Market Conditions

Asking Price is not Selling Price

I’ve been writing articles about pricing used industrial machinery and equipment for a decade. The gist of those articles has been that pricing trends closely follow the general economic trends in North America. This time, I want to talk about something a little different. I want to discuss the market for the “market approach” for valuation.

In order to use the market approach for valuation, one must use the actual market. What’s the market? A market requires a seller and a buyer trading an item at an agreed upon price. That price is the “market value” sales comp – the price the market will bear, or the fair trading price.

Market value is not “asking price.” To value a machine at market value, you cannot just find a listing on a web page and use the asking price as a comp. Anyone can ask any price for any item they please – I could ask the salesman at the car lot down the street to give me $100,000 for my used pickup truck. But he’d laugh me off the lot, simply because that’s not the market value.

“Okay,” you’re thinking. “I understand market value isn’t the same as asking price. But can’t I just discount the asking price to arrive at market value? And if so, how much should I discount it? 10%? 20%?”

My answer is no – you can’t use asking price to determine market value. It’s all but useless. Here’s why:

I looked at the price difference for metal working machines sold at auctions (remember, this is market value) versus those sold at retail (or asking price). Specifically, I pulled six months’ worth of data and only compared machines with matching specifications (manufacturer, model, size, year of manufacture, etc.) that were sold at auction and also listed at retail during the same time period.

The results of the study only proved the obvious – that retail asking price is generally higher than auction price. What it did not show was any consistent discount between retail and auction price. The retail price difference ranged from 5% to 40% higher than auction price. There was and is no bullseye discount factor.

You cannot rely on asking price to determine market value.

Changing topics, let’s look at the market for the third and fourth quarter of 2014:

The number of auction sales remains steady. However, while the number of sales is on pace with the past few years, the number of items per sale remains low. Gone, probably forever, are the 600 – 800 lot sales that used to come along five to ten times each month. Now, most sales are running at 200 – 400 lots per sale.

The market for good metalworking and plastic machines remains strong. The reason is a combination of limited inventory available of good machines, long lead times for new machines, and re-shoring – i.e. the return of domestic manufacturing to North America.

Of all the industries we cover:

Metalworking
Woodworking
Plastic
Hi Tech/PCB
Printing
Textile
Food and Chemical Processing
Post Audio/Video

The printing industry is not doing well. Every month or so, there seems to be a big Goss or Harris web press – 2 color – 6 color – 8 color – selling for at or close to scrap prices. In August and September, there were a 7 color Goss, an 8 color Goss, and a 5 color Harris that each sold for between $10,000 and $16,000.

The large sheet fed presses, Heidelberg and Komori, are doing better, although their prices are down from several years ago by 25% to 30%. Digital presses that were the rage a few years ago, but in reality are glorified copiers, are not holding their value. Along with printing presses, bindery and mailing equipment prices are also soft.

There are a couple of reasons for the decline in value for the large web presses. The first is that the general decline of the printing industry and the new technology has made old style printing obsolete. (A case in point is the MTS journal, which you are now reading via one of your many electronic devices; several years back the journal was printed and mailed to you. That’s right, you used to get ink on your fingers while paging through the ASA-MTS Journal.) Just as important is that, while the above referenced Goss and Harris presses were old (1970s vintage), they were also technologically obsolete. A newspaper or commercial printer cannot afford the make-ready, and manning required for these old presses as compared to the speed and efficiency of a newer press makes ownership untenable. Hence, except for possibly third world countries, the Goss and Harris presses of old have no place on the floor of the printing industry.