Economic Quarterly Report
- October 01, 2018
- June 13, 2017
- March 10, 2016
- May 21, 2015
- October 24, 2014
- May 28, 2013
- July 6, 2011
- February 24, 2010
- September 9, 2009
- November 3, 2008
- November 17, 2000
Was kind of waiting for the dust to settle before making any observations. It appears that business in general is doing fantastic, which may be a hangover from the end of the last Administration and continuing in the Trump Administration OR that business is confident that they will be in a business friendly environment for the next 2 years. We have been saying for the last 10 years that industry has to come back to the U.S., but it is not just that we want to reduce our trade deficit (which was a trade surplus prior to 1990) but for the following reason:
Over the last 10 years, we are losing our middle class. With the middle class squeezing smaller, there is going to be fewer buyers of goods with disposable income to expand our economy. Our economy is becoming: You are either the CEO of Amazon or you flip burgers. Not all kids are going to become Bezos, Zuckerberg or Paul Allen; where they amass fortunes thru Internet applications that did not require any original huge cash outlays.
So what does a kid do that doesn’t have the Bezos I.Q. or the money to go to Stanford?
Where he used to go to was a manufacturing operation and started out pushing a broom, then he became a Machine Operator, then a Shift Foreman, then the Plant Manager and if he had the smarts, he would move into management or possibly go out and start his own business.
All along the way he was bettering his lifestyle and living the American dream. There was always HOPE to better himself because he had seen others do the same in the manufacturing operations. There was HOPE.
The lack of hope has created enormous social problems.
So if you are wondering why I have been so dogmatic about bringing industry back to the U.S.; it is because it provides realizable hope to better yourself.
Now the problem. If you are Cisco and you have moved all your operations offshore; you are provided with the following option: “I can bring back all my money to the U.S. and launder the money for a 10% surcharge. I can now have a Federal U.S. tax rate of 20% instead of 32%.”
“So let’s say I do that and the next Administration reverses that offer to me. Now what?”
There are a lot of people who are vested offshore, and are against the Tariffs because they fear it would be a short-term event, and “I am not about to pack my bags, come home and then have the U.S. drop the hammer on me.”
Major Change - Probably over the last 10 years, we have hailed the food industry as invincible. It’s not that people have stopped eating, but how it is presented to the public has changed. For over a 100 years, food has been preserved and sold to the consumer in a can. It has now become “trendy” to present the product in a see-thru pouch. A pouch does not have the longevity holding time as a can, but it is “prettier.” For the last 5 years, we know this was out there; kind of like digital printing compared to solvent-based printing.
A 3-Shell can cooker/cooler consists of (3) 6’ Dia. X 40’ heavy steel shells with tubes that look like an Autoclave. The product such as Spinach is blanched, fed into a Filler that fills the empty can with the product, then goes to an Angelus Seamer that seals the lid, then goes by Conveyor to the Cooker Shell which rotates the can thru a Spiral Can Conveyor that slowly cooks the product, then rotates into the Cooling Shell, then feeds into a 2nd Spiral Conveyorized Cooling Shell, comes out the last Shell and goes to Packaging.
The rub is that this process of canning has been going on in all countries for over a 100 years – so every Country has enough Cooker/Coolers to meet its demand. We sold a 4-Shell Cooker/Cooler 5 years ago at auction for $650,000 to a South American Company. We bought (5) Cooker/Coolers (16 Shells) this year along with other equipment and the highest price we got for a 3-Shell was $70,000. Seneca Foods is selling 100-Shells this October in Modesto, CA; so you can see where the market is going.
With a Form-Fill-Seal Machine, which you usually saw filled with dry products such as nuts, snacks, etc. the pouch is now being used to hold liquid product. With a Form-Fill-Seal, the bag has been pre-printed, feeds up to a tube that opens the plastic bag, the product is fed into a scaled weight bag, maybe Nitrogen-filled to increase shelf life, top sealed, cut-free and drops to a carousel or conveyor for packaging.
So you can see that the process is a smaller footprint, visibly attractive and a less involved process.
But you now are eating a product that has been stored in plastic and maybe induced with Nitrogen compared to a sanitary can that could have an unlimited shelf life.
Digital Printing is not as pretty as a solvent-based printing but it is cheaper.
AEROSPACE - MACHINE SHOPS – SHEET METAL
In March 2016, I mentioned my concern about Lockheed manufacturing and selling F-35’s to our Friends? Our Friends were “Britain, Canada, Australia, Norway, Netherlands, Italy, Denmark & Turkey.” I said “But, of course our Congress would not allow these planes to be made outside of the U.S. or would they? Boeing has had the same problem with outsourcing 787 work to other countries and now Lockheed is having the same problems with the F-35. I also have a huge problem with Turkey and its proximity to Russia. A friend today could easily be an enemy tomorrow.” To magnify this we have also set up an F-35 manufacturing plant in Turkey for the Turkish government.
Well Turkey has now broken up their engagement with Trump, Turkey now has a new boyfriend and Putin has come a knocking. The only Country in between Russia and Turkey to get to the Mediterranean Sea is Georgia on the Black Sea. In March 2018, Georgia has made a statement “Georgia is ready to normalize bilateral relations with Moscow.” And what Sea and Country is right next to Georgia? Oh that’s right! – SYRIA and the Mediterranean Sea.
So Aerospace both on the defense side and commercial side is chugging along. But I hope as I said in 2016 “I know Lockheed is building 3 variants of the F-35 and is smart enough to install some type of failsafe in the F-35’s they build for countries outside the U.S.; but the Defense side could be the savior for the aerospace subcontractors.”
In 2016, we talked about P.C.C. buying up all the Aerospace shops at crazy prices, but later became a genius for selling the portfolio to Berkshire Hathaway (although I feel that P.C.C. was just a front for Berkshire Hathaway), which is the continuation of growth by acquisition. The assumption is: it is much less costly to purchase competition rather than compete on price.
The reason I bring this up is because we bought an aerospace machine shop that brought about $900,000 at auction. The prices were good, but only 50 people in attendance and that seems to hold true with all auctioneers in all industries. There just aren’t that many buyers compared to when you would have 250 people at that sale.
So if you are one of the Berkshire Hathaway’s aerospace companies; are you going to buy used or new with all that financial backing that Berkshire Hathaway has. This kind of growth by acquisition is where I see all industries going.In the U.S. how many major players in industries are there?1. Commercial Airline Manufacturing (1) – Boeing2. Food Processing (10) – Pepsi Corp.; Tyson; Nestle; JBR; Coca Cola; Anheuser Busch; Con Agra Foods; Kraft Foods; Smith Foods; General Mills.3. Automotive (3) – Ford; GMC; Chrysler4. Oil & Gas Companies (3) – Exxon Mobil; Chevron; Conoco.
So when you walk in your market and look at the shelves or when you put gas in your car, do you think there is competitive pressure or motivation for innovation? Again, for a capitalistic economy to function, it must have competition – otherwise it is just a wink and a nod to not upset the apple cart.
Printing looks like it has weathered computer design interventions, web newspaper printing, digital printing and business forms. The survivors who have made it have incorporated low cost quick set up digital printing along with their high-end solvent printing. The printing industry has really settled down, but you still have the sticker shock of what a new 28” x 40”, 6-10 color solvent-based Printing Press cost, anywhere from $1.5 to $2 Million. Where a 6-Color Digital Press will cost about $500,000.
So you can see, it is not easy for someone off the street to just walk into this industry.
We just had a printing sale this year in Tennessee and it brought very close to what we figured. We had a (1996) Komori (right below Heidelberg quality) 20” x 28”, 6-Color Press which brought $135,000. Remember a (1996) Press is old because once you set up a Press, it can run continuously for a complete 8-10 hour shift.
But what was interesting: we had a (1996) Man Roland 48” x 56”, 4-Color Paper Board Press that brought $400,000; which was sold overseas. A Paper Board Press runs a much thicker material than a sheet-fed Press, gets beat up, and there just isn’t much demand for it in the U.S. today.
But all in all, the Printing industry looks pretty good if they don’t burden themselves with too much debt.
TRUCKINGFact: Diesel gas is much cheaper to process than gas.
A few years ago gas was cheaper than Diesel, about a year ago it reversed and Diesel was cheaper than gas and today gas is cheaper than Diesel. On our 4-lane freeways, 2 of the lanes are taken over by trucks. I am sure the gas companies look at the future of gas revenues downward spiral due to the popularity of electric cars.
So if that is the case; since trucks take up ½ of the traffic; let’s ram it home to the trucking companies. And just like magic, ALL gas refineries raise the cost of Diesel fuel since price fixing is now legal; I mean ignored, because there is no one to question what they are doing.
But usually, at some point, someone invents something because it will make a lot of money. Someone, like Tesla who harnessed electricity, will find a way to harness self-generating inexpensive power (nuclear) that can be safely contained in a large vehicle like a truck; where they will be able to go 600 miles without stopping to refuel.
All a gas engine does is transfer gas to a spark that ignites an internal explosion in the engine that propels the vehicle. A Hydrogen Pill.
VIRTUAL DESKTOP APPRAISAL
Over the last 20 years, I have tried to explain why I was opposed to Desktop Appraisals. My opposition to a Desktop was not working for less, but instead falsely representing an appraisal value, either high or low, because of inadequate information.
In appraising equipment, there are 2 criteria that are essential:
1. You have sold the equipment at auction, you have appraised the equipment before or you conceptually understand what the equipment’s primary function is.
