Iron man

PMV: I was talking to Keith Lupton at WWA and he told me to seek you out.
John O’Sullivan: I’ve known Keith for 20 years and he really is one of the industry’s icons. I used to run WWA’s Australian business. We go way back.

PMV: John if you don’t mind, I’m going to sit back as you tell me about yourself.
JOS: I’m a New Zealander, I’ve been involved in the auction business for over 20 years, running traditional auction companies like the ‘Ritchies’ and ‘WWAs’ throughout Asia, Europe, Australia and New Zealand. I was running a consultancy business before I was recruited to Iron Planet.

I would say I have a pretty in-depth knowledge of the industry from A to B.

I was attracted to Iron Planet because this how the new way is going to be. As we move forward to the future, this is the way that equipment is going to be sold.

PMV: How would you describe what Iron Planet does?
JOS: In simplistic terms we are the eBay of the construction world. The traditional auction houses are getting to a stage where their fixed-costs are extremely high.

I know you talked to Guylain Turgeon – who is a very good manager – and he puts a bright side on it, but the costs of running those auctions are phenomenal. Imagine the fixed costs of putting together an auction house.

The people, the buildings. Whereas we don’t have any of that. Our model is a simplistic model. You control the equipment, it doesn’t have to be moved, painted or put fuel into it.

At other auctions, when the machine comes in they fix it up, put fuel in it, paint it, and when you (seller) get your ‘end of account’ there’s a bunch of reductions.

PMV: You’re saying the cost is passed on…
JOS: Yes, so if your machine comes in and breaks down. They fix it and you have no control on it.

PMV: An auctioneer like Ritchie would argue that one of the virtues of going through them is that buyers are reassured they are getting a machine that will work after the auction is over.
JOS: Ok, they may get the machine going, but you don’t have inspection data to look at unless the client has given it. It’s not like it’s available online.

As you’re buying ‘as is, where is’, if that machine comes off the ramp and blows up it’s yours. There’s no guarantee. They may do a nice job of presenting it, but all that is cost to the owner.

And when a machine sells for $100,000, their commission comes off – which is quite high – so does the cost. It’s one of the revenue flows for them (traditional auction houses).

PMV: How does your conversation with sellers differ from the traditional auctions?
JOS: You’ll come along to an auction house and you’ll say what you think it is worth and the auction house will say “we can’t guarantee that $100,000”. They’ll do three different things they’ll say: we’ll buy the machine, we’ll guarantee the machine for say $80,000, or it will be a straight selling on the day arrangement.

The other thing to remember is that as there is no reserve you may not reach the $100,000 you were expecting anyway. It may go for $60,000 or $70,000. Tough luck, you have no recourse.

PMV: Why do you think that the unreserved system is unfair?
JOS: It’s a good thing for them (traditional auction houses). There’s obviously a lot more bidding when there is no reserve and, that does help, but there is also a larger risk factor.

PMV: And the seller’s taking that risk…
JOS: That’s right. Ritchie Bros take no risk. They’ll end up with an empty yard as they’ve guaranteed everything will be sold. It’s a model they use and one that they do well.

PMV: And it’s been successful.
JOS: Very. Ritchie have a moral way of doing business, they pay on time, and have a strong management structure. But, in the US, and also Europe through to the Middle East to an extent, their volume of sales is high.

Some of the prices at the auction in Dubai were extremely good and they had a very good sale. But the no reserve auction leaves them open to buy backs and there’s no way you can 100 percent stop that. If a guy rings his uncle and says if this doesn’t go, just buy it and buy I’ll buy it off you, how do you stop that?

Ritchie adamantly deny that happens, but it does happen at auctions. Becuase there is no way you can 100 percent stop it. It happens at every auction. You learn that, if you’ve been in the industry for as long as I have.

PMV: Ok, so that’s the competition, what about Iron Planet?
JOS: Iron Planet is the biggest online auction company for heavy machinery in the world. It’s where the future lies!

