CNC Equipment Values on the Rebound
By: Tim Randall and Nick Pasqualetto, AccuVal Associates, Inc.
Computer Numerical Control (CNC) machinery, known for its versatility and automation actions, suffered a significant downturn during the recent recession after years of consistent demand. The need for products produced by CNC machines diminished, which reflected a drop in demand for the equipment. The result was a prolonged period of increased liquidation volume and consolidations of CNC related production facilities. These two factors resulted in a market flooded with used machinery and depressed values.
AccuVal has continued to track the used CNC market closely. Through the use of our proprietary ProofBox™ technology, we have begun to see a rebound in auction values and a reduction in overall CNC related liquidations indicating a promising future for the value of this equipment.
Auction activity slowed during first quarter
Since 2009, AccuVal has monitored more than 400 auctions selling CNC equipment. Shown below is the number of auctions that have taken place each month from September 2009 to March 2011. The significance of these numbers lies in the fact that since the end of 2010, there have been dramatically fewer auctions than in any previous months dating back to 2009. The sustained reduction in sales illustrates there are far fewer facilities having to close their doors and liquidate their assets. When compared to the prior two-year period from 2009 through 2010, sales were as low 15 per month, with an average of more than 23, and highs of 30 to 34 sales per month. For the first three months of 2011, this falls to an average of less than 10 sales per month. Though this only represents a quarter of the calendar year, this data should be a good barometer of what's to come.
Used equipment supplies diminishing as demand rebounds
The steady stream of used machinery that was flooding the market during the recession has now begun to dry up, creating an upward trend in the value of available machinery. As a result, demand has increased in recent months, and buyers are finding that there are increasingly fewer used CNC machinery options available to them.
This has been evident in the gradual increase in realized sale prices demonstrated in the more than 60 auctions AccuVal has monitored since December 2010. Increased demand has been further supported by reports from The Association for Manufacturing Technology and the American Machine Tool Distributors Association that current consumption for manufacturing technology is up 138.1 percent for 2011 over 2010. Compounding the domestic increase in demand is the continued consumption of CNC machinery by China as a result of its increased presence in the automotive industry as well as its rapid growth in durable goods and infrastructure expansion.
Automotive industry driving recovery
In early 2010 the recovery of the CNC equipment market needed to be fueled by the automotive industry, its suppliers, die shops and the emerging need for machinery to support the growth of "green" technologies. These major "drivers" of CNC demand have come through for 2011. Automotive production for March 2011 in the U.S. including cars, light trucks and medium- to heavy duty trucks has increased by approximately 20 percent since this time last year, according to WARD's Automotive Group. It also reports an increase of roughly 15 percent year to date over 2010. When all of North America is considered, there is a similar overall increase in volume of production, as depicted in the chart below.
Current projections for automotive production for the rest of 2011 are positive, however, international circumstances relating to unrest in the Middle East and European interest rates could have a negative effect on these production estimates. Moreover, rising gas prices and the further weakening of the dollar if European interest rates rise, may not only stymie automotive sales, but directly impact the purchasing power of manufacturers looking to add equipment.
While the current trends indicate a steadily improving market for used CNC equipment, it is still in a state of flux. Continued high levels of uncertainty regarding the stability of both the U.S. and world economies will have an impact. For U.S. manufacturers, decisions regarding current depreciation and R&D based tax incentives may go a long way in assisting in a continued recovery. All things considered, there should be cautious optimism about the current state – and near future – of the used equipment market for CNC machinery.
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