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CNC Equipment: Lifeblood of Manufacturing Operations Still Declining

You can walk into a wide variety of manufacturing facilities today and find what is referred to as Computer Numerical Control (CNC) machinery. Through its versatility and wide ranging types and sizes, it enables users to program a series of automated actions that create a product through the removal of metal. This machinery specifically includes machining centers, turning centers, CNC lathes and grinders, electrical discharge machines, and CNC screw machines, among others. Whether utilized as a primary step in the manufacturing process or as an enabling step through the creation of a die, as in molding or stamping operations, this machinery has been the “lifeblood” of many manufacturing operations for years. These attributes, which have made CNC machinery so desirable in the past, have ultimately contributed to growing inventories of idle equipment on the secondary market today.

Facility closures and consolidations flooding the used equipment market

The closures of a diverse combination of both small and large facilities, in the wake of the recent financial crisis, have combined to fill the market with equipment ranging from the 1980’s era to “like new” machinery. Since September 2008, AccuVal has monitored over 300 auctions containing varying amounts and types of CNC machinery. The companies that are the subject of these sales serviced a variety of industries, including automotive, aerospace and plastics packaging. The wide–ranging usage that made CNC machinery a staple of many manufacturing facilities has ensured that the equipment is increasingly listed in liquidation catalogs.

The steadily growing stockpiles of used machinery have had a trickle-down effect, depressing values to increasing degrees relative to the age of the machine. Many assets that were salable in past years have now become liabilities in liquidation. Market research indicates that the majority of CNC machinery originally manufactured in the 1980’s, and in some cases the early 1990’s, may be all but unsalable in a duress sale scenario.

Technological obsolescence is further driving equipment values down

Technological obsolescence has compounded the market issues for these older machines. Early generation controls have been, for some models, replaced or updated many times since their original inception. With the increasing emphasis on efficiency, precision and production levels while reducing operating costs, buyers need more for their money. This has required some sellers to have to pay to have machinery removed and/or scrapped. Even those assets that are still marketable are realizing sale values at 20% or even 30% less than what they garnered in past years.

Deep discounts being offered on new machines

In an effort to stimulate sales of new machinery, manufacturers are offering deep discounts to get their machinery into production and off of distributors’ floors. This has, to a small extent, stimulated new sales, but it has only further weakened an already soft secondary market. A positive byproduct of this trend is a natural winnowing process that will cycle–out less productive machinery and, in turn, streamline production processes. Conversely, while companies who are remaining productive are utilizing more efficient machinery, those who are forced to exit the market have to lower their expectations regarding sale values for their older, less productive equipment.

Hope hinging on success of automotive industry recovery

At this point, future demand is in question for many types of used CNC machinery. Some of the largest sources of demand, like automotive suppliers and die shops, are still searching for sustained positive movement in their respective sectors. Some optimism may be on the horizon as domestic automakers seek to reinvent themselves; an effort that, if successful, will help thousands of suppliers who rely on automotive-related orders. Additionally, government incentives for “green” technologies and alternative energy sources could help stimulate demand for machinery needed to manufacture items such as wind turbines. While there are potential and future prospects for increased demand, for the time being it seems as though values for older used equipment will continue to decline, while later model machinery values attempt to stabilize. The market will continue to look for rejuvenated demand from a contracting buyer pool with the success of the automotive industry playing a significant role in the CNC machinery market’s future.

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About AccuVal
AccuVal provides a broad range of valuation, advisory and asset management solutions that contribute to growth or help ensure survival. We appraise the business enterprise and shareholder equity; bonds; intangibles and intellectual property; machinery and equipment; inventory; real estate and accounts receivables in over 100 industries worldwide. Learn more at www.accuval.net.