2. You have physically inspected the equipment.
The 2nd part was what I was having problem with based on an asset ledger with an inadequate description of the equipment: such as equipment marked New in 2014 when the machine was actually New in 1984. This could result in a 200% difference in value which could either bury you in a loan or passing on a deal that you could have done with proper information provided to the appraiser. The CFO’s responsibility is to provide the largest depreciation value he can accumulate on a balance sheet register for tax purposes, which may include items such as installation, sales tax and software that cannot be included in an asset based lending appraisal or the CFO may have expensed off an asset or written off an asset that we feel has value.
It is for these and other reasons that we stayed away from doing Desktop Appraisals.
But I think we have found a common ground, that will cut the cost of an appraisal in half.
VIRTUAL DESKTOP APPRAISAL
With the congestion in Los Angeles: to do a local appraisal in Riverside where it takes 2 hours to get there, 2 hours onsite and 2 hours to get back – we now can do it at our desk for half the price, but we will need the cooperation of a Plant Manager or someone onsite who is familiar with the equipment.
The Virtual Desktop Appraisal will be done on a Face Time Live basis. The Plant Manager will walk thru the plant with an Apple cell phone and a remote earpiece and mic. He will walk up to the machine and either myself or Spencer will ask certain questions such as “now walk to the end of the Engine Lathe Bed so that I can get the Serial Number” or “Does the Vertical Machine Center have Flood Coolant, a Probe – now go to the back of the machine where the machine manufacturer plate is, so that I can get the year and Serial Number of the machine.”
With this method, I have verified the year, got the correct Serial Number of the machine for your documentation, viewed the overall condition; probably seen it running; and finally I have gotten all the particulars on the machine which could potentially add or decrease value.
Would I rather have physically inspected the piece of equipment? YES! Because after 45 years in the auction business, there is a certain gut response you get when you walk into a facility. But I also understand the practicality of providing an affordable service and still minimize the possibility of error. We truly understand the pressure the asset based lender receives from requiring the debtor to do an appraisal, and with this in mind, we have tried to find this common ground.
And this is just for a local appraisal. Now add in airfare, car rentals, hotels and travel time for a non-local appraisal and it can dramatically slash the cost of an appraisal. But this all depends on the willingness of the customer to provide adequate personnel to walk the plant on a Face (machine) Time Live video basis.
We are excited about this service, whereby we can provide a less expensive service without diminishing quality.
T/A has opened a new office in Scottsdale, Arizona in addition to our Los Angeles office, with Spencer Quale taking command of the operation to better serve the growing Southwest and to facilitate travel to the East coast. My son, Spencer, has been appraising equipment for the last 10 years and moved to Arizona when he saw an opportunity for a Southwest presence. With manufacturing fleeing California, the Southwest is the first stop whereby shipping to California can still be an option. Whether the 15 corridor to Nevada or the 10 to Arizona is used, the logistics to ship to California are an option; as compared to the debilitating cost of manufacturing in California.
Secondly; trying to fly out of LAX to get direct flights is becoming impractical if you don’t live in the West side of town. All other Southern California airports are going to be a 1 or 2 stop adventures which thereby result in staying overnight and incurring a 2nd day of travel. By flying out of Phoenix to locations East of Phoenix, Spencer in some cases can make it a 1-day trip; which results in lower charges and less travel time. T/A’s Phoenix Office is located at:
T/A APPRAISAL, INC.
9927 E. Bell Road #130
Scottsdale, AZ 85260
(661) 618-3064 – Cell
INDUSTRIAL QUARTERLY REPORT
I know this is redundant, but at this point in time, it seems to be the one glaring reminder “Business does not like uncertainty;” and I don’t know how much more uncertain things could be as they are right now. It seems like everyone is in a business holding pattern waiting for the thunderstorm to clear.
We just sold Centerline Wheels which was one of the oldest wheel manufacturers in California. In the 80’s - 90’s, there were probably 40 to 50 large wheel manufacturers in California. With Centerline gone, there is only 1 left with another 3 that are producing off shoots of wheel products.
Surprisingly, we had a very good turnout and solid prices, although we had sold the major pieces of equipment and intangibles on a negotiated sale basis prior to the auction.
Auction sales in general are really spotty right now, but there seems to be a trend. We had a pharmaceutical sale in Kansas City with 150 buyers that went thru the roof. We had a pharmaceutical sale in California with 5 buyers that bombed. We had a sheetmetal sale in Prescott, Arizona with 100 buyers that did fantastic. We just sold a plastic blown film plant in Nogales, Arizona with (2016) Chinese equipment that brought double of what we figured.
There seems to be a constant here, which I mentioned a couple years ago. Because California costs 30 to 50% more to do business in; it would follow that the auction prices would be higher; which was always the case from the 1980’s thru 2012. But it seems like the trend has changed. If you buy equipment at an auction in California, it will cost more to transport and install in California as compared buying equipment in Ohio and installing in Ohio. So it appears with all the industry that has left California; there just isn’t a motivation to buy used equipment.
What we are seeing as a general rule of thumb, is that it has to be fairly new to attract anyone’s attention. For CNC, it really needs to be newer than 2010. In some industries such as Food Cookers – Coolers, Seamers, it comes down to maintenance. You may have a 30 year old Cooker that may still bring half of new.
Woodworking auctions are doing well and this is of course is attributed to the housing market plus housing re-do’s since the homeowner now has a little money to spend. Best example: try to get someone out for repairs or kitchen re-do’s to your house.
I was going to write this in the later part of the 2015 3rd Quarter: “That we were starting to see a decline in auction prices and a general downturn in the economy”; which would have been informative at the time. But got swamped thru the end of the year and couldn’t get to it. So I am writing this now but the horse is out of the barn.
But hold the presses, now the oracle from Berkshire Hathaway has declared “we are not in a downturn.” Well, then everything must be all right. Self-serving.At least this downturn was not caused by us, but just by China just over expanding. In May 2013 we wrote:
Well, it is here now. - The problem is that China is probably more like in a decline to 5% and a 50% from 10% growth decline is economy altering for China; especially when China has never been in a recession; unless a bunch of cows died.
This downturn has affected oil, energy & steel but the one that has us all scratching our heads is “aerospace.” Oil & steel are core commodities, therefore affecting a multitude of companies' downstream.
SteelIn May of 2013, we wrote:
Well, I was wrong. The “catch a falling sword” syndrome took place and scrap is down around $100/ton, and for the guy who buys scrap, cuts it up and hauls it to the scrap yard – he is only getting $20 - $50/ton. It’s not that the recycler cannot adjust his net income to buying for $50/ton and then selling to the mill for $100/ton; it’s that he cannot cover his overhead when he expanded his operations and bought new financed equipment. We are just starting to see some of these companies closing down and going to auction.
Then add to this the primary process of Iron Ore Mining. We are starting to see Iron Ore Mines closing operations and mothballing the equipment. It will come down to staying power and or bankruptcy filings with re-organizations with new equity owners.
Aerospace - Commercial
This caught everybody off guard late last year. We all know that Boeing has the orders; BUT Boeing shipped the subcontractor work offshore. It probably stems from the ‘787 Dreamliner’ problem child that continues to be a problem. Apparently Boeing had cost overruns and now has decided to join Caterpillar, Home Depot, etc. and send their work out to the lowest bid. Boeing also gives those countries the incentive of “buy our plane, you do the work on the plane and we will offset your purchase price by your cost of the work you do on the plane.”
Going back to Warren Buffet’s comments that the economy is fine. The last 3 years, Aerospace has been expanding at a tremendous pace and there was a company called P.C.C. That was buying up every aerospace company in the United States and paying hefty sums. All the aerospace subcontractors were shaking their heads saying “doesn’t P.C.C. know that Boeing will not let them be the sole source?” The investors in P.C.C. turned out to be geniuses when they sold to Warren Buffet in mid 2015. So to answer the comment – will Boeing allow a sole source? I guess Boeing answered that by outsourcing to China & other countries.
But, for all you aerospace subcontractors who have been in the business for the last 40 years – “Don’t worry, you can still do some work for McDonnell Douglas.”
Oh, that’s right, our idiots in Congress allowed Boeing to buy McDonnell Douglas and become the only commercial airplane builder in the United States. I will take the over on $50 Million on what it cost Boeing to get Congress to look the other way. This is the reason the Sherman Anti Trust Acts were passed to keep Carnegie, Rockefeller, etc. from destroying capitalistic free trade. Free enterprise thrives on competition. When competition is eliminated, so is free enterprise. That brings us to Defense.
Of course it’s understandable for Boeing to have their aircraft manufactured in China; when the world has changed into an international economy. But there is no way that our intellectuals in Congress will let this happen to our Defense system.
When the F-35 fighter came out, it was and is the most technologically advanced fighter in the world, which gives us superiority in warfare in the air. When it first came out the production was supposed to be 200 per year but Congress said we don’t have the money and cut it back to 20. Lockheed said “what if I can get someone else to pony up to the table and help fund the building of the F-35?” Congress said “Sure. As long as it’s countries we like.” So Lockheed got the following ”allies” to help fund and develop the manufacturing of the F-35 in return for F-35’s supplied to their country: Britain, Canada, Australia, Norway, Netherlands, Italy, Denmark & Turkey. Production is supposedly firing up in August of this year and they anticipate the initial phase will be 200 planes per year, and in following years gearing up to, with international orders, to 1,000 planes per year. But, of course our Congress would not allow these planes to be made outside of the U.S. or would they? Boeing has had the same problem with outsourcing 787 work to other countries and now Lockheed is having the same problems with the F-35. I also have a huge problem with Turkey and its proximity to Russia. A friend today could easily be an enemy tomorrow.
