*Cleanzine-logo-10a.jpgCleanzine: your weekly cleaning and hygiene industry newsletter 13th June 2024 Issue no. 1118

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Soapbox: How inflation affects the prices of new vs. used machines - or how it doesn't

* Soapbox-inflation.jpgby Dennis Kottmann, head of marketing at Surplex

"The economic situation and production costs determine the prices for new machines. It's an ideal time to sell your no longer used equipment in times of falling inflation rates.

To understand how product prices come about and how they are likely to develop during the year, one must look at the economic situation. Europe is currently on a knife's edge. Looking at the Gross Domestic Product (GDP) of the Eurozone countries, there was a contraction of -0.1% in the first quarter, indicating a recession - the second quarter in a row, although very mild. The 27 EU countries were able to avoid the specter of recession with GDP growth of +0.1%.

The forecasts are rather positive. Overall, a GDP growth of 0.8% is projected for the EU in 2023. In the euro area, growth is expected to rise by 0.9% this year. Currently, the machinery and plant engineering industry is going through rather difficult times. Because where the economy shrinks, fewer orders are placed. Thus, in 2023, European machinery and plant manufacturers are also grappling with steadily declining order numbers. This is because customers are hesitant to make investments in tense times.

High prices for new products
The price level for new machines can be determined, among other things, by the level of the inflation rate. In May 2023, it was still at a high 7.1%. At least a downward trend is noticeable. An average rate of 6.4% is still expected for 2023, but some distance has been regained from the highest inflation rate since the EU's existence at 11.5% in October 2022. Despite the gradual decrease in high inflation, declining real wages, a lack of consumption, and rising credit costs are slowing down the economy.

These are also reasons why the mood in European machinery and plant engineering is currently only mediocre. The decline in consumption and the reduction of inventory levels have a dampening effect on production. This means: High production costs for machines with low demand.

What does this mean for the prices of new machines? The costs depend heavily on current energy and raw material costs. And these are currently relatively high, even if not as shockingly high as last winter. In addition, staff shortages and rising labour costs play a role. Used machines are less affected by such fluctuations. This is because the price of a used machine results mainly from factors such as type, manufacturer, age, demand, and availability.

Slump in mechanical engineering favours the used machinery market
The prices of used machines cannot be determined by the usual parameters, according to Kai Prager, head of the valuation department at Surplex, who says that the impact of inflation is not directly reflected in the prices of used machines but follows with a delay on the price changes for new machines. We are currently in a phase where the current market situation is showing in an increased supply with slightly falling hammer prices. This is because the more machines that are offered on the market, the lower the hammer price becomes.

On the other hand, companies are hesitant to make large investments in times of economic uncertainty. Potential buyers then often turn to the used machinery market, as machines are immediately available there and cost significantly less than a new purchase, despite good quality. Kai says that the price of used machines often shows how the market is currently functioning and which trends are emerging, and that Industries in which a higher demand arises due to economic circumstances also show an increase in selling prices.

Advantages of selling used machinery
Given the current economic situation, the increasing demand for used machines, and probably soon falling prices, now is an ideal time for companies to sell their superfluous machines. By selling, companies can not only generate liquidity but also create space for more efficient or technologically advanced machines. In particular, companies that are restructuring their production can benefit from the used machinery market.

Moreover, the robust used machinery market allows companies to achieve a fair price for their machines.

Currently, it may be worthwhile for companies to check which machines are expendable. Working with an experienced professional like Surplex can be beneficial. Industrial auction houses like Surplex have competent machine appraisers who use their high technical knowledge about the machines and can define the prices for used machines fairly and accurately. They rely on a combined data- and experience-based valuation, and combine the long-term experience of a machine's value with prices from auction results as well as dealer or internet prices on various platforms.

The newer and better maintained the machine, and the more renowned its manufacturer, the higher the potential selling price."

Surplex is one of Europe's leading industrial auction houses and trades worldwide with used machinery and equipment. The 16-language auction platform records approximately 50 million-page views annually. More than 55,000 industrial goods are sold each year at more than 800 online auctions. The company is based in Düsseldorf (Germany) and has offices in 16 European countries. Over 220 employees from 20 different nations generate an annual turnover of more than EUR 100 million.

www.surplex.com

27th July 2023




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