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November 7, 2018 11:00 AM, EST

Opinion: Including Auctions in the Asset Management Plan

Owners of fleets or dealers with large inventories of tractors and trailers must have a disciplined approach to turning those assets into cash at the end of their depreciation schedule or inventory life. These assets represent some of the largest investments these parties make, and the equipment depreciates every day. The goal is to maximize return on investment and divest when the time is right.

Oliver

Oliver

There are four main channels to remarket these assets:

  1. Retail directly to the public.
  2. Sell as a wholesale package to a broker/dealer.
  3. Trade to a dealer as part of new equipment purchase.
  4. Live auctions.

Fleet owners are in a great position to use each of these channels, but there are complex tax and other implications to consider.

If a fleet owner chooses to work with a dealer to trade or sell assets in large groups to a wholesale broker, they must keep in mind that each piece of equipment is usually treated the same. This means they may be required to invest in some of the pieces of equipment to bring the units up to trade terms. If they choose to sell units themselves in a retail setting, that requires an investment in facilities and manpower that adds an entirely different layer of potential problems: financing, warranties, comebacks and other added liability.

The auction channel is a great way to maximize the revenue on the sale of these assets. With the auction method, selling costs are fixed. In a public auction every individual piece of equipment stands on its own. Pre-qualified buyers purchase the units as-is and where-is and the seller is out of the loop — except for cashing the check — once the unit is consigned to the auctioneer. An auction is truly an “arms-length” transaction for the consignor. Many large, well-known fleets sell nearly all their retired equipment in live auctions.

For tractor and trailer dealers, “retail first” is the name of the game. They make huge investments in facilities, people and inventory, and must maximize their return on investment or they won’t survive. According to ATD, a division of NADA, the average dealer turned their used inventory 3.4 times in 2017. One way for them to boost ROI is to increase the number of turns per year. Whatever rule a dealer sets for allowable inventory age it must be the drop-dead date for it to be gone. If a piece of inventory reaches a predetermined age and hasn’t sold, it’s time to move it along.

We know of a large dealer group whose annual plan calls for 10% of the inventory to be sold at auction. For this and other dealers, auction is part of the plan — not a last resort — for inventory management. Plus, a strict turn management plan will compel other departments to perform; from reconditioning to detail, everyone should know that the clock starts the second the unit hits the books. Equipment not being utilized is frozen capital. Depreciating assets that are not producing revenue or delivering ROI are just costing you money.

Most auctioneers are willing to work with a dealer on large trade-in packages to determine estimated auction values and transport the equipment to the auction site.

The sale of transportation equipment at a live auction offers predetermined selling costs and a guarantee of cash for equipment on a specified date. If you haven’t done so, investigate the auction channel as part of your remarketing strategy. It’s an option that can help your results.

Steve Oliver serves as the national director of sales for Taylor and Martin Auctioneers, which specializes in sales of over-the-road tractors and trailers.