I know Lockheed is building 3 variants of the F-35 and is smart enough to install some type of failsafe in the F-35’s they build for countries outside the U.S.; but the Defense side could be the savior for the aerospace subcontractors.In February 2014, we said:
So let’s look at the cycle:
|April 2000-Mid 2004 decline||– stock market|
|Mid 2004-Mid 2006 expansion||– housing|
|Mid 2006-Mid 2009 decline||– bank failure|
|Mid 2009-2012 expansion||– automotive|
Where each recession from the 60’s on, you would have a decline at the start of the decade of 2-3 years; then an expansion of 7-8 years. Then a repeat in the next decade. With 3 to 4 times more expansion time than decline; it provided an overall healthy economy. But when your ups and downs are the same time duration then: ______________.”
This is a concern. It is very difficult to have an expansive economy when this occurs. How does a C.F.O. do any long-term capital budget planning to purchase new equipment when the next downturn is just around the corner? It all comes down to the same old 20-year problem: All the manufacturing has left the U.S. and more importantly, why would they come back?
This has just been magnified by Boeing sending out its commercial airplane work overseas. Our deficit budget and trade deficit just keeps on increasing; and we are the strongest currency in the world. Go figure. But if you are the C.F.O. of the U.S. Treasury – “would you rather have a tax income of 32% tax rate on $3 Trillion dollars? Or would you rather have a tax income of 20% tax rate on $30 Trillion?”
The real question mark: Aerospace was doing fine in March of 2015, even though you still had to have late model equipment to attract attention. Then Boeing did a 180 on the U.S. and started sending work overseas. Aircraft is probably the last industry beside automotive that can say “Made in America.” When the computer business in the 1990’s mushroomed, it took them about 2 seconds (2000) to move everything offshore. Boeing hung in there but I think the cost overruns on the 787 (the ugliest plane in the sky) was having too much of a negative impact on the stock price.
So the 70/30 balancing act game that the aerospace companies performed between commercial and defense, which they would rotate back and forth with: has just had 1 segment leave. So now it is only defense, which is going to be hanging on the F-35 kicking off and the future Super Bomber which will update the B-2 Bomber. And if you don’t think the new Bomber can be cancelled; then just ask Jimmy Carter. But the F-35 is imperative for the aerospace subcontractors. We are already starting to see these aerospace companies cutting back and closing down. The problem will be on the Gantries. Given that your company is sliding downward, do you buy a used Gantry and then spend a minimum of $500,000 to move and install? The aerospace problem has filtered down to almost all of the machine shop work in California. Those buyers that still have business are going to be very selective on what they purchase and for what price. This is also compounded for the machine shops that do oil work. It is a buyer’s market and they are only going to be very interested in newer equipment.
We had a Midwest Trucking sale which brought in the high $2 Million range. And it was all done online as a timed auction sale. Probably takes twice as long as an onsite sale but the positives for the buyer and auctioneer to not have to travel and instead sit in your office and push a button are quite appealing. The trucks were in the $50,000 - $60,000 range and the van trailers were in the low $20,000’s. So trucking all in all, is still doing pretty good and the gas pricing has really helped them. Diesel is less than regular since it is less expensive to process. So it is now pretty hard to justify when the gas distributors were charging more for Diesel than gas.
Printing & Packaging
Not doing too bad but digital has not taken over like everyone thought it would. Digital’s quality is pretty close to Solvent Ink but a digital is much slower than a Solvent Press. Packaging seems to be the driver right now for printing. The drawing power for developing a packing product that reaches out to the consumers eye seems to reignite the printer, along with Bobst Die Cutting & Folding equipment. You are never going to see the printing industry like it used to be, but it is doing well in this arena.
A slight slowdown that kind of runs hand in hand with machine shops.
Seem to be doing reasonably well especially with the lower cost of resins.
Still the King.
TAUBER ARONS, INC.
T/A APPRAISAL, INC.
Some huge changes (morphing) in the resale of manufacturing equipment. In the past 30-40 years, the machinery dealer had been the purchaser of surplus used assets, move them to their warehouses and then wait for the right buyer to come along. This could be a 10-year waiting period when the dealer would buy on the economic downturn and then resell on the economic upturn. That changed with the conversion of manual equipment to CNC. So with the domination by CNC the machinery dealer had to turn a purchase to sale quickly since a CNC machine’s useful life is limited by technical obsolence, etc.
The machinery dealer in the past had always been partners in a deal with auctioneers, since the dealer would of course hear of the deal first from the customer and then bring in the auctioneer to turn the resale of the equipment to 60 days instead of 10 years.
Then the internet changed all that, when online sales (Ebay format) became an efficient method to liquidate equipment – the dealer realized “I can buy the equipment; liquidate the majority of equipment with an online auction; and then buy back a few pieces that don’t bring enough money and then move the balance to my warehouse.” I got all my money back (plus some profit) and I have a few pieces of equipment at the warehouse for free.
The dealer became a competitor to the auctioneers; and I don’t blame them. So instead of having 25 major auction companies in the U.S., you now have 250 auctioneers now, adding the dealers. So you can anticipate the next step. A company calls 1 auctioneer and 3 machinery dealers to bid on a deal. Are we going to beat each other up or are we going to join forces? Therefore, when you see an auction brochure it has 4 liquidator names on it.
So how long is it going to take for the manufacturer to say “why don’t I just put my surplus equipment online myself?”
I do feel at some point the equipment purchaser is going to wake up when he goes to an auction sale and then 2 weeks later gets another auction brochure, by the same auction company with a portion of the same equipment for sale. So the historic concept of an auction sale selling ‘no limit-no reserve’ has changed and that seems to be the direction it will continue.Second major change is the auction prices for various parts of the country. Although heavy industries are in the Midwest, East and now the Southeast – when you compared auction prices in the past, California auction prices were always 10-20% higher than the rest of the country. This made sense because the cost of living and manufacturing is 10-30% higher in California than the rest of the U.S. But, in the last couple years, things have changed. When you compare auction comps across the country, they are equal to or greater than California. This is really understandable with cost of doing business in California which is forcing companies to leave the State, thereby reducing the amount of buyers for equipment. Florida & California are really starting to show some similarities.
We recently had a machine shop sale and the attendance was marginal. The prices were average, but there just wasn’t any excitement. So we went to a couple other auctioneers’ sales with late equipment and the same thing, about 20-40 people show up, the prices are OK, but again, no pop.
WE all know aerospace is booming and the economy in general is good – so all of us auctioneers are scratching our head, trying to figure out the lack luster attendance of the machine shop buyers. I personally feel it is what we mentioned in the past; “companies are doing well but they are not expanding. Mergers and acquisitions, Yes but expanding, No.”
Just the opposite. We have had about 4 sales in 2 months and the attendance is great (200 people). There is excitement in the air and we see smiley faces; which of course makes sense with housing starting back up. With the attrition that took place in the woodworking industry and the return of housing, there is a ray of sunshine for this industry.
We just had an injection molding sale of 150-700 ton molders and the prices were good. What I want to emphasize is the larger molders were selling well. This is due to the return of automotive. The smaller molders continue to sell well because of medical.
Still the best industry around for resale. There has been a lull in food auction sales, but there has been no drop in demand. Therefore prices have really spiked. We just finished a sale with 2 Urschel 2500 Translicers that normally bring $25,000-$30,000 max. We concluded the food auction sale and Translicers brought $36,000-$37,000 each. Crazy prices for an older used piece of equipment.
CONSTRUCTION – TRUCKING
As you would expect, construction and trucking prices have really returned. With this upswing it might be a little easier for the Air Quality Board to enforce their diesel emissions standards, since companies will have the capital and financing to purchase new equipment. 2015 is one of the first cut-off dates for older diesel engines and although the Board has been giving variances for companies in the past; I think they will start enforcing. The next big year is 2023, when all diesel engines must be 2010 or newer in California.
There has been a huge change in steel scrap prices and this will affect you, the lender, in the sale of old and large stamping and injection molding presses. About 2 years ago we did an auction sale in the Southeast with old (1940’s) Steel stamping Presses when scrap was at $450/Ton. Not at the top of scrap prices at $600+/Ton but still high. When it was at $600/Ton, I mentioned in my reports to watch out, because what goes up – must come down. And it did! Scrap steel dipped down to $230/Ton and leveled off for a while, but now it has dropped to $160/Ton and the recycler will only pay $130/Ton – maybe.
At that sale of (1940’s) presses when scrap was at $450/Ton we were getting $10,000 - $20,000 per press (depending on size) since they were going to the scrap yard. Now at $130/Ton for a guy to cut up a press and transport it to the scrap yard – It may not make sense. And that is what we are seeing at sales. If a piece of equipment is not selling for its intended use – it may not sell – where we used to tell owners “don’t worry everything will sell.”
What does this mean for you as the lender? We are adjusting our values, but you must have a landlord’s waiver and you have to have the right to abandon when you are lending on non-mobile older-larger pieces of equipment.
In February 2014, I referenced “the economic cycles as being 10-year period with 8 years up and 2 years down. But lately the cycles have been 3-4 years. But I felt that was just a “breather” rather than a downturn. I now disagree with that. Even though the stock market, earnings reports on employment rates show the opposite; I really feel that 2013 – 2014 and now going onto 2015 was a downturn. Economic cycles aren’t so much recessions as they are an economic expansion or economic contraction. Those changes are based on where the change occurred. (Reference point) - In 2010 – 2012 it was a huge upturn, measuring from where the economy was in 2009. So, 2013 – 2015 should be measured from where it was in 2012 and therefore a downturn. From the 2012 reference point, 2013 – 2015 is not a recession but it is a downturn.
