A snapshot of the used construction equipment market to help you make educated decisions.

DIGGING THE DIRT ON USED EQUIPMENT

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Welcome to GoGetta Equipment Funding’s snapshot of the secondhand equipment market, to help you make informed decisions.

For small business owners, it can be difficult to strike the balance between taking opportunities to grow business and investing in the equipment to support growth.

The construction industry has specific challenges, including high-cost tools of trade. Investing in secondhand equipment is a sound tactic to help manage costs, but new and even established businesses can find it difficult to secure traditional finance for equipment. Rent-to-own funding is specifically designed for this industry, making it an ideal option.

GoGetta Equipment Funding, in partnership with constructionsales.com.au, has collected pricing, depreciation and availability trend data from the past four years.

These insights give a macro view of the market to help inform equipment sales and purchase decisions. To date, there is no other research like this publicly available.

Industry veterans have also shared their insights about the most important considerations for used equipment buyers.

I trust you’ll find this information valuable. Please contact my team if you’d like to know more about how GoGetta can help you capitalise on your potential.

Kind regards,

Kevin Savvas National Sales and Marketing Manager – GoGetta Equipment Funding

The construction industry is a strong part of the Australian economy, with small businesses making up a large portion of players.

DIGGING THE DIRT ON USED EQUIPMENT

Call us on 1800 464 388

Apply online at – www.gogetta.com.au

Photo: Kevin Savvas National Sales and Marketing Manager

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THE INDUSTRY EXPERTSDOUG HUETTDoug Huett has been involved in civil construction, mining and forestry for more than 40 years. During this time he has worked in both corporate and operational roles as a contractor, project manager and consultant across Australia. Doug has managed and operated a wide range of construction equipment and trucks and has considerable experience in buying and selling new and used equipment.

TERRY MOODYTerry Moody has more than 30 years’ experience in equipment finance. Together with David Kiddell, Terry founded Moody Kiddell & Partners in 1981. Terry is the President of the Commercial Asset Finance Brokers of Australia and immediate past President of the Australian Equipment Finance Association.

GREG KEANEGreg Keane is one of Australia’s most renowned construction industry writers and the editor of Earthmover and Civil Contractor. He is well-respected in the industry and has more than 20 years of experience in engineering journalism.

KANE BENNETTKane Bennett is the General Manager of BrisVegas Machinery, an authorised dealer of Kobelco, New Holland Construction and Terex Positrack Loaders equipment. Kane started his career as a sales adviser with Melbourne Tractors in Victoria before moving back to his home state of Queensland with the expansion of the Kobelco partnership and BrisVegas Machinery.

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WHAT DOES THE USED CONSTRUCTION EQUIPMENT MARKET LOOK LIKE?Equipment listed on constructionsales.com.au was valued in excess of $AUD2.4 billion, an average value of approximately $611 million per annum for this site alone.

This data shows excavators are the most frequently listed type of equipment on the secondhand market, giving buyers a large selection to choose from. They are highly versatile and, if managed effectively, can provide a solid return on investment.

The term ‘construction equipment’ covers the pieces of equipment most commonly listed on constructionsales.com.au

TOP EIGHT TYPES OF EQUIPMENT TRADED (BY TOTAL VALUE)

MOST FREQUENTLY LISTED EQUIPMENT BY TYPE

BACKHOE LOADERS

$88m 1,980

DOZERS

$428m 2,547

GRADERS

$377m 2,758

MACHINE ATTACHMENTS

$19m 2,824

ROLLERS/COMPACTING

$141m 2,891

WHEEL LOADERS

$480m 4,478

SKID STEER LOADERS

$152m 5,563

EXCAVATORS

$759m 12,320

By value, excavators make up the largest proportion of the used equipment market.

MOST COMMONLY SOLD TYPES OF EQUIPMENT

Excavators are also the most frequently

listed equipment type.

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WHAT MAKES UP EQUIPMENT ‘AGE’?Even though a machine’s age is an important factor to consider, it’s critical to also understand hours the machine has worked. Even then, there are still a number of variables that affect the quality and condition of the machine.

Two 20 tonne excavators may both be three years old and have both done 3,000 hours, but 3,000 hours of rock breaking causes different wear on a machine than 3,000 hours of digging and tracking. This is why it’s critical to thoroughly review the working history prior to purchase.

HOW DOES EQUIPMENT AGE AFFECT PRICE?In terms of business value and resale value, secondhand construction equipment can be a solid investment. The average list price drops by just 3.5 - 6.59% year-on-year. By comparison, a motor vehicle depreciates at a rate of roughly 15% per year. Across all equipment types, value is held well for around 15 years. Dozers and rollers/compacting equipment tend to hold their value the most, while wheel loaders have the highest average depreciation year-on-year.

