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‘As is, Where is!’

PMV

Rob Mackay, president of Ritchie Bros. Auctioneers, was in India to appraise the market for construction equipment auctions. He tells Niranjan Mudholkar his views

The infrastructure opportunity in India is worth billions and construction equipment will obviously play a vital role in this market. Used equipment trade is equally critical as it re-circulates the system at reasonable rates making it an economically viable (and advantageous) option for the contractors and other companies involved.

An auction can be a significant option for trading used equipment; it also has a huge scope in the Indian market given the activities happening on the infrastructure front. It is therefore not surprising that Ritchie Bros. Auctioneers have earmarked India in its next frontier list.

“Yes, as part of our overseas expansion, we are now looking at the next frontier, where we will target  countries like India, China, and maybe Brazil and Russia,” says Rob Mackay, President of Ritchie Bros. Auctioneers. While admitting that the next frontier may be a ‘little bit challenging as compared to the European continent or even Dubai’, Mackay also feels that the Indian market is big and that it’s going to continue to grow. With lots of infrastructure and construction happening, Ritchie Bros. is keen to introduce its methodology of trading new and used equipment for equipment owners in India and therefore has been doing its homework. “We have been looking at the Indian market for 3-4 years and have been trying to understand it,” Mackay says.

Although Ritchie Bros. would like to have its first auction at the end of this calendar year, no dates have been fixed as yet. “We are in no great hurry. When the situation is right and so also the parameters, then that’s an opportunity for us to execute and hold our first auction,” Mackay says.

Obviously, Ritchie Bros. would be hoping to make a good first impression in India. Typically, the success of an auction can be determined by the number of equipment sold and the money generated by the sale. The aim of an auctioneer would be to get sufficient equipment for the auction first and then get enough and genuine bidders. “The market then determines the value of the equipment. When you are in a market that has strong demand you see pretty good prices generated,” Mackay adds.

Ritchie Bros. has always done unreserved auctions and will continue with the same policy in India. Mackay notes that typically, reserved auctions attract smaller buying audiences as people may have to go back empty handed if the reserved price is not met. Unreserved auctions, on the other hand, attract large number of bidders. Mackay explains the logic.

He says, “People are willing to come, spend their money, travel, take time out of the day and go to the auction if they know that if they are the highest bidder, they will get the machine. I think history has proven that unreserved auctions attract a larger bidding audience, a larger buying audience. Hence it drives good price as opposed to reserved auctions.”

Secondly, unsold equipment at an auction not only adds to the cost of the owner but also makes it difficult to sell at subsequent auctions as bidders may sense that probably something’s not right with the equipment.

This is more likely to happen at a reserved auction as the number of bidders is less. “We believe that if there are more bidders then the equipment is likely to get the right market price and this is more likely to happen at an unreserved auction,” Mackay says.

Although each equipment at a Ritchie Bros auction is sold ‘as is, where is’ and there is no standard quality set, the buyer is guaranteed a clear title. The bidders are also allowed to inspect the equipment. “It is our attempt to get everything into the auction at least 2-3 days before the sell. Some of the stuff are there two or three weeks before the sell. So we line it all up,” informs Mackay. It is up to the buyer to ascertain the condition and bid accordingly. Then there are different types of equipment and different types of buyers.

“We have buyers who only want to buy one-year old 300 hour equipment and there are buyers at the other end of the spectrum who want to buy something that’s old and worn out,” Mackay says.

In India, Ritchie Bros. will continue with the same methodology that it has been following elsewhere and in the US, which is its most mature market. However, it does not expect the Indian market or (even the Chinese market) to reach similar maturity levels even in five years time despite the activities happening here. “In 2007 we sold over US$ 3.2 billion worth of construction equipment and probably billion and a half of that got sold in the US market. For China and India to reach that kind of growth level in five years would be a pretty significant growth curve; not impossible though,” Mackay says. “Although unique and different, both markets have significant quantity of new construction equipment sold in the market for the last five years,” Mackay says.

As of now, Ritchie Bros. has no set targets for India. “Our immediate target is to have an auction when the opportunity is right,” Mackay says. The future direction will be determined based on the results of the first auction. However, he also emphasises that the concept of the auction being unreserved and all the equipment being at the site will always remain the same.

Usually when a company enters a new market, it does explore the option of tying up with a local player. While, Ritchie Bros. prefers to come on its own, it does have what it calls preferred vendors. “But this would not be a joint venture,’ Mackay clarifies.

Assessing competition is a key aspect of any business. Likewise, Ritchie Bros. will have its eyes on competition in the market. Mackay was in India to observe another company’s auction, and seems to be in no hurry to name his potential rivals. GoIndustry Quippo Valuers & Auctioneers Pvt Ltd (GQVAPL) conducted the country’s first live parade auction at Hyderabad on September 11, 2008. Mackay has attended the GQVAPL auction but he will not comment on it. He is however clear that it has had no effect on the plans of Ritchie Bros.

According to Mackay, anyone out there in the marketplace selling or trading used equipment could be viewed as a competitor. “Customers have a choice in how they may buy or sell equipment and if you cannot add value for the customer, he may choose to go elsewhere,” he says.

Ritchie Bros. wants to be focussing on customers rather than the competition. It understands that preparation for auctions and providing customer comfort will be crucial. “We look to provide all possible comfort for the bidders at the auctions and ensure all possible services are there to assist them in their purchases (i.e. transport, financing, etc),” Ritchie Bros. will take the time to educate its customer base on the auction – its benefits as a source to buy and as a place to consign. “We will explain how it works to ensure maximum participation at our events when they occur,” he adds.

There’s a calculated confidence in what Mackay says. It’s the kind of confidence that comes with experience, knowledge and recognising the key role that customers plays in shaping the market direction. “We are going to continue to understand the customer base and educate them on the unreserved auction concept. And when the opportunity is right, we will hold our first auction in India,” Mackay signs off.
 

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