Where I am going with this is – it explains why you don’t see a large expansion for industry. If you are the CFO and are projecting your capital budgeting plan – how can you venture out very far with the purchase of equipment if there is a possible downturn in 3 years? Business does not like uncertainty.
TAUBER ARONS, INC.
T/A APPRAISAL, INC.
What we had mentioned in May of 2013 and February of 2014 has just continued. The surviving companies are doing well and the economy is growing at 3% compared to 2% inflation. It is not the 6% growth that everybody wants, but that would just create another bubble to burst. So the result is “we are not expanding, but we are upgrading,” as shown in 3 recent plastic auction sales that we had. This cycle happened in all of 2013 and is continuing thru the 2nd opinions that it will improve, but I feel it will just continue. Maybe the mid term election in November may bring about some change, but most likely it will be the 2016 elections that will bring about any substantial change. The same old adage is taking place “business does not like uncertainty.”
But all of a sudden “the U.S. Treasury woke up.” “Hey, where did all our tax revenues go to?” Unbelievably after 20 years of industry leaving the country, the Feds now realized there is a problem. As long as you have a trade deficit, you are going to have an economy that is declining. Dollars leaving the country. You cannot have an economy that is based on housing, the stock market or equity companies trading cards. For our economy to heal itself, we must increase our manufacturing in the U.S. and generate a trade surplus. We have all been saying this to the idiots in Congress who have been the constant for the last 20 years when we have had different party presidents. But maybe the U.S. Treasury will get their ear.
MACHINE SHOPS – 3D PRINTING
Doing fantastic due to commercial aerospace and lately the renewal of the F-35 Fighter. Commercial aerospace probably has another 5 years of good times. What is interesting is the acceptance of the 787 and a composite structure.
In Oak Ridge, Tennessee is The Oak Ridge National Laboratory (O.R.N.L.), which is a division of the U.S. Department of Energy. It is basically a think tank for energy materials. They have joined hands with Cincinnati and a 3D company to produce large parts thru a 3D process. Last report, I had mentioned that 3D printing is the future, but all 3D printing was done in a small chamber. Now at Cincinnati they are taking a laser machine which has a 5’ x 10’ work area and turning it into a 3D Printer (layering) Machine. With Boeing’s “hopeful success” with a composite airplane it has spun the D.O.E. to think in new terms. You can see where I am going with this. Why can’t a Cincinnati Gantry Machine Center be adapted to a 3D Layering Machine for defense and space exploration? Lighter materials, less energy requirements. Taking this one step further, will this be the catalyst to bringing manufacturing back to the U.S.?
Took an odd turn. Amada CNC Fabricators and Press Brakes took a downturn in pricing at auction sales. Amada Press Brakes have always been gold but within the last year, the older Amada Press Brakes are not bringing what they used to, but again late model still will. Good Prices.
This pattern is occurring in all industries. “We are not expanding but we are upgrading – why would we go backwards with older equipment?”
This holds true for most all industries and all auction sales even though you will have some exceptions.
In a period of 1 month, we had (3) plastics auction sales - Injection Molding, Blown Film, Blow Molding.
Apogee – Blown Molding sale in Corona, CA, which we did well on the 2010 Nissei Blow Molder, brought $250,000 and a 2006 brought $90,000. But the Bekums in the 80’s only brought $5,000 to $25,000 and Bekum is the Cadillac for small bottle blow molding.
Petoskey Plastics – was a Blown Film plant in Indiana and consisted of surplus older equipment that did not do well.
DRTS – in San Diego, CA was a late Injection Molder with Milacron 165-250 Ton Injection Molder from 2008 to 2010 brought anywhere from $60,000 to $100,000. The 2010 Nissei 300 Ton machines brought in the $100,000 area. Same song “it has to be late to stir interest.”
CONSTRUCTION – TRUCKING
January 2015, the California Emission Standards are mandating that all diesel engines that are 1995 and older must not operate in California. This will not be a matter of law as much as a matter of enforcement. There are tons of loopholes – so we’ll see. The Dakotas are a magnet for the construction industry with all the gas exploration (fracking); but at some point it will become overloaded and the profit structure will tighten.
Still bulletproof since food companies cannot take the chance of having a label destroyed by overseas contamination.
California is a magnification of our U.S. problem. When Tesla left California to manufacture in Nevada, you had our bewildered Gov. Brown and the other idiots who couldn’t believe why anyone would leave our beautiful weather and go to Nevada.
Federal: Why would someone move corporate headquarters to Ireland when we all know the U.S.A. is the best business environment?
“Business has no nationality patriotism.”
TAUBER ARONS, INC.
T/A APPRAISAL, INC.
’BIG CHANGE – In the last 3 years at auction sales, the first 5-6 months of the year were fantastic. Great attendance, great prices and great enthusiasm. This year 2013, the first 5 months completely reversed. From the auction side, all auctioneers have seen a complete change at auction sales. There is no enthusiasm at the sales, attendance has dropped and prices have dipped a little – maybe 10-20%. But if you are selling the latest and greatest all the above is cured.
In our last report we stated, “China went from a growth rate of 10% to 7% - it probably felt like a recession. They have created an internal economy due to their creation of a middle class. They have eliminated a need to import and less of a need to export.” Well, it is here now.
China has completed catching up with its growth so that supply finally meets demand. What China is now saying “Thank you very much for offering all these materials but I think we are just fine right now.” China is now going thru the social ills they have created due to all their growth – smog, infrastructure, overcrowding, pollution & the retraction of their crazy growth rate.
In the long term it should raise their cost of goods thereby making the U.S. more competitive. There is a real opportunity here for the idiots in Congress to make a move to bring back ‘money’ to the U.S. by making some adjustments to the tax rates the U.S. Corporations will pay if they bring the money back to the U.S. Then next - if the idiots can completely overhaul the tax rate code and close the loopholes: we may have a chance.
U.S. Corporations are doing fantastic and manufacturers in the U.S. are doing great. But, some industries that thrived off of exporting materials to China are really going to feel it if they increased their overhead during the good times. Scrap Steel is now down to $250/Ton and I can see it going to $150/Ton. What does this mean? At an auction sale, we had an insurance policy that if something did not sell as usable; then at $650/Ton you could still obtain a good value. But now at $250/Ton the cost to process the scrap at the auction site “almost” negates any price a scrap auction buyer will pay. So you can see the problem at $150/Ton. This means that you as a lender have a problem if you have to remove all of your collateral from the facility. If you are going to be asked to finance an old press stamping plant – you will have to think twice. It may go back to “smaller is better.”
Stainless, copper and brass are all down (which companies will adjust to) but there will be a direct trickle down effect. Plastic recycling is somewhat depressed which will create an environmental problem for products that need to be cleaned before processed. Before, with all the high value of recycled products – the dirty items just got taken care of. Now it may come to a point where a recycling company may not accept ‘dirty’ products.
From the business side, everything stopped. Industry in the U.S. is doing well but they are not looking to expand. They may upgrade and are “finally” starting to get to full plant capacity but they are not going to open a new plant; unless they are moving out of California. Finally, California is starting to ‘financially’ look like Downtown New York. California is starting to become a financial clearing house. As an owner “I want to live here, but I don’t want to manufacture here.” So you now have the corporate headquarters in California but the manufacturing is done elsewhere.
TAUBER ARONS, INC.
T/A APPRAISAL, INC.
STEVE W. QUALE Sq/cmm
I don't know of an industry that isn't doing better than it was 2 years ago. The reason I say 2 years is because in 2110, January thru May there was a huge change in the purchasing appetite for machinery and equipment. But from June thru December, things leveled off. So for a normal growth cycle there is always a surge of purchases for the first half of the year by using up their capital budgets for the year. But this year it is even stronger than last year and it seems much more sustained. The manufacturing sector has been in such a state of contraction from 2006 thru 2009 and add to that all of the companies that have either gone under or been purchased, it doesn't take much of an upturn to make it appear like an economic boom time. I hear people say that we are in the same economic boom time as 2006 but that isn't the case; (compare first half 2006 GNP, excuse me GDP, to first half 2011 GDP) it's a start but not an economic boom economy like 2006; because 2006 was the culmination of an economy with no base below it. It is really understandable to all people in industry why they are experiencing such a euphoric windfall, but it is because of where they have come from. China has really screwed up their chance to dominate all industry and has left the door open for us to get back in the game, reduce our trade deficit, increase the strength of our dollar, reduce our cost of US debt and restore the world's faith in our country. That way we can go ahead and sell them some more junk paper and leverage ourselves out of control. Or we can learn from this mess and get back to basics.
We may get another chance but we have to do the things (not words) that give us a trade surplus which will in turn reduce our budget deficits and will draw in investor dollars into our country, if they can be assured that they won't get screwed again. But so far it has just been rhetoric about putting restrictions on the capital markets on how they invest the investor’s money. We used to have those restrictions in place after the 1930's but they were removed in the 1990's. Our whole problem is not a last ten year problem but actually a 30 year problem of looking the other way while our country transformed.
With this upturn, you as lenders, will be seeing an enormous need for cap ex lines in the manufacturing sector and all companies are going to have cash flow problems. It is now the lender's turn to jump in with this surge to continue the expansion in manufacturing. That doesn't mean 0 down at 2% interest on an $800,000 house to a kid that is making $40,000 a year. Bush had a "NICE" idea but it doesn't make business sense.
MACHINE / SHEET METAL SHOPS
These guys are going as fast as they can go. Aerospace is still strong but a lot of it is based on future production of the F35 fighter. I think at some point the defense department is going to realize that we are really fighting different types of war and they may rethink the need for so many air fighters. But the defense guys will come up with something new to facilitate that need. It may be the expansion of the drone surveillance plane or probably some type of drone foot soldier. Sheetmetal Fabricators, even as old as the early 1990’s, are selling well. CNC Press Brakes, like Amada, are selling well in the 1980's if they are the right model. Punch presses are still soft, but look for an upswing next year.