PMV: Is it possible to quantify that?
JOS: It turns-over $800 million a year, it has a database of 700,000 entries. They do two to three day auctions every week in the US, Australia and Europe. We don’t ‘globally’ have a competitor.

PMV: Your nearest being the online offerings of Ritchie and WWA. Guylain Turgeon said that Ritchie looked at the online-only model when it floated in the 1990s, before carrying on as a bricks and mortar house.
JOS: Iron Planet started ten years ago (during the dotcom era). Its owned by venture capital and has major shareholdings of Caterpillar, Volvo and Komatsu.

PMV: That’s some line-up…
JOS: The important thing is that we have access into all the financing companies within them across the world and they have a stake in the business. All we’re trying to do is slowly take market share from our competitors over a number of years around the globe.

The beauty here for us here is that it can be extremely costly to move machines around. Even bringing a machine down from Sharjah can cost up to $50,000 to de-rig and then re-rig. Whereas we can go to the owner’s yard and sell it from there: they control it.

The underlying thing to our business is the iron-clad guarantee. If you’re buying a machine from the other side of the world, you’re going to need it. I believe our guarantee is the best in the world.

PMV: What process does Iron Planet go through as it prepares for an auction?
JOS: Like everybody else, we solicit business; business comes our way. We then ask for an inventory. Our first call is to go out and do an analysis (at no cost) before going away and do a very in-depth evalution through our internal pricing tool that gives us a figure we believe we will meet.

We do the evaluation across three desks: myself, a European valuer and someone in the US. After that, we go back to the client and say this is what we believe.

This is one of the toughest things we do. The client may have a completely different evaluation to us. But we can show price data from the worldwide analysis where a similar machine has sold at that price.

Once we get through that process we can then move forward on the contractural side of the auction.

As we’re an ‘opening bid’ organisation, if we think something is worth $40,000 we’ll open it up at $30,000. If you go onto the site and see it, you’ll think that’s a bargain and start the bidding war. It’s always important for us and the seller that we come back with the right evaluation.

However if it’s not successful at one auction, we can put into the next at a lower price. The client still has the machine, he hasn’t lost any money, and the only cost he has had to bear is the inspection report (take 30 or 40 photos, prepare an eight to ten page report, oil samples).

You need to know if you’re in Canada, for instance, that you have all the information you need. The risk is lower for everybody.

PMV: Because of the reserve prices on inventory, does that mean you tend to attract people with large inventories or traders?
JOS: Yes. We get a lot of that. One of the reasons we came to the Middle East is that already there are a lot of buyers here from Saudi Arabia, Oman, India already that have been buying off the global platform for the last three years.

In some ways, they’ve been discouraging us coming here because their little secret was them being able to go around the world and buying equipment!

PMV: Your business is clearly very data-driven. What sort of information do you get?
JOS: We can measure activity, watch activity on the system. We have people calling from the US and Europe on second bidders. We will target a guy bidding on D60s, Ritchie, for instance, only gets the name of the person that won the machine. We capture the data of all the bidders.

It means that when another D60 comes up they get an email that says one is available somewhere else. You may have bid in Dubai but we can then tell you one is coming up in Orlando.

PMV: It sounds more like your behaving as a trading platform helping the movement of machinery in the market rather than auctioneers when you describe it that way.
JOS: We’re facilitating a need. Where an auction is an event, we are on the other hand facilitating the sale of types of machines to groups.

PMV: It’s a subtle difference but sounds like a more fluid global marketplace. Until you think about transportation costs.
JOS: That is your biggest variable but it’s two-sided. However you’ve got the machine you want. The seller has not had to move it from his yard.

PMV: Your brochure has a picture of a US auction that took place on 29 October where 15,000 attendees from 122 countries took part. It really doesn’t look like your typical region spread.
JOS: It’s one of the most powerful sales tools I have. That was people sitting around the world bidding. For a modern company to let a guy take a week off to come to an auction and wait for his stuff, is just not practical. Like I say I’ve been in the business for a long time, and Iron Planet is the only business where you don’t take stock and you solve a guy’s problem.