Companies Increasingly Turn to Auction Block : Business: Process allows General Dynamics to unload unneeded equipment quickly and for cash.
Shortly after the auctioneer closed bidding on Item 43 during Thursday morning’s auction at a San Diego hotel, Tom Hartford handed over a deposit and walked out the door with a receipt for a piece of used electronic equipment.
“I rent these things out to people,” said Hartford, a Santa Barbara resident who paid $630 in cash for the power source that previously was owned by General Dynamics’ electronics division. “It would cost me about $3,000 new today . . . so I got a good deal.”
Hartford was glad to have the used equipment. But General Dynamics, which authorized the auction, was equally happy to have Hartford’s cash.
The company won’t discuss specific numbers, but the auction at the Sheraton Harbor Island Hotel, along with recent auctions in Pomona and Ft. Worth, Tex., generated millions of dollars in gross revenue for General Dynamics, which is trying to trim operating and maintenance costs as its stream of Pentagon dollars slows.
With the recent auctions, General Dynamics joined the growing ranks of corporations that are finding auctions a fast and relatively inexpensive way to move excess inventory and surplus assets out the door.
Auctions have long played key roles in the agriculture and livestock industries. Some corporations, including Black & Decker, General Motors and Campbell Soup, have long used auctions to turn outdated inventory and assets into cash.
Walt Disney World is one of a handful of companies to have a staff auctioneer who supervises the sale of excess equipment and inventory, including cars, trucks and restaurant equipment. Auctions at Orlando-based Disney World can generate up to 50% more revenue than the use of liquidators or sealed bids, according to Don Shearer, Disney World’s auctioneer.
Auctions are gaining in popularity among corporate customers because companies “can sell (items) at a given date in time for cash and know that it’s going to be gone,” said Ken McCormack, president of San Diego-based McCormack Auction Co.
“They can sweep the floor and close the door,” McCormack said. “It’s not like using a piecemeal liquidator, which can go on for months. And you know that every item goes to the highest and best bid, in cash.”
Auctioneers are hesitant to estimate the value of inventory sold by corporations through auctions each year.
However, the dollar volume of residential, commercial and agricultural real estate sold in auctions during the past decade has grown to $26.5 billion, up from $10 billion in 1980, according to figures supplied by the Gwent Group, a Bloomington, Ind.-based consulting firm.
Although public awareness of auctions has grown in recent years, auctions “have been a pretty well-kept secret as far as the general public is concerned,” said Bob Steffes, a Fargo, N.D.-based auctioneer who serves as president of the National Assn. of Auctioneers.
Auctioneers are bolstering public awareness of auctions by dramatically increasing their advertising and marketing budgets, said Richard Rubenstein, a vice president with Ross-Dove, the San Francisco-based company that is running General Dynamics’ auctions.
Ross-Dove, which created slick, four-color brochures for General Dynamics’ San Diego auction, also advertised heavily in newspapers and used its own, proprietary mailing lists to draw customers.
Among the more than 500 bidders at Thursday’s auction were representatives of the nation’s largest liquidating firms and first-time buyers. They were attracted by an auction catalogue that included everything from Apple II computers and office desks to thousands of pounds of titanium and a $2-million robotics assembly line.
Bruce Miller, a San Diego-based General Dynamics employee who was attending his first auction, bid on several oscilloscopes for his garage workshop. Miller, who had set $200 as his absolute limit, seemed confident that he would find the right piece of equipment at the right price.
At the high end, buyers paid hundreds of thousands of dollars for tons of raw materials, aging machine tools, a wide range of outdated computer equipment and millions of unused parts from the company’s Electronics, Convair, Space Systems and Data Systems divisions.
Auctioneers caution that auctions aren’t a suitable tool for the disposition of every unneeded asset. Much of what fills corporate America’s garages continues to be sold through “tag sales” or through liquidating firms.
Auctioneers also are working to eliminate the widespread belief that auctions are only for “distressed” companies, said Steve Comly, chairman of the Certified Auctioneers Institute and vice president of William F. Comly & Sons, a Philadelphia-based auction company founded in 1834.
The “stigma” surrounding auctions is gradually changing as “more and more Fortune 500 companies . . . (discover) auctions as a smart business decision,” Comly said. And, as Steffes noted, even the federal Resolution Trust Corp. “is seeing that auctions work, both in rising and falling economies.”
Auctions are particularly well designed for the kind of older equipment and raw materials that General Dynamics offered for sale Thursday because competitive bidding quickly sets a fair market price for even the most obscure items, auctioneers said.
“Everybody knows what something costs new,” Steffes said. “But nobody knows the value of used. What is the value of a 15-year-old Caterpillar (tractor) or a 10-year-old crane . . . an auction tells you that value almost immediately.”
