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Directional drill resale values and how to get the most for your rig

Wide resale value disparity among brands

Sep-2010

There’s a lot to consider when purchasing or leasing a horizontal directional drill — features, durability, support, training and overall value. But one area often overlooked is the potential resale value of the unit.

Too often contractors will overlook the potential value of the machine after its useful life in their operation is over. In addition, as more contractors utilize leasing as an acquisition strategy, resale value becomes a more important component in the purchase decision.

“More of our customers are gravitating to a lease when acquiring underground equipment,” says Jon Heinen, underground business manager with Vermeer Corporation. “The higher the residual value on the drill you plan to purchase, the lower your monthly payments. This can have a major impact on a customer’s business.”

Based on this trend Vermeer has spent considerable time researching industry resale values and the impact they can have on the purchase decision. Cost of ownership is also becoming a large part of the equation for customers, whether it’s a three-year lease or you run it for 10 years.

Resale value is going to be more important for a contractor who turns their equipment over every three to five years compared to one who may utilize the drill rig for 10 years. However, resale value should still be a component of the purchase decision for the contractor holding their equipment longer, as that piece of equipment may be worth X percent more than a competitive unit and that translates into a better trade-in value.

What affects resale value?
Heinen says a number of factors can influence the resale value of a drill, but three rise to the top.

“Manufacturing, quality control and dealer support have a significant influence on the resale value of a drill rig,” says Heinen. “A robust physical steel structure and undercarriage are the foundation of the drill and have a significant impact on the structural integrity of the machine long-term.”

Quality control is another factor that ties into resale value. A number of manufacturers employ an independent quality control team to inspect each machine making sure it meets minimum quality standards.
A complete maintenance history also helps to positively impact resale value. Knowing the machine has received scheduled maintenance and wear items have been replaced are big advantages in the eyes of the buyer.

Another driver is the condition of the rod. Drill rods is a major investment and plays an important role in the value of the drill. Rods that shows excessive wear for their age may have a negative impact on the value of the directional drill.

“I believe the other driver is the dealer network and dealer support,” says Heinen. “The quality of the local service technicians helps maintain value in the purchase. In addition, dealerships that invest in training and provide training to customers can factor into the resale value as well.”

Resale value varies by brand
We understand that resale value is important, but how much does it fluctuate between manufacturers? Quite a bit according to Vermeer.

“We reviewed 167 directional drill sales at auction during a 12-month period and discovered that resale values on 7- to 8-year old rigs could be as much as 55 percent higher depending on the brand,” says Jody Rindels, market assessment specialist with Vermeer. “The price of the higher-value drills averaged $28,196 compared to $12,575 for the nearest competitive unit. We also noticed that resale values vary by the size and location of the drill rig.”

Resale values for drill rigs sold in the Midwest varied by as much as 65 percent while those sold in the south were nearly identical. The difference in resale values from one competitor to the next in the small-drill category was 38 percent while medium-sized drills varied by as much as 47 percent.

New game in town
So how do you get the most value for your directional drill? There are more outlets today where you can sell your equipment, but you need to understand the pros and cons of each.

“Dealer trades are still the major outlet for used directional drills,” says Heinen. “However, we are seeing a definite trend towards auction houses and online auctions.”

Auction houses, such as Ritchie Bros., typically hold their auctions at a physical site where the equipment is organized and prepped. Prospective buyers are encouraged to test and inspect the equipment prior to the auction date.

Depending on the auction house some will parade the mobile equipment in front of the bidders so they can witness the machine in operation. It’s also important to know if the auction is reserved or unreserved. Unreserved auctions don’t allow the seller to set a minimum bid or reserve price, meaning every piece of equipment is sold to the highest bidder that day regardless of the price. Some auctions also forbid the seller from bidding on their own items. Buyers can attend the auction in person or bid using an online system.

Another option is to consign your directional drill to an online auction like IronPlanet®. Rather than transporting your equipment to the auction site, the equipment remains at the seller’s location until the auction is completed and the equipment is sold. The company has a team of equipment inspectors who conduct a detailed inspection of key components, photographs, selected wear-related measurements and if appropriate, oil / fluid samples for analysis.

The equipment is marketed to prospective buyers around the world. On auction day the equipment is featured for three to six minutes for potential buyers to bid. Once the equipment is sold, the auction company handles the payment process and the buyer arranges for transportation.

Auctions aren’t the only way to market your equipment to a global audience. Typically, your local dealer knows of other customers who may be interested in your unit. Better yet, some manufacturers offer a system that allows dealers to market your older unit to the manufacturer’s global dealer network, further expanding exposure for your directional drill.

What to consider
While there are a number of advantages to auctions you need to remember that you may not get the price you were hoping to receive. In addition, the funds you receive for your directional drill may be considered taxable income. With a trade in, you’re guaranteed an amount and the trade value is not taxable, but some dealers may not have a system to share used equipment with other dealers in the system.

“I encourage customers to use the Internet and research the value of their drill,” says Heinen. “You can go to a number of the online auction Web sites, search by model number and year and get an idea of what you can expect to receive in a trade or outright sale. But getting the best resale value still goes back to the original purchase. It’s important to invest time up front researching the difference in resale value between different brands and incorporate this information in your buying decision. The extra work could mean a lot to your bottom line.”