Plastics have been on the upswing for the last two years and even more so now. With the automotive turnaround all the plastics providers for the automotive marketplace are filling all the capacity they have plus they are expanding to cover all the competitors that have gone under. Large capacity molders (500 ton and up) are back in vogue, the small tonnage for the medical industry never declined, but the only negative is the increase of resin prices and their inability to pass on those increases to their customers. But again almost all plastic resin users are also commodity brokers.
Blown film has some interesting changes. You've seen where some grocery markets are going to remove plastic bags from their store which will affect some blown film companies. But what is interesting OUR GOVERNMENT, believe it or not, has blackballed some countries (China-India) from exporting plastic bags into our country because they were DUMPING products into our country. This is the best news that I have heard where our country is actually making an effort to protect our industry. This is exactly what is needed to turn around our country, bring us out of the recession and restore confidence in our country and how we our viewed.
The extrusion side of plastics is a little soft but the downstream portion of extrusion is strong enough to pull up that portion of plastics. What will really give this industry a lift is if resin prices drop because that is base of all plastic products. Probably they only way this will be accomplished is if a new source of energy is developed or other methods are utilized for the mainstay of our energy demand.
Although the marketplace has not returned the prices have. Construction is used in arenas other than building houses. Used machine prices may be down 20% from 2005-2006, which means they are back to what a normal person would pay. It will be awhile for housing to return but the housing inventory seems to be slowly working down. Housing prices are still down -- but all that means is that the lender will not be so quick to drop the hammer.
Still improving but as compared to the other industries it is a little slower. We probably won't ever see the huge furniture manufacturers like we used to have in the 70's but there will always be the demand for some quality furniture and cabinets. What is surprising is that the sawmill industry is starting to come back. Auction prices are on the upswing.
The only industry that is not going to come back anywhere in the form that it used to be is the printing industry. What have become popular is the large format digital printers that go on vinyl. We now are really a visually stimulated society and reading material just doesn't seem to attract our senses. There will always be a small demand for high end printing and if you can be creative on the design portion of printing, then you will have a marketplace for your equipment.
Prices are still fantastic, but I do want to emphasize a point. These buyers stay in their particular area of production. We had (3) meat sales this year and prices are great on the meat side (grinders, blenders, totes, etc.), but stainless steel tanks do not do all that well. A dairy buyer will not buy stainless steel tanks at a meat sale. A meat buyer will not buy dicers at a produce sale. So when you are appraising this equipment, you are appraising what industry it is in. The only thing that will drop prices is if stainless steel price drops. You have stainless steel commodity brokers who are always buying stainless steel to fill contracts.
FROZEN. This is the best description of what we see going on in the economy and is exactly what you don't want if you are trying to recover from a recession. It's a catch 22. The banks are not loaning money; so companies are not buying assets to expand, because they can’t get money from the banks, and the banks are not liquidating assets because the prices are too low, because nobody can borrow money to purchase the distressed assets.
Sounds stupid - sounds simplistic, but that is what is happening and that is why you see Obama stressing that banks have to start loaning money. I keep hearing from everyone that the banks have plenty of money, there is plenty of money available. I hope, I hope this is true and not that they just have plenty of assets on their balance sheets (which I feel is the case) and they cannot afford (accounting wise) to turn those over-inflated assets into loanable cash, because it will create financial reports from the banks that the powers to be do not want us to see because it potentially could be the catalyst that creates more distrust in our economy and could deepen the recession. Now take a breath.
We keep getting fed these reports that in the fourth quarter we had the largest growth period in 10 years, banks having record earnings - everything is getting better; but we the people keep saying bullshit. I understand the banks' posture of sitting on assets because sooner or later the economy will turn around. It has worked in the past but it may lengthen the recovery period. We are waiting for something to spur the economy. The war got us out of the 30's; the computer got us out of the 80's, so maybe something else will get us out of this one, which may be energy (nuclear).
In the meantime, there are a few in Congress who are trying to reintroduce acts that will safeguard our economy from going into this mess again. In the 30's, the government passed an act restricting banks from going into certain types of investments. It did not get repealed, but a new act in the 90's allowed banks to go into high yield risky investments. Certain safeguards are put into a system to protect it from destroying itself. When you are seeing huge growth spurts, people forget and think a depression will never happen again. They remove those safeguards, greed takes over and the same consequences happen over again each time. It is inevitable. I am a businessman and I too feel that greed is good. Praise be to Geko. We are all playing monopoly and the goal is to put your competitors out of business so that you can control the supply side and therefore control pricing which results in higher profits. The free enterprise system is based on competition and the free flow of supply and demand and as long as they are not monopolized they will always work. But, that is why we had certain acts such as the Sherman Anti-Trust Act passed so that the free enterprise system (greed) would not destroy itself. The basic instinct of the entrepreneur (greed) that makes the free enterprise system the best system in the world can also be the virus that destroys the system if left unchecked. Our Congress has ignored those safeguards in the financial industry and the industrial sector and now we are mired in a catch 22.
So what does the above have to do with the appraising and auctioning of equipment?
The auction marketplace for the selling of equipment is still a viable option, but there have been some alterations. We need to get the word out much earlier than we used to. Where it used to be a minimum of 30 days, it is now more like a 45-60 day process. Since money is so hard to get from lenders; the buyers need more time to set up financing and just to get the word out and give it time to circulate. Also the marketplace for equipment in Europe and the U.S. is very depressed, whereas the marketplace in India and South America shows activity. Forget China - they can make it new cheaper that we can sell it to them used. But we are starting to see more activity from certain areas of overseas buyers; so it takes longer for them to logistically make arrangements. They are not going to travel for small sales but they will travel for large sales or a situation where an industry has left the U.S. and is now being done completely overseas.
We are seeing more volatility in the pricing of equipment at auction sales. This is going to sound hard to believe, but attendance is actually up from 3rd quarter of 2009. This partially from people appraising their own shops and also from "the survivors" wanting to take advantage of depressed prices. Remember - for every business that closes; someone picks up a little more work. It seems like we have bottomed out 4th quarter 2009, as we suggested a year ago. The guys left are really good businessmen, but are only buying what they need now; or will project what they will need in the near future.
And here's the rub. Twenty years ago, we had a massive used machinery network that provided a base price for machinery. We didn't feel real good when we sold to them because we knew the machine went cheap; but we always considered them brothers in the same type of business - "buying & selling equipment." They are gone. The internet, the economy and industry leaving the U.S. has just about eliminated the "stocking" used machinery dealers. So when you have an auction, there is no base price. If you have that one user who makes the sale; then you have a good sale. If not, you have a bunch of users going "boy that's cheap - but I didn't need it no matter what the price is." This has led auctioneers to buying back equipment at the sale and then reselling later thru other means. So, when we review auction results, we really have to look at what makes sense and what doesn't. Just because you hear "sold", doesn't actually mean it sold. In turn; when we appraise I will repeat what I have said for 20 years "You have to appraise at an average auction value." You have to look at a general trend in a price change before you alter your evaluations. One sale does not justify a price change in appraisal values.
Prices are a little down from 6 months ago but not depressed. Since machine shops cross over into so many different industries; it hasn't taken any sharp declines. Aerospace declined but there is talk that there may be an upswing on the commercial side since the 787 got off the group and didn't come apart. I'm still having a tough time with the idea of joining metal with a composite material. But it flew and there is a little glimmer on the commercial large jet aerospace side. It will be interesting to see if there is going to be financing available for the purchase of these jets. Maybe Boeing will start a Boeing Financial just like the car companies did.
Prices on CNC equipment are down about 10% from 6 months ago which is a small expected dip but nothing like some other industries. One segment that has dropped is CNC Horiz. Machine Centers. They cost twice as much as a Vertical but bring about the same price at auction as a comparable size Vertical
Stamping Presses (unless really new) are in the scrap metal mode and we still haven't seen the sale of automotive stamping plants from the Big 3. Here is an important point. Most of us are appraising old stamping presses at scrap value which is around $250/ton; which still makes the presses saleable for scrap. But you really have to take into consideration the scrap market and where the proximity of the scrap market is compared to where your auction sale is. If you are holding the sale in Torrance, California, you can figure the price to be much higher than if you holding the sale in Albuquerque, New Mexico. And this goes for many other industries - auto. screw machines - foundry equipment - die casting, etc. And if you throw into the mix, hazardous waste (oil, etc), it can even magnify the problem. My point is that since the metals market (stainless steel - steel - copper - brass) is being manipulated and now treated like an agricultural commodity it is open to huge swings but not from weather, but from manipulation and speculation. So if someone (China) turns off the demand, the prices can drop drastically in a short amount of time which happened with steel, stainless steel and copper. The consequence is that you may not be able to remove equipment from an old plant and whomever owns the real estate may be stuck with a huge cost to return the commercial real estate to a rentable/saleable condition.
Even the old standbys - small O.B.I. punch presses, press brakes and shears have dropped dramatically.
Injection Molding - there have been a few sales with some upturn in sale prices, but we don't know if that is a couple sales or a turnaround from a dead industry.
Extrusion - really down and getting worse. Doesn't matter if it is pipe extrusion or resin recycling, they are all down.
Blown Film - really odd. It seems like all the fat has been cut off and the survivors are not expanding or consolidating - but just holding their own. Very few auctions.