DOZERS

WHEEL LOADERS

GRADERS

EXCAVATORS

ROLLERS/COMPACTING

BACKHOE LOADERS

SKID STEER LOADERS

Average depreciation of equipment type (year-on-year)6.59%

4.59%

5.79%

4.5%

5.20%

4.09%

4.70%

3.5%

WHEEL LOADERS

DOZERS

BACKHOE LOADERS

SKID STEER LOADERS

GRADERS

MACHINE ATTACHMENTS

EXCAVATORS

ROLLERS/ COMPACTING

GETTING MAXIMUM VALUE FOR YOUR INVESTMENT

When looking at the machine you’d like to buy, plan the depreciation. Get a rough valuation of what the machine is going to be worth when it comes to the time you want to sell.

KANE BENNETT

Everything you’re looking for when shopping for a machine is going to be the same thing that others look for when you’re looking to sell. Maximise the value of your purchase by choosing wisely and appraising the piece of equipment effectively, then take good care of your machine and service it regularly.

DOUG HUETT

DOUG HUETT

Be guided by any oil sample analysis history available. If there is no history available, start sampling on a regular basis, that is every 250 hours for engines and every time the oil is changed for other components. Any component that has done upwards of 10,000 hours is likely to need attention in the near future. You may get an extra 2-3,000 hours but you need to ready and able to replace or repair major components and these can potentially cost up to $40,000.

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HOW DOES THE AUSTRALIAN DOLLAR AFFECT THE PRICE OF YOUR MACHINE?When equipment dealers are deciding how much to pay for secondhand equipment they take into account a broad range of factors, from volume of equipment on the market at the time to fluctuations in the currency market.

“In recent times the movement in currency values has meant that the price of new equipment has increased significantly across the board, making secondhand gear more attractive. This can push up secondhand prices. The currencies we tend to look at are the US dollar, the Yen and the Euro,” Kane Bennett says.

This example shows how currency fluctuations can affect secondhand prices:

If the Australian dollar is weak against the Yen, a new piece of Japanese equipment becomes comparatively expensive. As secondhand gear becomes a better option, this will increase the demand and push up the prices of secondhand Japanese equipment.

So, if you’re buying at a time when the Yen is strong, perhaps consider European manufacturers instead.

AVERAGE PRICE OF USED CONSTRUCTION EQUIPMENT

Average price by type.

DOZERS ($168.1K)

GRADERS ($136.9K)

WHEEL LOADERS ($107.3K)

EXCAVATORS ($61.6K)

ROLLERS/COMPACTING ($48.7K)

BACKHOE LOADERS ($44.6K)

SKID STEER LOADERS ($27.3K)

MACHINE ATTACHMENTS ($6.8K)

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IS THERE A BEST TIME TO BUY?The federal election slated for 2016 and the $8 billion of government spending earmarked for infrastructure in the 2015/2016 budget creates an opportunity-rich environment for the industry and subsequently the secondhand equipment market. Large government projects have the potential to cause movement between ‘layers’ of the market, resulting in more equipment to be bought and sold.

Equipment finance expert Terry Moody says the seasonal availability of secondhand equipment is driven by project supply and demand.

Businesses only buy equipment when there is the work to support it. For instance, people don’t generally buy equipment in January as there isn’t a lot of work around.

“Key factors influencing market seasonality include government incentives and major projects.

“A few years back there were government incentives where a business could claim an extra 40% on top of their usual deduction for new equipment. The roll-on effect was that it brought forward the acquisition of new equipment for the larger companies and they were selling off their used equipment. So there was an influx of high quality, secondhand gear on the market.

“When the larger players take on projects like WestConnex and airports, they vacate the residential and commercial work. This leaves space for the smaller businesses to step up a layer and take on that body of work.

“When things are slow, everyone steps down a layer. When the workflow is solid everyone steps up a layer.

TERRY MOODY

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Key legal and compliance considerations that buyers must take into account include:

• Safety standards. For example, does the machine have a ROPS cab; if it’s an excavator does it have a quick hitch mechanism on the boom?

• Environmental standards. Does it comply with Tier II or Tier III emissions standards?

• Presence of compliance plates.

The Construction & Mining Equipment Industry Group (CMEIG) recommends checking:

• Make, model number, serial number and year of manufacture.

• Any claimed warranty on the machine, ensuring there is supporting documentation.

• Whether safety equipment fitted to the machine meets Australian standards. Check the Standards Australia website for details.

• If it is an excavator, does it have a ROPS cab? If so, is there an OEM (original equipment manufacturer) compliance plate?

• What emissions standard is the engine built to?

Thoroughly checking what you’re buying is essential to avoid buying non-compliant or unsafe equipment.

LEGAL AND COMPLIANCE POINTS YOU NEED TO KNOW BEFORE BUYING

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MATCHING EQUIPMENT AVAILABILITY TO WORKLOADStriking the balance between available equipment and work pipeline is a challenge and if you get it wrong, it can cost your business dearly in missed opportunities or stagnant equipment.

Industry veteran Greg Keane says, “A key part of matching your workload to machine availability is understanding the production cycles of your equipment. The production cycle is the time taken to complete a full cycle of whatever repetitive task the machine is performing.

