The weak pound has opened up a good export market into continental Europe for used machinery
A weak pound has got UK plant hirers excited at the prospect of offloading excess machinery into the European market, but some commentators say it will have darker long term implications.
Just a year ago, plant hire companies were happily buying new machinery to satisfy a glut of work, but now that kit is underused and its owners are looking to sell it to free up much needed cash.
With the pound down to a level that it almost matches the Euro, selling machinery onto the continent has become a very attractive prospect. Sellers and buyers alike are seeing good deals with hardly used second hand machines going at auction for much less than the price of new plant.
Off-Highway Research senior consultant Colin Timms estimates that good condition equipment can sell for up to 50 per cent below the cost of new machinery. However, he says, a weak pound is also a tantalising prospect for the seller.
“If the value of the pound has fallen by 30 per cent in the last 12 months, from a UK rental point of view, you can almost get back what you paid for machinery in the first place,” says Mr Timms. “If hirers are seeking to get cash, then they will sell into the Eurozone.”
Alongside Spain and Ireland, the UK has suffered a sharper slowdown than its European neighbours which, ironically, has given plant hirers the unexpected benefit that their underused kit happens to be in good condition.
Ironplanet launched an online construction equipment auction house this year and has so far held two sales. “Cash is once again king,” says managing director for Europe Tom Cornell. “Europe has seen an unprecedented growth over the last 10 years and everyone has enormous fleets of equipment. Demand for new equipment has been subsidised by the amount of work and the availability of money. But now people are under enormous pressure to find cash because of fixed overheads. The challenge is to dispose of it at book value.”
If the Eurozone is an attractive market to offload used plant, is the same true for new machinery?
Suppliers may get a more favourable exchange rate for their kit, but machinery manufacturers assemble parts imported from around the world. The hydraulic components for excavators, for example, are often made in Japan and are sensitive to the value of the Yen.
“If everything you used was 100 per cent British, then manufacturers would benefit from the weak pound,” says Mr Timms, “but you have the added cost of bringing in all the components.”
Despite the higher cost of imported components, Construction Equipment Association technical consultant Malcolm Kent says the weak pound is still favourable to manufacturers.
“You don’t get all of the benefits from the weak pound, but what you’re selling outweighs the cost of the components,” he says. “What would be really good for UK manufacturers would be to have a couple of years where we have a strong market in Europe with a low pound. Unfortunately, manufacturers are not selling large volumes of machinery so they can’t cash in on the weak pound at the moment.”
The implications of a weak pound, and the crazy deals it brings in the second hand market, are exasperating the current situation for continental machinery makers.
Auctioneers can have a huge influence on the price of equipment. European buyers look to sales such as Ritchie Brothers’ auction in Rotterdam as an indicator of the price of new equipment.
“The problem is that it depresses the prices that manufacturers can get in the European marketplace,” says Mr Timms. “In normal times, auctions serve to recycle equipment, but in times of depression they can distort the market. There are a lot of machines now going through the auction process – people are disposing of them because they have got them stockpiled.”
If the manufactures feel the pinch from an unstable exchange rate, this is magnified among their dealers. “It makes it far more expensive for them to sell machines, especially in a declining market,” says Mr Timms. “They’re all under a lot of financial pressure at the moment.”
A weak pound might alleviate some of the problems plant hirers are currently encountering with a slow market. It enables them to unload underused or redundant kit from their yards to European customers looking for a bargain. Just as customers have traditionally looked to German and Dutch sellers for high quality, well maintained machinery, so they are recognising that the UK is a good source of well-priced, nearly new kit.
This burgeoning trade will free up some cash to deal with fixed costs in a time when customers are not coming through the door with the same frequency that they have in recent years.
However, Mr Timms warns that the favourable exchange rate could have hidden problems for buyers of used machinery.
“The customer might buy a product from a dealer who goes out of business in 12 months and then can’t get the service on that machine,” he says. “Manufacturers and customers all like stability in the market place.”