These guys just can't hang on any longer. When furniture left the U.S. some went into cabinet making. When housing fell off they just didn't have anywhere else to go. With the 10-year housing boom that we had everyone became a cabinet maker or a contractor regardless of their business ability. They have tried to hang on but - .
Still great auction sales but there have been very few.
Just going to be a whole different industry. Visual banners and digital creation of non-paper advertising and media. If Google has its way then say goodbye to book publishing and the equipment used to produce books.
Looking backward, I don't know which term I dislike the most "Mover & A Shaker", "An Event", or "Transparency". All you have to do is say those words and it gives credibility to what you are saying. Also, I found it odd how a speaker was described at a conference "The Honorable Henry M. Paulson, Jr."
TAUBER ARONS, INC.
T/A APPRAISAL, INC.
STEVE W. QUALE
Sorry to take so long to get this report out, since our last report of November 2008; but I wanted to see the results of the auction sales that we had and others had during the first 6 months of 2009. Since the last quarter of 2008, myself and all other appraisers knew we had to reduce values; but how much? I was estimating that if I appraised a shop in September of 2008; then in the first quarter of 2009 I would be dropping values by 20%. But, to be quite honest, all of us were somewhat guessing because the bank meltdown presented a new problem; in that the companies who do survive during this time may not be able to get money to buy equipment. I would say that from January thru June prices probably dropped anywhere from 20-50% depending on the industry.
I really feel a recession is the wrong defining term for an economic downturn. I feel an economic downturn should be measured when the slowdown begins, when it levels off and then when it rises. These economic downturns used to be in 15-year cycles, but now are more in a 10-12 year cycle. They are in varying shape of a “U” instead of a “V” where all of a sudden the recession is over. Back in 1971, Barry Goldwater, a great businessman, who spoke to our business class in Arizona, explained the 15-year economic cycle. You saw these cycles in the 60’s, 70’s, 80’s & 90’s, but then a gradual change took place which I feel is noteworthy and why I am going thru this Econ 101.
This recession started in April of 2007, with the normal downturn when something is overvalued and the speculators bail from that commodity. Please refer to our October 29, 2007 Newsletter as follows:
“HOUSING – probably about 2 ½ more years of downturn. Prices haven’t dropped much yet but at some point people will have to drop prices to move their property especially when new home developers start dropping prices to move inventory. Once that inventory is evaporated then it will probably be status quo for five years because people will be afraid of getting burnt again. Just a repeat of the stock market collapse. It takes awhile for people to jump back in again, and after that the next five years should have up tick in prices. The saving grace is that this did not happen in a recessionary period – Yet.”
This downturn would have continued thru the 1st quarter of 2010; but with mortgages being rewritten with a large balloon payment at the end; the homeowner can stay in his house and this policy reduced the housing inventory that would have come on the marketplace. The owner may not triple his money at the end of the mortgage, but at least he won’t lose his house. Real good move by the lenders, otherwise the supply side of housing would have expanded and it would taken forever to reduce the supply which would have deepened the recession. So based on these creative mortgages, I feel the economy will stop declining in the fourth quarter of 2009. The recovery will mean a couple of years of bouncing around on the bottom until something spurs it with a 3-year rise. That 2-year bottom leveling out period will seem like a rise after this immense downturn, but is really only a leveling off period – which is a good thing.
And this is where I am trying to go with all this. Please refer to the July 2008 Newsletter as follows:
“The last recession April 2000 – June 2004 was the adjustment from the over-inflated stock prices. But what was unusual was the recovery. Usually a recovery has a lot of pop to it. From June 2004 to June 2007 things were better based on where they came from but not great. What seemed to spur the recovery was housing instead of the manufacturing sector. Housing is really a matter of trading up or speculating on over-inflated values. So in the last recovery period the manufacturing sector recovered but really didn’t seem to expand because most of the manufacturing left the country. It seemed like 2 steps downward (2000-2004) and one step upward (2004-2007). Going into this recession it looks like another couple steps downward.”
An economic cycle used to be 10-15 years. The last decline was in April of 2000 and the start of the next decline was April 2007. Only 7-year cycle. These economic cycles are getting too close together and I attribute it to not just speculation and manipulation but to the manipulation of speculation.
Remember Carnegie, Rockefeller, etc. who were creating monopolies in their respective industries. The government stepped in and passed bills such as the Sherman Anti Trust Act. It is a businessman’s goal to put everyone out of business except himself (monopoly), so that he can control supply. If he can control supply, you can control price and of course make more money. So the government stepped in and said by doing this you are altering the natural flow of supply and demand which is the basis of our free enterprise system.
Enters Boeing – “You have to let us buy McDonnell Douglas since the aerospace industry is now an international marketplace and we need this acquisition to be able to compete with Airbus; who doesn’t need to make a profit. If you do not let us do this – then it will mean that we will close up and will be the end of the aerospace industry in the U.S.”
Congress – Not that I don’t really appreciate all the greasings from you and the lobbyists, but you know what “this is for the good of the American people.”
So Boeing is now in the position that – we are so big that the U.S. Government will not let us close down. Sound familiar.
Once you control the supply – you control the price. This is only one example. OPEC is at least upfront about price fixing “we are going to cut supply so that we can increase the price.” The U.S. companies respond “we cannot control OPEC, but it is so expensive to do explorative drilling that we will just have to go along with OPEC, even though we highly denounce their practices.” RIGHT.
Now that all this consolidation of companies has been allowed they control the marketplace. So when you are going to speculate in a commodity, a stock or whatever – you are subject to your speculation in that commodity being controlled by the manipulation of that commodity by a few.
What Problems This Create For Appraising. I would like to refer you to the November 2008 Newsletter as follows:
“We have been in a recession for about a year so we probably have another 1 ½ years to go before we see a through and then an upturn. So about a year ago in our letter, we were warning about the automotive and how it was going to downturn the sale of large injection molders. In June when scrap was at $650/ton, we were telling you to watch out for an adjustment because it was overvalued. Large injection molders dropped and scrap prices tumbled down. But it doesn’t help to send out to you a warning letter when it has already happened – it’s too late, you are already into the deal. You need to know when something has topped out and will at some point will correct. Scrap steel was historically at the $50-$60/ton range, bottom out at $25/ton and top out at $100/ton. So you can see that when it is at $450/ton, we are telling you to watch out. It’s nothing new – the stock market did it – the housing sector did it. We’ve had some food processing sales where at the first sale, stainless steel was at 71 cents a pound, 2 weeks later at a Tuesday sale, it was 17 cents a pound and at the Thursday sale, it was at 3 cents a pound.”
This volatility, especially now, supports what I have been saying for the last 20 years. “When you are appraising, you cannot appraise for today’s market, but instead appraise on an average marketplace. Your adjustments are made on long term changes of marketplaces.” If a machine normally sells for $10,000 and will vary from $15,000 to the absolute high when you cannot get the machine; to $7,000 as a low when a dealer buys – then we have always approached the appraisal process as follows for appraising equipment as a new loan. If we are in a very high market and the machine is selling for $15,000 – we are appraising at $12,500. If in a low market at $7,000 – we are appraising at $8,000. If the appraisal is for the work out department, then we are appraising at the exact level it is selling for at that immediate point in time.
I understand the argument that it is not my responsibility to perform that function – which I disagree with. If you know in your heart that something is overvalued and the price is too high; then I feel it is my absolute responsibility to make that call.
Another example is the oil industry. When the oil industry mutually decided to raise prices; of course what followed was a rush to pump as much oil out of the ground as they could. There was a boom in the sales prices of Vertical Boring Mills & Long Bed Engine Lathes. 1940’s 8’ Vert. Boring Mills were bringing $150,000 at auction when normally they would be in the $25,000 - $50,000 range. So how do we tell an owner when we are doing a loan appraisal that “Yes, I know your machine is selling at $150,000, but I can only figure it for $65,000.” Well, the oil boom lasted for about 6 months and then dropped off as well as the prices for these oil machine tools. But something interesting has happened: since almost all American made machine tools have gone out of business (Bullard, King, Axelson, etc.), the buyer is only left with rebuilding used 1940’s machine tools which has also exaggerated the prices.
Change in Auctioneers. This is not a new change since it really started about 10 years ago. Used machinery dealers needed to expand their ability to move equipment quickly since a CNC Machine depreciated quickly and the onset of an owner being able to sell their equipment online by offering their equipment to a worldwide marketplace and circumvent the dealer. So many used equipment dealers became auctioneers to combat this problem. It wasn’t anything noticeable during the good times but it is now. Many auctioneers, who are also machinery dealers, set a price that “if it doesn’t bring this price, I will just put it into inventory” which is not divulged to the buyers.
So you have the auditor writing down prices that are later put in publications announcing auction prices, when a stamping press gets run up to $250,000 when the last legitimate bid was $25,000. As first viewed “wow, he got a lot of money for that equipment.” But, the problem that we are seeing is that the buyers are getting to the point of ‘why even go – I will just wait till the sale is over and I will call and find out what’s left over!” It’s starting to affect the buyers in the original concept that “everything will be sold to the highest bidder” and in turn is changing the industry. You want the buyer to come to the sale with the idea that “I’m going to try to get this thing real cheap!”; which plays into getting good auction prices. But once they assume that it will be protected, then the buyers just stop bidding and expect that it won’t be sold and will just wait till after the sale.
In general, all industries have dropped to varying degrees, and the first 6 months of the year have (for the most part) presented some disappointing numbers. It takes awhile for equipment to come on the marketplace once a recession occurs. We still have a lot more equipment to sell, but there are signs in the horizon that we will probably bottom out by the end of the 4th quarter 2009 and may even see some active purchasing. This is also basically what the stock market is telling us.
