Just One Word: Plastics
By: Bryan Seeley & Andy Gronik, AccuVal Associates, Inc.
The iconic reference, taken from the 1967 classic "The Graduate" refers to plastics as the business of the future – how right the writers of that movie were. According to the Plastics Industry Trade Association, plastics is now the third largest manufacturing industry in the U.S., employing 1.1 million workers.
Injection molding equipment bellwether for the industry
The weakened state of the used equipment market has impacted the value of injection molding machines during the past several years. A big contributor to the weakness in this sector was the condition of the domestic automobile industry. As demand for new vehicles declined sharply, many Tier 1 and Tier 2 suppliers were forced to close plants at record pace. Many of these suppliers were unable to avoid bankruptcy despite efforts to massively restructure their businesses. The result – a huge influx of machinery released into the used market, which in many ways redefined the secondary market for used equipment as we know it today.
The plastics industry and, more specifically, the injection molding segment was certainly a class of machinery most impacted. The sea change in how the marketplace views the value of used equipment was driven by several important market factors:
- Original Equipment Manufacturers (OEMs) responded to reduced demand for machinery together with the desire to keep their plants operating by substantially reducing the sale price of new equipment sometimes by as much as 40 to 50 percent or more. This made new machinery more affordable to users who would ordinarily buy less expensive used machinery.
- Rapid improvement in production control systems routinely increases productivity and improves the simplicity of the user interface. This has resulted in much more rapid technological obsolescence making older equipment less valuable much more quickly.
- Foreign buyers now have higher standards/requirements for the used machinery they are willing/able to import, and this has reduced the demand for machinery that is ten or more years old.
- Used equipment dealers were caught with large inventories of machinery for which there was no longer demand, forcing bankruptcies and limiting future purchases on speculation.
- As mentioned previously, the economic crisis forced a huge influx of used machinery into the marketplace further saturating an already flooded market.
All of these factors directly impacted how market participants viewed the value and utility of this machinery. This perfect storm created conditions where equipment once considered salable were now considered a "boat anchors" desirable only to scrap dealers. However, in many cases, scrap dealers were no longer willing to pay for the cost to remove the machinery. In these situations, the sellers and their secured lenders were faced with an unexpected liability.
Signs of recovery?
While we believe the demand for injection molding equipment more than ten years old will see little recovery, we do see the overall market for later model equipment appealing to a broader cross-section of the marketplace is improving. Inventories of this type of machinery are shrinking, and inquiries have steadily increased since July 2010. AccuVal has monitored more than 700 sales of injection molding equipment over the past year and the data analyzed using our proprietary ProofBox™ technology shows the value of late model molding machines with clamp capacities of 500-ton to 750-ton have not only stabilized but increased in value in contrast to comparable assets sold in the preceding 12 months. This is a very encouraging sign of things to come.
It is important to recognize that injection molding machines are frequently designed to address custom manufacturing requirements of the end-users that originally purchased the equipment new. This may directly impact marketability even within the capacity ranges demonstrating greatest demand. Very large capacity molding machines appeal to a smaller population of users and can be challenging and time consuming to sell even in the best market. It is generally helpful to consider the cost/benefit of offing this machinery through an orderly liquidation verses going straight to auction where sellers have no control to negotiate the sale price.
New equipment market outlook
There is also evidence that the market for new equipment is improving, as well. In a recent article from Modern Plastics Worldwide, Engel North America and Conair increased revenue growth for their companies in 2010 with continued optimism for growth in 2011. The end result for these two companies is increased staffing and manufacturing capacity in anticipation of continued demand for new machines and auxiliary equipment.
Exhibitor interest for the 2012 National Plastics Exposition (NPE) also appears to be increasing, which is an encouraging sign that OEMs are willing to proactively invest in sales and marketing rather than conserving all available capital to weather the storm.
OEMs are generally pleased to see the used market firm up because it allows them to attempt to obtain some conservative price increases of their own. OEMs are also competing for buyers who may have previously considered used equipment by building more stock of standardized equipment in higher demand.
Did you like this article? Click here to sign up for The AccuVal AdVisory™ or send us an e-mail with your comments at inquiry@accuval.net.
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.
© 2013 AccuVal Associates, Inc. All Rights Reserved