“For an excavator digging and loading a truck, it is the time from when the bucket breaks the ground through to when the bucket is crowded, raised from the ground, slewed to the truck,

discharged and then returns to the dig position,” Greg says.

“With the combination of the bucket capacity and the number of cycles that can be completed in an hour, the maximum theoretical capacity can be arrived at, and this goes a long way towards knowing whether the machine is matched to the task being undertaken.

Equipment dealer Kane Bennett adds: “Stay focused on the main work you want from that machine. You want a piece of machinery that does 90% of the job brilliantly and gets by on the other 10%. The last thing you want is something that does every job at 50%. Figure out what the bigger portion of your job is and cater to that.”

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1. Ensure the machine does everything you want it to; keep your end goal in mind.

2. Check the wear on the controls. A tell-tale sign of use is how much wear is on the pedals and the other controls.

3. Ensure there is a well-documented service and working history. For example, if a machine has been working in a copper mine or salt/saline conditions, it is likely to develop rust quicker than those machines used in other conditions.

4. Get a valuer to look over the machine.

5. Do oil testing on the machine. The levels of certain elements (iron, chromium, copper, tin, etc.) can indicate component wear. For example, tin in the engine oil can indicate bearing wear.

6. Acknowledge your first impression of the machine. If it looks well-maintained from the outside, there’s a good chance the inside has also been taken care of.

WHEN CHOOSING SECONDHAND EQUIPMENT, OUR EXPERTS SAY…

TOP TIPS ON HOW TO ASSESS A MACHINE PROPERLY BEFORE BUYING

One of the main things you’re looking for in a piece of secondhand equipment is something that you’re going to easily get parts for, so stick with the well-known, well-supported brands.

Secondhand equipment is so varied. If you’re looking for something to run in your backyard, then something very cheap with higher hours will be fine. If you want to go and contract it out, you’ll need to spend more money on a machine with lower hours.

KANE BENNETT DOUG HUETT

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If you want to reduce your initial outlay and manage tax effectively, consider GoGetta's unique rent-to-own funding model. It provides a strong path to ownership, so the business is building equity in the machine with each payment.

Under GoGetta's flexible model businesses can rent a machine for a set period after which they can choose to purchase the machine outright for a generous reduced rate,

return it and end the agreement or return and choose a different machine.

Rental payments are 100% tax deductable.

GoGetta Equipment Funding has published another white paper comparing the cost differences between long-term rental of construction equipment and rent-to-own. Click here to download.

TRADITIONAL HIRE VS RENT-TO-OWN

HOW MUCH DOES IT COST TO RENT-TO-OWN?

GoGetta is 33% cheaper and you can build equity in your business

One year of rental with GoGetta for

the cost of 17 weeks of hire

EXCAVATOR (20 TONNES)KOMATSU PC200 PP - $130,000

SKID STEER LOADER (LARGE)CAT 226B PP - $30,000

Rent-to-own HireWeekly $1,634.52 $2,420

Per-hour $43.01 $63.68

Rent-to-own HireWeekly $384.42 $1,210

Per-hour $10.11 $31.84

RTO

HIRE

RTO

HIRE

TOTAL RENT FOR 12 MONTHS (INC GST) $60,000

NET RENTAL COST AFTER 28.5% TAX DEDUCTION AND GST CREDITS $39,000

TOTAL YEAR ONE CASH COST OF OWNERSHIP $104,000

NET YEAR ONE CASH COST OF OWNERSHIP $4,000

* Assumes applicant is entitled to full input tax credits and income tax deductions within the 12 month period. GoGetta does not provide legal, tax, or accounting advice. See your tax advisor for details.

Your weekly rent

$1,153.85Total Upfront Cost

$6,004.23Purchase price at 1 yr

$65,000

$4,615.38Security Bond (4 Weeks)

$235Documentation Fee

$1,153.85First weeks Rent

The Breakdown

$100,000 worth of equipment

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GoGetta Equipment Funding Pty LtdA Division of Silver Chef Limited

Park Tower, 20 Pidgeon Cl, West End QLD 4101PO Box 1760, Milton BC QLD 4064

P 1800 464 388 F 1800 884 431 E applications@gogetta.com.au

ABOUT GOGETTAGoGetta is a division of the Silver Chef Group, an Australian publicly listed company that for 30 years has helped thousands of small and medium business owners fund their commercial equipment needs.

The quantitative data in this white paper is sourced from 115,098 equipment listings in 138 user-defined equipment types for the period between August 2011 and July 2015 from constructionsales.com.au.

CALL US ON 1800 464 388

APPLY ONLINE AT ‒ WWW.GOGETTA.COM.AU

Disclaimer

The information provided on and made available in this e-series does not constitute as business advice. The information is of a generation nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. GoGetta Equipment Funding recommends that you obtain your own independent professional advice before making any decisions in relation to your particular requirements or circumstances.

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