Learn How Changing Used Equipment Inventories Affect Prices

More than a year ago, we returned to the “new normal of equipment inventory," where manufacturers delivered machines to dealer lots, finally allowing contractors to secure much-needed equipment. We industry veterans have come to expect construction's cyclical nature. However, the regular rhythm of this and many industries skipped a beat during the COVID-19 pandemic. One year from when we talked about most dealers' equipment inventory recovery, we’ve now been talking about this year's price volatility for new, used and rental equipment.

According to the Association of Equipment Dealers, new equipment prices are up about 30% compared to 2020, as I reported in a previously published column. Earlier in the year, these conditions encouraged more contractors to enter the rental market to manage equipment costs, some opting for a Rental Purchase Option (RPO), which helps contractors build equity in their while they use it to complete jobs.

Shortly after the U.S. presidential election, the Federal Reserve cut its policy rate by a quarter-point to a new target range of 4.5% to 4.75%. However, according to Freddie Mac, mortgage rates are still on the rise at the time of writing this column.

In the industry, we are well prepared to maximize efficiency by following tried and true guidelines to offset the unease of inflation, not to mention the difficult-to-predict shakeup of an election year. One of these guidelines is to turn to the used equipment market to acquire specific models. However, we should review several factors driving the pricing of used heavy equipment since the COVID-19 pandemic. 

Lower Production of Machines in 2020, 2021 and 2022

During the pandemic, supply shortages and factory stops decreased the number of machines rolling out to dealer lots from Original Equipment Manufacturers (OEMs). With fewer new machines, used machines’ values increased as contractors still sought certain models. As the world resumed regular business, contractors who ordered their machines before or during the pandemic finally received their preferred model. After OEMs delivered all of their backorders, dealers slowly started to shore up their rental, used and new fleets, entering the new normal inventory. Today, we still feel the effects of these lower-than-average machine productions from 2020.

For example, contractors can expect to struggle to find a machine that is just one to two years old at auctions or in some dealers’ lots. Machines in this category, two years old or less with under 1,000 operating hours, are either rented out or part of a fleet already. Contractors who have these machines want to hold onto them since the price of new equipment and interest rates remain high.

Machines Working Longer, Fewer Machines Under 1,000 Hours

The “one-year roll" used to be the norm. That refers to how a completely new model would be used for a year and then funneled into the used equipment market. Now, we’re talking about a “two-year roll.”

RDO Director of Equipment Valuation Craig Kleindl observed that, with the new-to-used pipeline taking 18 months on average since 2020, contractors have chosen fewer used machines for their job sites. Rouse Equipment Reports, an industry leader in equipment market data, performance benchmarking solutions and appraisal valuations, also reflected this in a recent market report from this fall: physical utilization of used machines is closer to the 2010s than the previous year. 

Kleindl predicts that most dealers will transfer some of their high-production-hour machines to auction at the end of the year, but by late spring or summer 2025, the used equipment market could return to more of an equilibrium. As of writing this column, the supply of used equipment available from auctions or dealers has increased, yet the number of used machines working remains slightly below 2023, according to Ritchie Brothers. More machines working longer means most used machines’ value has decreased because when that unit is traded in or put up for sale, the machine now has higher production hours and has perhaps surpassed its OEM’s warranty.

Until the used equipment supply and demand inches toward equilibrium, used equipment buyers and sellers should pay attention to their specific region’s auctions or dealers’ lots to understand a machine’s price versus its estimated value.

Fluctuating Machine Values, Inventories, Driven by Auctions

Sandhill Auction, a global auction agency for heavy equipment, reported that increases in medium- and heavy-duty construction inventory led to value decreases earlier this summer. More used compact equipment is listed, and demand for compact models remains high, so depending on condition, used compact machines may be a great deal. As contractors search out “money for value” in the used market, some dealers are moving older machines to auctions. 

RDO Used Equipment Manager Austin Calavera, who regularly monitors auction inventories and used equipment value, says it is a "buyer’s market" at the time of writing this column. However, Calavera reminds contractors that buying equipment at auctions is always "buyer beware." If the used machine breaks once they drive it off the lot, they will not have any recourse or person to call.

"A dealer will stand behind a customer when things go south. It may be cheaper to go to an auction but the value a store adds is hard to put a price on it," he said. "Any brand of equipment that doesn’t have good dealer support normally has poor market share in that area." 

That’s not to say auctions and dealerships don’t influence one another. For example, RDO Equipment Co. compares used equipment prices to auction prices to ensure used inventory is priced at its actual market value, giving contractors the most value for their purchase. Calavera encourages contractors to contact their trusted equipment dealer first, before considering bidding on machines available at auction.

Demand for Housing Strong, Opportunities in Used Market

Despite concern from many customers about the rapid changes that could happen in the immediate future, one market indicator shows some promise: increases in housing starts.

Single-family housing starts, which account for the bulk of homebuilding, increased 2.7% to a seasonally adjusted annual rate of 1.027 million units during late fall, as reported by the U.S. Commerce Department's Census Bureau.

The National Association of Realtors (NAR) predicts housing prices to cool in 2025 but at a slower rate than they previously predicted.

So, we can be cautiously optimistic that contractors, especially in growing markets, will continue to book jobs. 

As contractors enter their end-of-the-year planning and begin bidding on jobs for the year ahead, they should continue to watch equipment values from auctions and talk to their trusted dealer. As we expect the demand for housing to stay strong, contractors should evaluate their used machine inventory and discuss which model, size and condition they’d want to seek out. Contractors should also remember to check if that "new-to-you" machine will qualify for Section 179 tax deduction if they purchase before the end of the year.

Even in the used equipment market, the more things change, the more things stay the same. Factors influencing used equipment have never fluctuated so quickly without a significant decrease in demand, like the sudden drop during the late 2000s. At the end of this year and well into the next, contractors can find the right used machine through partnerships, patience and persistence.