Production of new everything — from cars to electronics — is slowed
Jack DaleoThursday, October 28, 2021
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.