live via the Web. They can study photos and complete descriptions of lots being sold. To bid, they click on a button that reflects the asking price.

The $600 million worth of equipment Ritchie Bros. sold to online bidders during the first nine months of 2009 represented a 20 percent increase compared to the first nine months of 2008. Internet bidders have made up about 30 percent of the total unique registered bidders at each Ritchie Bros. auction so far this year, and these Internet buyers have bought or been the runner-up bidder on 35 percent of lots offered online.

Almost 123,000 unique, individual equipment buyers from more than 180 countries have now registered and are approved to bid online with Ritchie Bros. — about 32 percent growth in the past year. Since launching its real-time online bidding service, the company has sold almost $3.1 billion worth of trucks, equipment and other assets to online bidders, making Ritchie the largest online equipment seller in the world.

IronPlanet, which began producing dedicated, online-only equipment auctions in 2000, posted record sales in 2009's third quarter of $123 million — an increase of 61 percent over the third quarter of 2008. All of IronPlanet's sales are online, with the company marketing machines much like eBay or other general Internet auctions. But IronPlanet outperforms generalists with weekly sales events supported by salespeople whose job is to help match buyers with machines on the block. Global marketing — including telesales, advertising, direct mail, and e-mail — generates significant interest in specific auction items.

IronPlanet's $337 million in total 2008 sales was 45 percent greater than 2007 sales, and they sold 42 percent more in 2007 than in 2006. In September the list of registered IronPlanet users exceeded 500,000, and about 10,000 new equipment buyers register each month. Individual auctions are currently averaging more than 15,000 visitors. Jeff Jeter, executive vice president, says the company is on track to grow about 40 percent this year.

Ritchie Bros.' and IronPlanet's growth trajectories suggest conditions favoring dedicated online auctions. While Ritchie's sales to Internet bidders is growing dramatically, the mature company's gross auction proceeds for the first nine months of 2009 were essentially flat compared to 2008, while IronPlanet recorded a 25 percent increase.

Jeter attributes IronPlanet's growth to the electronic auction's ability to deliver market prices for machines on the block, at lower selling costs than many competing channels. Instituting weekly auctions every Thursday early this year marked something of a turning point. Frequency of the convenient online option, Jeter says, attracts sellers of national-accounts caliber.

"Particularly in the economy we're in, companies like the ability to manage their inventory on a time-to-turn basis — they like that short time to cash," he says. "They're comfortable that the price performance is going to be there, and it cost them less to sell.

"They don't have to transport it to a yard, so it cost them less for transportation. Typically our commission cost is a little bit more favorable versus the traditional auction channel," he says. "And the seller ultimately makes the decision on any make-ready that they want to do to a piece of equipment. "I can get you equal or better price performance at 6 to 11 percent lower cost to sell, and I can give you an auction platform every week. That's why we're seeing a lot of the growth."

IronPlanet has scheduled weekly auctions into 2010. Supplemented with twice-monthly auctions by the company's year-old European operation and monthly auctions out of its Australian startup, next year should hold many weeks with two or three IronPlanet auctions.

Terra Construction Group confirms that IronPlanet delivers about a 10 percent improvement in residual value. The Florida site-work contractor makes profitable use of their auction schedule, too.

"What works so well for us," says Lorie Waldrop, Terra's general manager, "is that IronPlanet has auctions every week. When we order new equipment, it's delivered over a four-month period. With IronPlanet, we can stagger what we sell based on when our new equipment arrives."

Adding online bidding to an on-site auction — like Ritchie Bros., Alex Lyon & Son, Yoder & Frey and many others have done — doesn't carry with it the same burden of proof as the all-online auctions of IronPlanet. Sellers who are convinced that live auctions bring reasonable prices for their equipment welcome the larger bidding audience created when those auctioneers take bids from the Web.

H. L. Wiker Inc. was one of more than 300 consignors at Ritchie Bros.' two-day, $23 million October unreserved auction in Maryland. The Lancaster, Penn.,-based excavation company sold 20 machines. More than 2,500 on-site and online bidders from 40 countries and all 50 states registered to bid. Some of the excavation company's equipment went to buyers from Kenya, Thailand and Peru.

"The returns from the auction exceeded our expectations," said co-owner and vice president Jeff Wiker. "We're not limited to the local market with Ritchie Bros.; they reach that worldwide audience, and I'm sure that's why we saw the results we did."

