Dirt diggers are just a click away

It really just might be possible to buy anything on the Internet these days. IronPlanet, founded in the United States in 1999 and launched in Europe in January of this year, has brought used construction equipment, from dump trucks to diggers, into the online auction world popularized by eBay. The company posted record growth in 2008, with gross auction sales of $337 million, a 43 percent increase over 2007. With its eighth European monthly auction under its belt, the company hopes to rack up similar sales in the EU. Tom Cornell, managing director of IronPlanet Europe, spoke to The Prague Post from his European headquarters in Dublin about how his company helps customers unload used equipment.

The Prague Post: Your company has introduced a new way to sell used construction equipment. How have these products traditionally been sold?

Tom Cornell: In the standard construction equipment auction, the seller has to send the machine to the auction site. The auction company therefore has to have a location somewhere in Europe where they physically hold the auction. The company has to get sellers to send the machines to the site and, meanwhile, attract as many buyers as possible to travel to the site on the day of the sale. Without an audience, you're not going to have a successful auction. The rule of thumb on auctions is that the bigger an audience you have, the more bidders you'll get. And, of course, the more bidders there are, the higher the price you'll get for the sale.

TPP: By the numbers, how does the advantage of holding auctions online work out for both you and the auction participants?

TC: For the seller, there are no transportation costs because the machine stays exactly where it is. If you have a digger at home, it sits outside your house until it's sold; then, the buyer comes to pick it up. On average, about 5,000 people from 130 countries around the world participate in our auctions every month. That means we have a huge audience and generally a lot of bidders, so sellers are getting great prices. Sellers are getting good prices, saving on transportation costs, and the commission to us is very attractive. In the crudest sense, IronPlanet is all about turning machines into cash quickly and for the best possible lowest price. What's surprising is even though there's a recession, there's still an unbelievable demand for second-hand machines.

TPP: Construction and development has slowed on a nearly global level. How has that affected prices and demand for construction equipment?

TC: It's a bit of a generalization, but I would say prices on used equipment have dropped about 30 percent from the middle of last year. I believe that, between now and the end of the year, we'll see further deterioration in prices. Toward the end of the year, businesses will be keen to clean balance sheets and drop some assets. That's going to add more equipment on the sales side, which will further soften prices.

On the other hand, we retain a bit of an advantage during the recession, because when times are good, contractors might buy a brand new machine when you've got a contract for a couple years. But why spend 60,000 euros on a brand new machine when you [can] spend 30,000 euros on a quality used machine that you can be confident will last a couple years during the project? It means your capital investment will be much lower, and I think that's why it's such a good market right now for us.

TPP: Do some regions more than others show slowdowns in terms of buyers?

TC: Projects seem to be postponed more than canceled in the Czech Republic, and a lot of projects have gotten the green light recently. In Poland, they've still got big infrastructure projects in terms of motorways. Polish contractors, as with Czech buyers, have an advantage because there are sellers within the country, so they don't have to travel anywhere.

TPP: Construction equipment is a rather big investment. How do your customers feel about buying machines they've never seen?

TC: The best analogy to use is eBay. When eBay started, everyone was very hesitant; people didn't know whether the quality would be good. People like to touch and feel things they are going to buy. At the beginning, people were skeptical, but then they started to trust eBay's star rating, which sellers get by being rated by satisfied customers.

Ironplanet works in exactly the same way, and one of the unique aspects of IronPlanet is that it gives all buyers a guaranteed inspection report on every machine we sell. The biggest hesitation people have bidding online is the fact that they haven't seen and touched the machine. As soon as we have an agreement from the seller, we send a subcontracted independent professional inspector. Typically, these are guys from manufacturer dealerships. They take about 60-70 photos of each machine, oil samples and give a very detailed description of the condition of paint, mirrors -- everything.

TPP: What sort of equipment sells best at your auctions?

TC: General construction equipment is selling pretty well. There is some machinery that the market is soft for -- for example, dump trucks. There is an enormous supply of dump trucks on the market and not enough demand, so prices are generally very soft. Because some equipment is more popular than others, we have to be very selective about what we include in our auction in order to help our customers. If a customer has 25 identical machines they need to sell, we tell them we'd love to sell all 25, but selling 10 in September, 10 in October and five in November will get the seller the best result. It's all too easy for some auction companies to say "Yeah, we'll take everything" ... and, if the results aren't good, simply blame the market. We generally don't like to raise expectations too high, and, as a result, we've been able to build trust between us and the sellers.

Claire Compton can be reached at
ccompton@praguepost.com