Please refer to our July 2008 Newsletter as follows:
“Still doing well but can’t help but think this is only promoted by the aerospace industry. Boeing has had some delivery problems on its 787. These are the orders that catapulted Boeing and the U.S. aerospace industry; but if these problems are not corrected and with the change in administrations look for the aerospace industry to correct in 2009 . Yes I know that the contractors have defense orders until 2012 but orders can be put on hold (ie. the Carter admin. and the B-1 bomber).”
Machine shop maybe only dropped off 10% but look for aerospace to really drop off. The following factors have created that conclusion. 1. The change of administration means less defense spending. 2. The Corporate & Regional jet boom fell off because of the financial crisis (except for Nancy). 3. The delay of Boeing 787 could be a huge problem. If Boeing realizes that this thing may have structural problems, or people will be just too afraid to fly it, or the airplane orders are just being cancelled – then Boeing will have some major problems.
We had purchased a CNC Machine Shop in November 2008 with a lot of Haas CNC Machine Tools in it. We had to put the sale off until March of 2009 because some orders needed to be completed. In February of 2009, Haas had a surplus of inventory and dropped its prices 20-30%. Most of the other machine tool manufacturing (Mori Seiki) did the same. So you can imagine our concerns about the sale in March. We lost about 4% on a $1 Million purchase. Not going to kill you, but just leaves a bad taste in your mouth. Most auctioneers during those first 3-4 months of 2009 went thru the same pitfall. The good thing is now Haas sold the surplus and has raised his prices back up to ’08 levels, but just making the point – “when you see a new price quote, there is about 20-30% to play with.” The same thing happened in the 80’s recession because of the oil boom/bust.
Rotten – especially in the high tonnage molders due to the automotive industry. We had a sale in June with (2000) Cincinnati 250 Ton Electric (not hydraulic) molders were bringing $20,000 - $25,000 which we were very happy with. We have had (3) Plastic Injection Molder sales - and the old moulders are interesting. A 500 Ton Molder is bringing $2500, which we used to figure as $0 when scrap was $50/Ton. But now at $150/Ton it is worth someone to scrap it out.
This is why lately when we appraise obsolete equipment we try to let you know what the scrap price was that day. Buyers are very selective now and the molder really needs to be within the 7-year old range to attract interest. Also the bigger it is – the worse it is, due to power, moving & storage costs.
I guess there are a few left, but not many. We are starting to see a trickle of work coming back because of long term quality of the goods & delivery times for Asian products. Woodworking will survive, but on a much smaller scale than before. The high end, low production, low overhead guy will make it and lumber mills will return when housing returns.
I don’t want to talk about it. OK I will. This industry is being hit by the double whammy. 1. Recession has been deep enough that people are not looking at advertising as a way to attract buyers. 2. Transformation of how media is presented to the consumer. Media has left the ground level and has moved up into the airwaves. Another industry falls to the computer age. People just don’t use printed material as their source of information. We have seen publications that we used to advertise auction sales, close down. People read books on a handheld. The size of a newspaper is about 1/3 of what it used to be, because who is going to advertise in a newspaper. Interesting to see how much of a newspaper is news. The newspapers are going to have to double their charges for a daily paper.
I have noticed something interesting. We have had sales where we advertised in a nationwide trade journal and sent out email blasts – same old story. But, we recently bought a trade publication mailing list in addition to our list for a sale and it doubled our attendance. So there is something to be said for receiving a published notification as compared to an email blast. So even though the trend is to go over the internet; I do believe you will see a return to the published material. The main obstacle in the way is the postage rates.
We were always worried about the digital press taking over, but it was the change in media presentation that changed the printing industry. Digital presses are about 1/3 of the price and size of a paper press and will continue to have its place. I don’t know how much of a marketplace there will be for a $3 Million sheet fed press & a $12 Million web press. Printers have always been high equipment cost/low profit margin guys anyways; and these numbers just don’t seem to add up.
Maybe only, if any, down 10% from its high point of a year ago. But, there haven’t been a ton of sales, so when we do a food sale; it is almost an automatic success.
Having a real tough time on the high production side. CNC Fabricators are tough right now and so are all presses, S.S.D.C. & O.B.I. are all tough to sell because of automotive. If automotive had started closing all the plants that they would have had to if they hadn’t been bailed out by the government: it would have been a blood bath, so I guess mothballing a plant is a better alternative than scrapping it. Stamping & O.B.I. presses are probably down 50% from a year ago, where press brakes and shears are only down about 20% from a year ago.
CONSTRUCTION & HOUSING
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Hopefully a new Congress will do what needs to be done to bring industry back to the U.S. Hopefully money will loosen up a little for the companies that deserve it. Hopefully the investment funds will have to make money to attract investors. Hopefully corporations will only be allowed to present one set of books to the public – the same ones they present to the IRS. Hopefully Congress will start enforcing the Anti Trust/Price Fixing Acts. And hopefully we will have term limits on Congress and start paying a new group of Congressmen a decent pay so that we can attract some people to Congress that will work for us instead of themselves.
Or we can sit back and hope it all fixes itself.
TAUBER ARONS, INC.
T/A APPRAISAL, INC.
STEVE W. QUALE
Well if you got the chance to watch our distinguished Congress at work at the finance sub-committee headed by the Honorable Barney Rubble from Massachusetts. What happened? Why weren’t we told? Which Republicans are responsible for this disaster?
Then you have the other side of the fence; Paulson who says “This has to be done immediately because I had no idea this was going on” or “How am I going to save Goldman Sachs, make it a bank, so I can be the CEO when I get out of this mess I have ignored.”
But somewhere along the line, the Executive Branch was informed how serious this is. Mr. President you have a group of major banks that are going to have to be taken over by the FDIC and if the general public makes a run on its deposits in those banks, the FDIC will not be able to cover the deposits. And when that occurs, panic will take over and people will make a run on deposits in banks that are in good condition. So instead of the FDIC taking over those failing banks, let’s give $700 Billion to the surviving banks that we choose to survive and we will make them buy out the failing banks so the FDIC doesn’t go broke. By the way, let’s also tell everybody that the FDIC will increase the insured amount from $100,000 to $250,000 per account. Did the FDIC just win the lottery or how do they double their insurance premiums overnight?
I mentioned PANIC in the last report in June and that is all they are trying to prevent. This was not to be a cure, it was the only tourniquet they could apply to the wound to prevent disaster. But what the government doesn’t understand is that everyone realized this was all horseshit and the only reason there was not a run on the banks is because we all know what that would do. We could all run to the banks, grab our money and then what are we going to with it? – put it in your backyard and have the dollar become worth 10 cents? Housing is down, stocks would dump; there would be nowhere to go with that money and what saved us from a severe crisis is the general public’s understanding of what the consequences would be if we made a run on the banks (not the government’s bailout).
We have been in a recession for about a year so we probably have another 1 ½ years to go before we see a through and then an upturn. So about a year ago in our letter, we were warning about the automotive and how it was going to downturn the sale of large injection molders. In June when scrap was at $650/ton, we were telling you to watch out for an adjustment because it was overvalued. Large injection molders dropped and scrap prices tumbled down. But it doesn’t help to send out to you a warning letter when it has already happened – it’s too late, you are already into the deal. You need to know when something has topped out and will at some point will correct. Scrap steel was historically at the $50-$60/ton range, bottom out at $25/ton and top out at $100/ton. So you can see that when it is at $450/ton, we are telling you to watch out. It’s nothing new – the stock market did it – the housing sector did it. We’ve had some food processing sales where 3 weeks ago at the first sale, stainless steel was at 71 cents a pound, 2 weeks later at a Tuesday sale, it was 17 cents a pound and at the Thursday sale, it was at 3 cents a pound.
So in general, what you are seeing now is the opposite of speculation. It’s like when a building is on fire, you see everyone running out and firemen running in. That is why you see Warren Buffet running in because now everything has become undervalued. Because we had some greed, get caught with its hand in the cookie jar doesn’t mean that production has gone to zero.
Where I feel the base of the problem started in the early 90’s was that industry was leaving the United States. This got disguised in the mid 1990’s because of the internet and P.C. industries took the place of our core industry. So in the mid 1990’s you really didn’t notice the loss because of the replacement industry. But in 2000 everyone had a computer, has an internet, had a software, had a gameboy which created a leveling off in the industry and the realization that these industries were overvalued, with the result of a recession from 2000-2004.
But underlying this is what happened. You never hear of the term Gross National Product anymore. Caterpillar may sell a D-8 for $350,000 with a profit margin of $100,000. Now Caterpillar’s margin profit still looks good at $100,000 a unit, but what is missing is the $250,000 of production costs in the U.S. that increased our Gross National Product. Every year, the Gross National Product was an important figure but over the last 10-15 years, you never hear about it. It’s kind of like our unemployment rate being 5% when it is probably more like 10%. I really don’t feel our country will be healthy again until manufacturing returns to the U.S. Until then we will continue to live off speculation. We have become commodities investors (not commodities in the pure term sense) but in the concept of speculating of what could possibly happen in the future. What is missing is the core growth of a corporation inside the U.S. We need to protect industry in the U.S.
I would like to see how Greenspan’s comments that were made at the CFA a few years ago would be accepted if made today.
In general all prices at auction sales have dropped anywhere from 10% to 50% from 6 months ago.
Prices off about 10% and of all industries except for food is probably doing the best. In the last (2) newsletters I have said to watch out for Aerospace. I will repeat – “watch out for Aerospace” – it has topped out. I don’t care how many defense contracts you have; with the new administration, defense is going to be chopped. Also watch out for Boeing if they don’t clean up production delivery schedules on the 787. The great thing about machine shops is that it crosses over into so many industries. The Aerospace guys have always juggled commercial and defense work depending on what’s hot. Kind of like farmers – they produce the product on their land that gives them the best return.
