Metalworking Machinery & Equipment
Date March 2020
- Demand is soft for new and used equipment
- Manufacturers have increased new equipment discounts
- Equipment auctions have largely been moved online or postponed since the onset of the coronavirus pandemic
- Steep decline in equipment values since early 2019
By the Numbers
CNC equipment market on a downward trend: CNC machines process a piece of material to meet specifications by following a coded programmed instruction and without a manual operator. The used CNC equipment market tends to be cyclical. Looking back, the used market for metalworking equipment was excellent from 2011 through 2013. From 2014 through 2017, there was significant pullback by end users and dealers in purchasing both new and used metalworking equipment, specifically in the CNC market.
From 2014 into early 2017, original equipment manufacturers discounted new equipment up to 30 percent, which significantly drove down the value of late-model used equipment, and bottomed out the value of CNC equipment 10 years of age or older. Total machine tool order sales for 2018 were $5.5 billion, representing a 19 percent increase over 2017.
Beginning in 2019, the key leading indicators for the manufacturing technology market were positive and suggested a healthy and stable marketplace domestically. Analysts were predicting continued to modest growth in tool orders and revenue in 2019. But at the same time, they were keeping a watch on other market indicators such as trade policy and slower markets abroad, which had the potential to negatively impact the domestic industry.
As it turns out, total machine tool orders for 2019 were $4.5 billion, down 17 percent from 2018. Several factors such as trade wars, tariffs, sophisticated technological advancements, manufacturers’ continued pursuit of full automation, and the cyclical nature of the industry all had a trickledown effect and negatively impacted the value of new and used equipment. More specifically, in 2019 U.S. automotive sales declined 1.4 percent, with car sales decreasing 10.9 percent year over year. The aerospace industry experienced the grounding of the Boeing 737 Max Jet in March 2019 with suspension of production of the 737 in January 2020.
The oil and gas industry is also experiencing many challenges, with an active rig count total of 664 as of March 20, 2020, down from 833 total active rigs one year ago, representing a 20.3 percent decrease over the past year. Crude oil prices are down from $60+ per barrel in March 2019 to $20+ per barrel in March 2020. When a slowdown in major industries such as automotive, aerospace, and oil and gas occurs, the impact and ramifications are felt across most, if not all, of the metalworking manufacturing industry. These slowdowns have ultimately resulted in depressed values of metalworking equipment over the last 12 months.
As of early March 2020, it was not uncommon to see decreases in the value of used metalworking equipment ranging from 10 to 30 percent year over year, depending on the type and vintage. Late-model CNC equipment continued to be salable and did not experience as sharp a decline. Older CNC, heavy manual machinery, and more customized machines continued to be increasingly difficult to sell as of early March 2020.
Market impact of coronavirus: The onset of the coronavirus (COVID-19) pandemic in early 2020 has amplified the slowdown in sales that began in 2019. Since mid-March 2020, the Big Three U.S. automotive manufacturers have suspended production, Boeing has ceased operations, crude oil is at its lowest price per barrel since 1999, and state governments are issuing orders to close non-essential businesses.
It remains unclear as of March 26, 2020, how severe the impact of this pandemic will be to the economy, the metalworking manufacturing industry, the industry segments the metalworking manufacturing industry supports, and the values of used and new equipment in this space.
Once the ramifications of COVID-19 and its impact on the marketplace can be effectively quantified, lenders who have not updated the values of assets in their portfolios since the beginning of 2019 may strongly want to consider a new appraisal that reflects the adjustment in market conditions.
Auctions moved online or postponed: State and local limits or bans on public gatherings in the wake of the coronavirus outbreak have impacted equipment auction formats, at least in the short term.
As of the week of March 16, 2020, auctions were typically being postponed, conducted via webcast, or held in a timed online format only. Prior to this date some onsite auctions had proceeded as planned, with auctioneers limiting the number of onsite bidders, providing hand sanitizer, and encouraging attendees to keep a safe distance.
As of the week of March 23, 2020, auctioneers previously conducting onsite auctions had shifted to online only formats as well. Given the current climate, likely limited attendance and buyer interest has impacted auction results.