Iron Planet starts in Europe
By Alex Dahm06 April 2009
Tom Cornell joined online used equipment auction house Iron Planet on 1 September 2008 as managing director of the new European division. He moved from construction equipment manufacturing, where he had experienced unprecedented demand for new machines, joining Iron Planet just as the dramatic global economic downturn really took hold and demand for new machines suddenly slowed while a large number of used machines became available.
IronPlanet says it is the world's leading online auction company for used construction and agricultural equipment. It conducts online auctions almost every week in the US, Canada and Australia. A global audience of more than 14,000 visitors participates in its US auctions.
Iron Planet's European division was set up in Dublin, Ireland in late 2008. Its first European auction was on 28 January 2009.
Tom Cornell talks enthusiastically about the prospects for Iron Planet and the new European division. "Iron Planet is a great organisation and I think its greatest characteristics are in its size. It's pretty small and, therefore, very nimble. If you look at our growth year-on-year you see in 2007-2008 this enormous ramp in growth that came from a number of reasons. First, is that it shows very clearly that the business model is working and that the market has really cottoned on to it and people are really beginning to understand the value proposition over and above what I call the traditional conventional land-based auction."
Another reason for the growth is that the sales force in the US was doubled with the addition of 70 people. "The business is growing very, very quickly: 2008 [turnover of more than US$340 million] saw us 50% up on 2007, which, again, can be attributed to the traction of the business, acceptance of the model, obviously a glut of equipment around for selling, and a lot of people talking to customers."
In the beginning
"When Iron Planet was founded in the US in 1999 its major investors were two of the largest venture capitalist companies in America. That initial investment went into creating the software that Iron Planet's business is based on. The software is incredibly powerful and enables us to do what we do."
When Iron Planet was looking for second-round funding it sought strategic partners. Caterpillar, Komatsu and Volvo are now investors and participate on the Board. "They had the foresight to see that Iron Planet could become an integral part of their disposal channel for second hand equipment," Cornell continues.
There are differences between the US and European businesses. Equipment for use in Europe should be CE certified. The vast majority of equipment in the American auctions is not CE certified "so our buyers in Europe were really brokers or dealers buying to resell. As acceptance and understanding of the model spread and demand developed, ‘we want Iron Planet but we want to buy CE-certified machinery.'"
There were several challenges in setting up the first European auction, primarily on the supplier side. "All the potential suppliers, whether OEMs, dealers, contractors or rental companies, have an existing channel to market for used equipment." It might be auction, a direct sale, or trading. "The ultimate challenge people have is that there is a lot of equipment about and, therefore, to find buyers locally or even regionally becomes harder because there are more people offering it."
Pricing is another challenge. "Due to the availability of second hand equipment the prices in the market have dropped substantially and are continuing to drop. It varies according to machine type but I would say, since the middle of last year, prices have dropped by 20%."
Sellers have a major challenge in that they have a lot of cash tied up in inventory that is not being utilised. "They want to get rid of it but, quite often, their net book values are considerably higher than the market price so they then have to start writing values off their balance sheets." Their greatest challenge is to find a buyer. "I tell people that we have a model that maximises price. It costs you less. The time to get your cash is generally quicker than a traditional land-based auction. I've just been selling a very simple concept: Generally a higher price, a lower cost and a faster time to cash. In the current environment people listen to that."
"While we are focusing on the supply side we've got to focus on the buyer side as well and that ultimately is what Iron Planet is. We are an online platform that brings global suppliers and global buyers together to create a marketplace. That's all we're doing."
There are issues to overcome regarding confidence in selling online. "Generally, people in the construction industry like to see and touch the equipment and have the chat. So, we are asking people to sell and to buy equipment that they have never touched and suppliers are nervous of that. Suppliers ask whether people are really going to buy it if they have never touched it.
"What I remind people is that 35% of everything sold in America is sold to buyers outside America. There are people in Africa, in Europe, in the Middle East and in Canada buying equipment from America that they have never seen before."
Similarly, buyers need the confidence to purchase online. "We have an auction every week in America and generally everything is selling. I think the reason is twofold. One is that the economy has slowed and there are stories of construction projects around the world being delayed but there is still a lot of activity.
"What is fuelling our business is that because people are having a hard time financing new equipment, second hand equipment is becoming all the more attractive."
Until now, Cornell says, if you bought second hand equipment at auction, you very rarely had a guarantee of quality. It was a case of buyer beware. If you go to an auction and you buy a piece of equipment it is up to you as a buyer to inspect it and look at it and make sure you are happy with it. "Iron Planet offers customers a guarantee of what they see is what they get and I think that is helping us."
The Inspection Report is a key factor. "Buyers get confidence through past experience but it is ultimately down to the fact that our Inspection Report is so reliable. Its objective is to tell the buyer the exact condition of a machine. If the machine is in an absolute mess the Inspection Report will show that and it probably won't get a very good price at auction. The key thing is that we are managing buyer expectation."
Unlike with conventional auctions, Cornell says, Iron Planet is active in selling the equipment right from the beginning. "During the preview, I have a call centre team of eight people speaking 14 languages, who sell that equipment on the telephone to a global buyer base of nearly half a million people during the auction preview period. These guys are making typically 80 to 100 calls a day. They will be ringing all the buyers around the world who they know are interested in this particular equipment."
"We are making life as easy as possible for the buyer. For machines that have the Iron Clad Assurance, we're guaranteeing the quality for the buyer. The buyer doesn't have to travel anywhere. The buyer doesn't have to worry about the quality.
"For the seller we are maximising price, we are minimising cost and we are making it as easy as possible and we are getting them cash, generally within five to six weeks of them consigning the piece of equipment." Commission is between 14% and 8%, depending on the value of the equipment. "The higher the price we get for the seller, the higher our commission. It is as simple as that."
What about buying and selling cranes through Iron Planet? "I'm really starting the business in Europe based on conventional construction equipment and I wouldn't say that a crane is conventional construction equipment. However, there is experience of cranes in the US. The interesting thing about cranes, depending on their size, is that they pose some of the challenges that we face with the bigger construction equipment. Sometimes there is dismantling to do prior to transportation for the buyer.
"A question for a crane buyer is ‘how much it will cost me to get it to where I am and has the seller given any indication of what it's going to cost to dismantle it?' The Iron Planet model lends itself well to buying and selling of cranes online."
What is the forecast for the first year of Iron Planet in Europe? "I'd like to try and do probably 80 to 100 million Euros of equipment this year. Satisfaction for seller and buyer is the key thing. If we can get four or five really good auctions under our belt, not too big, and we make a good job of it then I think this business is going to explode."
It is an interesting and positive story at a difficult time. "The ultimate beauty of the model is that it works for anything: we sold 15 Harley Davidsons through it last year in America. If we can do it for a Harley we can do it for a crane."