Probably down 20% from 9 months ago. Mainly on the large injection molding and extrusion side. Sounds like a lot but when you think of a (2000) 900 Ton Molder selling for $200,000 nine months ago – it doesn’t sound all that horrible at $160,000 now based on what has happened in automotive and financial sector. With resin prices starting to ease it may bring some relief.
Down 50% from a year ago. And now the lumber industry is getting hit. The lumber guys were still doing well when furniture left, but now with housing down and overseas not gobbling up our natural resources – they are starting to feel it.
Down 20-30% from 6 months ago. Watch for the price of new tractors and trailers to drop.
Down 90% from 5 months ago. Doesn’t mean that I-Beams, Sheet Stock, Coil Stock , etc are not going to be used or new price is going to drop that much. But their cost of recycled products is going to drop dramatically. So as long as they didn’t play the commodity’s game and bought a bunch of high priced inventory – they will be fine. But after awhile, competition will grind on each other and slowly prices will drop. Not a bad thing. Metals are a core of industry which should reduce the costs of core goods and reduce inflation.
Up 20% from 6 months ago. Why? – They didn’t leave the U.S. Some of it was the crazy high costs of stainless but every sector of this industry is going great. In 50 years, watch out if we concrete over all our good agricultural land.
Prices finally started to come down over extremely inflated used prices. Why it will take a little while to really be impacted is because of long term infrastructure and building projects that take a while to be completed. Small housing contractors may have to provide service to their clients, do housing redo’s or go back into the movie set decoration business.
This is going to sound crazy but I am more optimistic that I was 9 months ago and we were in a recession then (not the technical definition of a recession but a downturn heading into a recession). We are slowly starting to see some manufacturing come back to the U.S. Some of it happened because of our dollar devaluing but other reasons I feel are more long term. It is really a hassle doing business outside this country. You never have a deal so that you can go forward and concentrate on your own business. You spend most the time renegotiating written contracts. You can’t go full speed ahead because the rug may be pulled out from under you. The main difference between our country and others is a criminal and judicial system that is enforced. Governments of other countries are unstable and you may end up riding the wrong horse. Increased labor and shipping costs are starting to equal the costs that were originally saved.
All our federal and state governments have to do is make an effort to get industry back, rather than taking the pompous attitude that we don’t need you anymore. All our arrogant politicians have to do is make an effort to understand the business problem instead of “my way or the highway.”
TAUBER ARONS, INC.
T/A APPRAISAL, INC.
STEVE W. QUALE
The sale at Boeing was another example - (1986) Cincinnati 10-axis CNC gantry machine centers were bringing $2,250. No, we are not missing any zeros. New, 15 years ago, that machine probably cost $1,500,000. The (1981) K&T data mill 700 CNC mills were bringing $1,500-$2,500 and this is a machine that doesn't take up a lot of space like a gantry machine center. We recently conducted an auto. screw machine sale, but this industry seems to be doing well. Acme 1 1/4" machines in the 1940's are still bringing $12,000-$15,000, which has been a consistent price for 20 years.
Here is a valid point...We are now in a transition stage of the value of used machines - where used machines increased in value because of inflation - they decrease because now we are in a period of deflation. The lender or the appraiser can no longer be saved by inflation. Instead we are at the mercy of a machine becoming older; new machinery is now cheaper; and a machine is now being outdated by a faster more sophisticated machine. But the real concern is since borrowers have been geared to lesser payments because of longer terms - how are you going to get them back to shorter terms to cover the deflation and the devaluation of equipment? - even without considering an economic downturn.
This industry seems to do well even if the equipment is being sold in an aerospace machine shop. Example - we had a (1947) Cincinnati 10' x 3/16" power shear that brought $16,000 at the Advanced sale. That is the same price that this machine has been brining at auction for the last 15 years. HOW COME. NO COMPUTER. Certain repetitive processes such as shears, presses, plastic injection molding, automatic screw machines are basically the same machine as they were sixty years ago.
So what's the gimmick? Finance machinery that is not being outdated by technology? Not very glamorous; and you may have to start financing equipment in Mexico, but it is better than being into a deal with debt outstanding of 50 Million dollars and your only collateral is a PC computer, a desk and a chair, unless recovery of collateral is not a concern. Large presses are always a little difficult in the West because, we for the most part, are not a heavy manufacturing industry on the West Coast. The main reason is the size of the equipment equating to high per foot land costs on the West Coast and the cost to move. We may be in a new price deflation period, but the cost to transport and store has continued to go up.
Computer panel shops that use CNC fabricators age like any other CNC machines. CNC laser cut & CNC water jet has gotten popular for certain finishes on a product compared to a punch
A real concern. The oil prices have affected the prices of the raw material resins that are used by all plastic manufacturers. So if the oil prices have gone up 30% in 4 months and in turn your raw material costs have increased that much - it becomes pretty difficult to increase your prices that quickly. Compounded with the higher interest rates is the lower retail demand - well, you can see their problem. But the real effect is that plastic resins are such a large part of everything we own that if the resin prices stay high or become higher, it will, at some point, produce an inflationary spiral. Of course this is not on the government's agenda, so there will be some type of government pressure to reduce oil prices.
But the problem is not going away for the plastic manufacturers and we are starting to see it. We signed up 3 plastic sales in one week and there have been some recent large auction sales of injection molding:
1995 Toshiba 500 Ton Molder w/ Robot. $80,000 - $95,000
1993 Toshiba 500 Ton Molder w/ Robot. $75,000
1992 Toshiba 500 Ton Molder w/ Robot. $60,000
1992 Toshiba 390 Ton Molder. $45,000
1994 Toshiba 390 Ton Molder. $52,500
1995 Toshiba 1950 Ton Molder. $280,000-$370,000
1987 Toshiba 1450 Ton Molder. $120,000
1992 Toshiba 720 Ton Molder. $95,000
1984 Toshiba 720 Ton Molder. $25,000
Injection molders are not enhanced with CNC since it is a long run production press that they are the same machine as for the last 20 years. But to be productive they need to run 3 shifts a day and they tend to depreciate fairly quickly due to use not technology. Ten years seems to be the good life of a molder and if a machine is older than that, the price drops quickly - similar to CNC machines. The two recent large injection molding sales went well but I do feel there will be quite a bit more equipment dumped on the market place and in turn the prices will decline. Really watch your plastic accounts because they are usually a leader of what's to come for the entire manufacturing economy.
There haven't been a lot of sales, but we are hearing that the furniture industry is slowing down on the East Coast and there should be some increased auction sale activity. What does seem to be doing well are the cabinet manufacturers because of the long run of a good housing industry.
This industry also seems to be pretty stable and there haven't been a lot of sales to track. The one area that really changed is business forms presses such as Harris presses and collators. Much of this area is being done on a personal computer and has affected the market. This industry has also converted to laser business forms and there was a sale recently where the laser business form printers went through the roof. But technology is changing quickly in this area and the graphics segment. Many companies are doing their own graphics in-house with the cost of new continuing to become more affordable.
We had purchased a large 3-day sale in Stockton and it went very well. We bought another food deal in Michigan and don't expect it to do nearly as well. The reason? The bankruptcy filing of Tri Valley Growers which is one of the largest growers in the US. This has put the food processing industry in a "wait and see" stage. So until the future of Tri Valley is resolved, I don't think you will see buyers purchasing much used equipment.
Large downturn due to the cost of fuel. The companies that are highly leveraged probably are going to have real difficult times due to their cost of fuel.
Strong downturn due to alternatives to boxes. Manufacturers have tried to venture into niche products.
Due to the inception of high definition TV, you are seeing most of this industry scrambling to acquire the cutting edge hi-definition equipment to stay competitive. This is the smart move, but the equipment is very expensive and as more equipment comes on the market place, the cost of new will drop and be outdated by the new state of the art equipment. You will need to have short term debt structure so that you are not caught with high balances on outdated equipment. Nobody is going to want to go backwards in this industry once they convert.
Most all companies have adjusted to the lower scrap prices and they are not holding onto inventory purchases at $100/ton when they now buy at $25/ton. But the same problem exists. How do I cover my overhead when my gross is 1/4 of what it used to be? At auction sales of other industries, we could always count on selling everything, because the worst case scenario a scrap dealer would buy it. With rising fuel, labor and trucking costs - this is not always the case. If you cannot abandon the equipment, you may now have clean up costs.
We are in a transitional stage of a wait and see phase. With the elections, fuel prices, rising interest rates, stock market, it is hard to appraise equipment or predict what will happen the next quarter. We are coming off a long run of great prices from a great economy. Many companies that do close are purchased by a user, so there haven't been a lot of sales to get a good read on. If that bulk purchaser or the equity money dries up, we should get a better indicator where used prices are. If new equipment purchases no longer extend the "no down and no money for six months terms" then it should drive the price for used up. Same idea as Home Depot doing well during a downturn.
But the US., especially California, is becoming less and less a manufacturing country. So we as liquidators are becoming more and more dependent on the out of country buyers. But to do this you must have a large sale and also provide the capability to bid online. Tauber-Arons has been doing auction sales on a live and simultaneous internet bid basis and in the right situation, we have found it to be a good promotional tool.
We still find that the larger buyers still attend the sale but the activity from the internet increases prices overall. I guess this consolidation trend will continue until the companies become too massive to operate economically or until the Justice Department wakes up.
Talk to you next in January.