What’s Going on in the 2024 Used Equipment Market
Happy New Year from Boom & Bucket! As the 2024 build season approaches, fleet managers are gearing up and starting to right size their equipment fleet. Let's take a look at what’s happening in the used equipment market right now.
The 2023 Pendulum Swing
At the start of 2023, the used equipment market faced an unprecedented machine supply crunch caused by COVID-related supply chain disruptions. Prices for used equipment soared to record highs, and finding used machines became nearly impossible. Several factors contributed to flipping this dynamic in 2023.
Interest Rates
In 2023, The Federal Reserve’s battle with inflation drove up interest rates from their near-zero point during the pandemic. Higher interest rates hurt demand for equipment in two ways. First, loans for equipment became more expensive. A $200,000 excavator loan for 5 years at 5% costs $3,700 per month. That same loan at 10% is $4,300 per month - a $600 increase that a fleet operator is hard-pressed to recoup on the job. Second, higher interest rates meant more expensive capital for developers, leading to project delays or cancellations. These projects are the upstream demand for equipment owner’s work. No work means no need to buy equipment.
Economic Uncertainty
The inflation fight in 2023 raised concerns about a potential recession. In January 2023, 61% of economists predicted a US recession within the next 12 months. This didn’t dip below 50% until October. This fear led businesses to become more price-sensitive and conserve cash. The US Consumer Confidence Index reached its lowest point in six years in mid-2023.
The 1-2 punch of higher interest rates and recession fears crushed demand for used equipment last year. Realize that this was partly by design - the Fed increased rates to cool the economy and get inflation under control.
Supply Chains
COVID-induced supply chain issues were the hot topic of 2021 and 2022 for equipment managers. Factory shutdowns not only stopped production of critical components like semiconductors, they also disrupted final assembly lines for original equipment manufacturers (OEMS) like Caterpillar and John Deere. New equipment was scarce, which meant operators held their existing equipment longer. Used equipment prices surged to record levels as a result of this supply crunch..
During the pandemic, large equipment operators upped their orders for new machines to historic levels for two reasons. First, they knew they’d have more equipment to cycle out of their fleets once supply chains reopened. Second, bigger orders meant operators were able to jump the ranks in delivery priority - order more, get your equipment first.
By early 2023, supply chains started to stabilize and new equipment orders began hitting the market, including that extra equipment the big guys ordered. But a slowdown in projects driven by the interest rate / economic fears dynamic highlighted earlier meant there really wasn’t a need for all that new equipment.
This scenario led to an unusual situation in the used equipment market - an oversupply of equipment during a demand slowdown. According to Sandhills, inventory of used medium-duty construction equipment is up 80% from last year.
Rarely are markets hit on both the supply side and demand side simultaneously like the used equipment market was in 2023. So how do markets correct when demand goes down at the same time supply drastically increases? You guessed it - with lower prices.
Prices
Auction prices, which tend to precede changes in retail asking prices by about 90 days, have seen a significant decline. According to various reports, prices for used equipment have decreased as much as 30% in the last year. Data from Ritchie Brothers auction indicates a year-over-year price decrease ranging from 4% for large equipment to 13% for medium equipment. Similarly, Sandhills reports a 13% to 20% decrease in auction prices depending on equipment category. Retail asking prices have steadily decreased since Q3 of 2023 with this trend continuing in the new year as sellers realize they can’t command the same prices they did 12 months ago.
What to Expect This Year
There are some good reasons to be optimistic going into 2024. First, the Federal Reserve appears to have successfully pulled off a soft landing - cooling inflation without triggering a recession. The consumer price index is expected to settle at 2.6% for 2024, and only 39% of economists expect a recession in the next 12 months as of January 2024. Interest rates should stabilize in the next six months while the Feds have indicated a possible rate cut in the middle of the year.
While we still have a significant amount of supply that needs to work through the market, supply chains appear to have normalized. As demand increases into the build season of this year, we expect the oversupply of used equipment to move through the market by the end of 2024. We probably won’t ever see the astronomic high prices for used equipment of 2022 (and that’s a good thing!) but prices should stabilize to their pre-pandemic norms midway through this year.
Strategies for Equipment Sales in 2024
Fleet owners are understandably frustrated when they see the same piece of equipment worth 25% less than it was 18 months ago. But if you’re thinking about adjusting your fleet size this year for coming jobs, here are some helpful points to remember.
Don’t make uninformed decisions - The used equipment market is dynamic and fast-moving. Don’t base your selling or buying decision on outdated information. Check current comps for your piece of equipment to see where the market sits today. Better yet, contact your Boom and Bucket Fleet Advisor or email sales@boomandbucket.com and we’ll get you a complimentary market data report from our IronInsights platform for one machine or your whole fleet.
Don’t try to time the market - While there’s good reason to be optimistic for 2024, no one really knows where prices will be in six months. If you’re thinking about sitting on an idle machine hoping for a price rebound, consider that prices could just as easily dip another 20%. Also, remember that machines aren’t real estate - they depreciate with time because there will always be new supply available.
Think about the opportunity cost of your money - Your machines are business assets. If you have underutilized equipment, consider that the money in that machine could be better deployed to a more productive piece of equipment or another project (or into your bank account to earn interest!).
Look for amazing buying opportunities - With prices for used equipment down so drastically, think about buying a late / low used piece instead of buying new. Motivated sellers and big rental fleets are selling newer equipment than they usually would to absorb their new equipment orders.
The used equipment market has been on a rollercoaster over the last 12 months, but at Boom and Bucket, we’re optimistic for 2024. Call our team at 888.313.1597 for more used equipment insights or to talk to one of our machinery experts with help buying or selling equipment.