In several articles that I have written over the past few weeks, I have gone into auction sites and noticed that used equipment is selling for pennies on the dollar. This is heavy equipment, machinery, agricultural, mining, construction, cooking and restaurant equipment.
It used to be that there was quite a bit of parity in auctions. The largest heavy equipment auction site in the world (as far as I know) is Ritchie Brothers (RB, Financial). You will see 50 ton bulldozers, 50 foot cranes, eight-tired tractors and all kinds of things used in construction and ag. The bidding is live and streamed so people from all over the world are viewing this. I have been to auctions in the U.S. and watched equipment get sold to Saudi Arabia and China.
In the past, much of the equipment went for what it was supposed to. Sure, there were deals but you had to keep your eyes open and watch everything. Now, you can buy slightly used equipment for half off. Imagine buying a brand new Caterpillar (CAT, Financial) bull dozer or John Deere (DE, Financial) combine for $400,000? Now, you can buy one of these items, slightly used with maybe only 1,000 hours of time, for half off. Since I have been writing these articles, the only major news source that I have seen report on this phenomenon is Bloomberg.
According to this web site, a brand new Kubota M76060 goes for $39,160. This is a fantastic small utility tractor that would be ideal for a small farm, someone with some acreage, or even an amusement park. At an auction at Ritchie Brothers in Maryland, a four wheel drive with a front loader went for $27,500 and had only 431 hours. That is like buying a car with 8,000 miles. Why would anyone want to buy a brand new Kubota or even buy stock in Kubota (KUBTY, Financial) (KUBTF, Financial)? There was an unused Caterpillar 302E L excavator that went for $165,000 and only had 10 hours. I see on other equipment web sites, the same excavator is going for up to almost $300,000 and have at least 1,000 hours of time. Again, why buy brand new or buy Caterpillar stock?
I keep checking these auctions to see if these are one-off good deals that I have stumbled upon or a trend. At a recent restaurant liquidation in West Virginia, a double-stacked Hobart rotisserie went for $201. Here is a link for a new Hobart rotisserie where just one, not two, retails for $11,352. If it is broken, you call out the Hobart man and maybe the bill is $500. So why buy new? Why buy stock in Illinois Tool Works (ITW, Financial)? These are the rotisserie chickens you get at grocery stores.
Upon speaking with people in the restaurant and heavy equipment industry, I found that they are experiencing the problems that I have mentioned. One fellow who owns a junk yard told me that many people will use their credit cards to buy tires instead of cash. They need the cash to gamble with at casinos. This has been going on for quite some time, so does not explain the recent drop off. Another explanation for the glut in restaurant equipment is that the onerous regulations have thwarted people from opening new locations.
So here are a few explanations for what this could mean for the overall economy. The first is that this is just a coincidence and means absolutely nothing. I have just stumbled on a few things that are selling at a bargain or that the industry will snap back. The second explanation is that this is secular, only affecting agriculture, construction, mining and restaurants. The third is that this is the beginning of demand dropping off in hundreds of industries and that this problem has not shown up in the overall economy: in GDP numbers, CPI, Dow Jones Industrial Average and the many of hundreds of other gauges that we use to check the temperature of the economy. In a previous article, I noted that Middleby (MIDD, Financial), a top-notch restaurant manufacturer (Viking, Blodgett, Southbend), has not experienced any slowdown as of yet in revenues or earnings.
This phenomenon has been noted in energy and mining. But much of this equipment is not used in those industries. A Ritchie Brothers in Colorado has been doing quite well with the downturn in energy. When doing a search on Google about used restaurant equipment, nothing comes up.
Perhaps this is the beginning of something that is affecting the global economy and has not shown up in government statistics and quarterly reports. Or, it could mean nothing and just a few bargains that are out there.
Disclosure: We own none of the stocks mentioned.
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