Here’s a crazy stat: If you wanted to buy a used car right now, there’s a good chance it would cost you more than a new model of that same car.
It sounds impossible, but that is exactly what is happening. With a shortage of semiconductors and automotive factories closing down left and right, new cars simply aren’t being produced, and that’s caused the value of cars on secondary and resale markets to skyrocket — to the point where they’re often more expensive than new cars.
But it isn’t just new cars that aren’t being produced right now. The semiconductor shortage has impacted industries far and wide, which has caused their respective secondary markets to take off because companies are unable to acquire new products or equipment. The demand in resale markets is stronger than it’s been in decades, and that’s opened up an entirely new revenue stream for brands that need to repurpose their chip-less assets.
There are a multitude of reasons why a company might sell on a secondary market. It could be because one of its manufacturing plants is closing. It could be because the company has surplus assets or is switching to a new product line. It could be that the company simply doesn’t want to see its assets turned into scrap. But whatever the reason for selling, brands have a chance to capitalize on a resale market that’s stronger than it’s ever been in recent memory.
“There is strong demand for used equipment, I would say the strongest demand we’ve seen for at least 20 years,” Nick Taylor, senior vice president and managing director of capital assets at Liquidity Services (NASDAQ: LQDT), told Modern Shipper. “Now is the time to sell surplus industrial assets because the demand … well, we’ll be surprised if it gets any better.”
Taylor’s company, Liquidity Services, provides valuation services for companies’ surplus assets and helps them to either redeploy those assets elsewhere in the company or sell them on a secondary market. Based in Washington, Liquidity Services mainly serves Fortune 500 manufacturing companies with locations worldwide.
Selling on a resale market is a way for companies to optimize the value of their unused assets –– often, the sales are multimillion dollar auctions, according to Taylor. Also, because surplus assets are scrapped if they aren’t resold or redeployed, companies see secondary markets as an opportunity to be more sustainable. Other times, they simply want to create more physical space in their facilities.
Out with the new, in with the old
One of the biggest beneficiaries of the chip shortage has been the secondary market for manufacturing. Because new machines can’t be manufactured due to the lack of semiconductors, the value of older machines on the resale market has soared.
“The value of used equipment has gone up because there’s enormous demand, particularly in America. And manufacturing companies can’t buy new,” Taylor explained. “They’d have to wait 12 months to get new machines — that would have been three months 18 months ago.”
Most manufacturers don’t have the luxury of waiting for those new machines to be built — they need to be able to produce now, which has led to them buying up used machinery instead.
“The waiting list or the order book to get new machinery has been so extended because they are unable to get the chips to manufacture new machines,” Taylor said.
But manufacturing isn’t the only industry that’s seen its secondary market go berserk.
“There is enormous demand for the secondary market semiconductor manufacturing assets,” Taylor noted. “In fact, anything involved in electronics manufacturing … there is enormous demand for production.”
Record demand, in fact. Unsurprisingly, chipmakers in China, Korea and Taiwan want to make more chips, and they’re buying used semiconductor manufacturing assets to help improve their output. With semiconductors being one of the countries’ main exports, the demand for electronics manufacturing in Asia has reached unprecedented levels.
“If you look at the world of the semiconductor OEMs, they’re talking extremely long order books, enormous demand for used equipment in the semiconductor field, which hasn’t been seen before,” Taylor said.
Pharmaceuticals is another secondary market that’s taking off. According to Taylor, Chinese buyers have been purchasing huge amounts of pharmaceutical assets from the U.S. and Europe and shipping them back to China.
Oil and gas is another –– in Taylor’s home country of the U.K., for example, gas prices have surged by 250% since the start of this year, and that’s boosted the demand for used gas processing equipment.
And then there’s the automotive industry. As Taylor explains, “Even though the automotive sector is transitioning to electric vehicles and is therefore getting out of the diesel engine world, there is still demand for those machines because they just can’t make cars.”
Due to the chip shortage, automakers have been closing down their plants and limiting production, which has taken away from the supply of new cars. In fact, Taylor said, right now a used car that is 1 or 2 years old can often be sold on a secondary market for more than a new version of the same car. According to him, the value of cars on the resale market is higher than it’s been in 30 years.
A blessing and a curse
While supply chain disruptions have led to the secondary market taking off, they’ve also inhibited it to a degree. For one, it’s more expensive to ship resold goods now than it was last year because of historically high shipping rates.
“If a U.S. company wanted to participate in the secondary market in Asia, it’s now costing them seven times more than it did 18 months ago to move that equipment back into the U.S.,” Taylor explained. “And it’s taking a long time. So that lack of the ability to deliver assets into the U.S. market is also impacting the value of the goods in America.”
Not only are shipping rates high, but so are wait times. Currently, billions of dollars worth of cargo sit outside California ports each day, with no end in sight to the congestion. As Taylor explained, that’s messing with the prices of products in the U.S. –– as shipping costs rise and imports dwindle, the price of those goods goes up.
Taylor hesitates to predict an end to the semiconductor shortage: “I remember being told in January that this shipping, this logistics issue will be resolved by May, that container prices will be back down to normal levels by May. And we’re now living in October, and it’s gotten higher and higher. Even last week, I was hearing it continues to increase. So all predictions so far have been inaccurate.”
That being said, he and Liquidity Services envision the demand on secondary markets to be steady for at least the next nine to 12 months — and it may even get stronger in the U.S.
“We do not see any improvement in the availability of new equipment. We do not see a reduction in demand. In fact, in the case of the U.S., with all the investment in infrastructure, that’s only going to increase.”