Posted By: Andy Kamashian | Posted On: December 18, 2018
The Art of Valuing Used Machinery
Many customers wonder about the factors that go into evaluating their used equipment for either wholesale purchase or for retail sale. While we may describe it as an "ART", the reality is valuing used machinery is purely mathematical. When your discussing a used machines value it is important to note that values will differ widely on used machinery for a variety of reasons;
Example A) A customized Rollforming System may be worth hundreds of thousands of dollars to the company using it as it has been tooled, setup and maintained to run parts they are making and selling on a daily basis. They have designed the products, built marketing and sales around that specific product and have some time of success selling that product, therefore that system is very valuable for their operation and use.
Adversely another company may have an interest in the Rollformer itself but may have a significant investment required in order to retool that system for their specific needs and therefore the value of the systems to them is far less.
Example B) A late model used Vertical Machining Center in the 40" X 20" size from one manufacturer may vary greatly in retained value then that from another manufacturer. Factors such as popularity, support, ease of adding options etc can all factor in to a used machines value.
Factors To Consider:
Replacement Value - Replacement value is just that. The cost to replace the given operation at the given capacity in place.
Value of Comparable New Machinery - When estimating your machines value it's also very important to consider what is available on the market new that can achieve the same process. As an example you may have a laser that was purchased for 600K new but as prices have declined with fiber technologies, can be replaced by a system selling new (with warranty and installation and training) for under 300K.
Market Demand - This is where commodity used machinery (Press brakes, Shears, Lasers, Waterjets, VMC's, Turning centers etc) do very well as opposed to the special purposed and cuistoim equipped machinery like a rollformer or robotic welding system. The market demand is always much higher for a generic version of a used machine that can easily be adapted/tooled to meet a new need. The more specialized the used machine is, the smaller the market for it becomes.
Time to Sell - How long will this used machine typically take to sell? 0-30 days for late model newer commodity machinery is very typical (AT THE RIGHT PRICE). Used machinery or equipment that could take 60-90 days or more can greatly be affected by the value offered in trade or outright purchase.
Ballpark it: One of the easiest ways we can take a stab at a used machines value is to look for similar machines for sale on sites such as eBay. While eBay (and other sites) can give you approximates of value, they typically cannot tell you HOW LONG that item has been listed for sale at that price nor will they tell you what items actually sold for. Therefore the value provided by these web searches can be very erroneous. Also used machinery offered on sites like these may have thousands of dollars in extra tooling, parts or upgrades that require a careful and thorough review to catch.
However there are other ways to better value your used machinery and that includes looking at Typical Depreciation. We know that, in general, a machine tool depreciates on average 25% the first year and roughly 10% every year thereafter until about 40% value of new is reached. After which it’s what we know as "market value" (what buyers are actually paying) afterwards. It's important when your looking at typical depreciation to strip out all the "soft" costs such as freight, warranties, training, software, tooling etc that simply are not transferable nor usable by a used machinery buyer.
By using the above formula we can estimate the following
- If a machine sold new for approx 260K
- First Year depreciation would lower the value to about 195K
- The next 5 years would lower the value to around 100K
Market Value: This is the moving target as it is what the consumers are willing to pay for your used machinery and is affected by many factors such as:
Number of available like machines available on the used market.
New machinery replacement costs (remember too used machinery buyers are also import and knock off brand buyers. So that brand from China you would never consider is now competition for your used machine).
Manufacturer support costs (some manufacturer’s charge a “registration” fee as a way to supplement the support required from a 2nd owner re-learning the same system the have already taught to the original owner)
- Cost to remove and relocate: Moving a 2,000 LBS Knee Mill is considerably less difficult than a 220K LBS pit mounted bridge mill requiring 3-4 trucks. Because of that there is a considerable investment made by the buyer just to relocate the equipment and needs to be considered.
Other Factors: Manufacturer support of used machinery can often be one of the most contentious issues with selling used machinery. Most manufacturers see used equipment buyers as potential future new machinery buyers and therefore work with them to ensure they have a successful purchase and start up. Unfortunately and adversely, there are those manufacturers that see their very own brand of machinery being sold on the market used, as competition for their new machinery offerings. They then limit or even deny supporting the potential buyers of these machines. This action alone can devalue equipment by a further 50% or greater from like and comparable machinery.
Whether your buying used or new machinery it is very important to understand the factors that go into valuating your asset down the road. At Southern Fabricating Machinery Sales we are not only experts in buying and selling used machinery but we are also staffed with AMEA Certified Equipment Appraisers. We look forward to working with you to obtain the best value for your used equipment. Call us today at 813-444-4555 or visit us on the web at: www.southernfabsales.com
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