"When there are no minimum bids or reserves, like at our auctions, it levels the playing field for all buyers," says Bob Armstrong, chief operating officer with Ritchie Bros. "The auction is transparent and fair for everyone involved. And at the end of the day, the buyer is happy with his newly acquired item. And the seller is happy because he's received true global market value for his item."

"You've got to have reach — about 60 percent of the items sold in IronPlanet featured auctions have international bids, and 25 percent of all items sold go to international buyers," says Jeter. "That international buyer ultimately helps support price performance for the seller."

Electronic bidding also supports sales efforts that help match buyer needs to the machines up for bid. IronPlanet's inside salespeople mine each week's bidding results for the runner up and third-place bidder on lots similar to the machines in the currently featured auction.

"We have created a better business model to reach more people globally in the used equipment market," says Jeter. "Our growth in registered users is a testament to the strength of IronPlanet's marketplace and the value we deliver."

And growth in Ritchie Bros.' online bidding also suggests their business model — live auctions from sites around the world, and the accompanying transportation and make-ready costs — continues to prosper.

"We find that most of our online bidders actually want to see the item in person prior to bidding," says Armstrong. "Our ability to marshal equipment in one location makes it a one-stop-shopping marketplace for equipment buyers. While online bidding is growing and is a great service to equipment purchasers, we know that the live auction is what our customers will continue to want."

One such customer is Salmon Earthmoving Services, based in Queensland, Australia. This third-generation earthmover rental company often sends people to the United States to test and inspect equipment at several Ritchie Bros. auctions. They return to Australia to bid online.

"I would never buy anything sight unseen," said Nick Salmon. Online bidding allows the company to research machines in several locations and then bid even if sales are going on simultaneously. "We know what we're bidding on and we're not away from the business for long. The (Ritchie Bros.) Internet system works well for us."

"We're selling used, income-producing assets — these are not commodities," Armstrong adds. "They're not collectibles; they're not brand new. These are things you really need to inspect, test and compare to buy."

Picking up on the success of on-site auctions that incorporate online bids, a consortium of Caterpillar dealers just managed to convince Peoria to bestow the brand on Cat Auction Services, a year-old venture for remarketing used equipment that emulates Ritchie's hybrid of on-site and Internet bidding.

Caterpillar equipment sold through Cat Auction Services is inspected and prepped for sale by professionals who know the products intimately. Machines that meet certain guidelines are offered with a special 90-day, 250- hour warranty issued by Cat Insurance. The factory warranty is honored by all North American Cat dealers.

IronPlanet's answer to those who want to inspect a machine before they spend tens of thousands of dollars on it is their IronClad Assurance program. Built on professionally rendered inspections and reports, IronPlanet stands behind the inspection report, guaranteeing that what you see in the inspection report is what you get when you receive the equipment. They will work with buyers to resolve any discrepancies with a repair or, if necessary, a refund.

IronClad Inspections are thorough, with measurements of all the empirical performance parameters such as oil analysis results, hydraulic pressure checks and flow rates. Basic operational functions are cycled and described, and the online reports share all of the results in amazing detail. But there are buyers who simply do not believe a general inspection can tell them what they need to know about a machine intended for particular work.

In 2008, 29 percent of the bidders at Ritchie Bros. abruuctions submitted bids via the Internet. Ritchie has about 123,000 registered online bidders — about one-fifth that of IronPlanet's — but those buyers purchased more than twice as much equipment in 2008 ($700 million worth). Ritchie Bros. exacts a deposit of 25 percent of bidding limit, which ensures that registrants are committed to bid.

Over the long run, sales statistics may favor dedicated Internet auctions because high-volume machines such as skid steers, backhoe loaders and utility wheel loaders tend to be more commoditized purchases. Units in the 2,000- to 5,000-hour range are likely to be in reasonably uniform condition, which can be confirmed with a fairly standard inspection. It's not as necessary to transport them to an auction site if you can find enough buyers online who will pay market rates based on a third party's inspection report.

On-site auctioneers continue to provide the best-suited venue for selling unique or high-dollar machines that demand some hands-on inspection. Added online bidding supports higher prices for these machines thanks to the Internet's reach.

Inevitably, it seems there are some machines that can reliably be sold online and some that will do best in an on-site auction. Auction venues have become numerous, and the best will offer potential buyers the chance to bid via the Internet.Related Article:Buying and Selling Via the Internet Attracts Users of Construction Equipment and Heavy TrucksOnline opportunities abound in today's market for buying and selling construction equipment — but old-fashioned due diligence is still required
April 1, 2007 By Walt Moore, Senior Editor