While residual values plummet
across all assets, Jason T
Hesse discovers there is some hope for the future as the
benefits of online auctioning take hold and new opportunities
arise.
Go deeper with GlobalData
The economic downturn has had a
direct effect on the flow of activity in auction houses, which have
seen new trends emerge.
The most evident has been the extent of the
fall in residual values (RVs).
With most asset markets reaching capacity, RVs
have sunk uninterruptedly during the last 18 months, leaving a
significant impact on lessors’ books.
According to the auction houses surveyed, the
drop is affecting all assets, from commercial vehicles,
particularly the van segment, to plant and construction equipment –
which in some cases have gone down by over 30 percent.
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By GlobalDataEven the IT equipment sector, which is already
known for the low remarketing value of its assets, has seen prices
plunge further.
With assets flooding the market, prices have
fallen. The credit squeeze, too, has led to lower demand from
buyers, pulling prices down even further.
These trends have led to difficulties in
achieving minimum RVs, thus leaving lessors in a tough
position.
As British Car Auctions, an auction house,
highlights, with the extremely tough market conditions of the last
year, sellers need to be pragmatic and accept the prices on offer
just to keep the metal moving, rather than aiming for book
values.
This means that for some sectors – such as the
budget van segment – despite plenty of buyers and lots of activity,
demand is slow for mid- to high-value value vans, leading to the
unusual situation of the cheapest vans being the most in
demand.
On a more positive note, online auctions have
seen a big increase in the last year, helping to provide more
channels for prospective buyers and therefore, from a lessor’s
point of view, more opportunities to have assets remarketed more
quickly and at better prices.
Vehicle remarketing company Manheim Auctions,
for instance, believes that ‘CV Live for Trucks’, a trade-only
online wholesale channel, has played a key role in remarketing
trucks. Since its launch in March 2008, more than 30 percent of all
trucks sold by Manheim have been sold through the online
channel.
Sanderson Weatherhall, which provides plant
and machinery valuation and sales, has also seen a huge jump in
online auctions, which now account for 90 percent of sales.
Because online auctions put online buyers in
direct competition with buyers who are physically present in the
auction venue, auctioneers have needed to use the latest online
broadcast technology to provide bidders with detailed valuation
reports to allow them to view, bid and buy assets in real time.
“Going online” has also given many UK auction
houses the opportunity to increase their international remarketing
activity. In the case of the plant sector, for example, all of the
surveyed companies reported a significant increase in overseas
sales last year.
The increase in international demand, however,
has also been stirred by the decline of the sterling against the
euro and the dollar, which has increased foreign buyers’ appetite
for UK-based auctions.
Significant attention has risen from US
buyers, while demand from countries such as China has fallen,
despite being historically very interested in buying plant from UK
auctions.
For other assets, such as low-end IT
equipment, where new technology is being continually developed, it
has become simply too difficult or expensive to resell some
assets.
GoIndustry DoveBid, for instance, reported
that for equipment older than five years, demand is so low that in
a downturn, the equipment is likely to be scrapped rather than put
up for auction.
Yet despite these difficulties, the recovery
seen in the first quarter of 2009 in some sectors – such as the
commercial vehicle market – has been encouraging for lessors, for
whom residual values are paramount to making a profit.
Unless, of course, these green shoots are
premature, in which case the roller coaster ride will continue,
with values plunging before stabilising again.
