Nate Smith from Absolute Group of Companies joins David to discuss the depreciation curve for injection molders.
About this segment of Blackbird TV
Recorded: October 21, 2020
Published: February 15, 2021
I’d like to introduce Nate Smith from Absolute Machinery. Nate’s in the injection molding equipment business, among other things. Nate, good morning, thanks for your help today. David, how are you? I’d like to talk a little bit and get your opinion on the depreciation curve for an injection molder. When I do an appraisal on an injection molder, there seems to be this cliff that they fall off of and it seems to have a time frame to it. Could you elaborate a little bit on what your opinion is on that depreciation? Well, depreciation is an interesting approach to the value, the valuation curves are impacted by frankly the manufacturers themselves of this injection molding machinery How so? We like to look at the approach for evaluations in a configuration of I say, some people say A, B, C, and D groups, where you would have one manufacturer or several manufacturers that participate in the US market in excess of 25 somewhere up to 40, where they’re just selling what we call dumping machinery into the North American market where they wouldn’t have particularly the support, the parts and components network that’s required to be in that class 1, or class A envelope, so what we see from the market perspective, whether it’s through auctions or private treaty where the machines are sold new into the market and over the five to seven year curve, we in the Absolute group of companies, have navigated through that and figured out in our machinery world when we do appraisals that the percentages exponentially collapse on the D or four or fifth machine tier machines, versus that of a tier 1 machine. Almost like an automobile, you get what you pay for and the lifespan lasts longer. You really do. We’ve taken in machines that are two or three years old for literally almost scrap value, because it’s like “where’s the beef?” Nobody’s there to assist on these machines and the servo hydraulic segment the hydraulic segment and and the electric segment, there’s a variety of machines just like there are cars, I like to use the analogy that we have the Tesla series that’s offered by Absolute Haitian, all the way down to the Prius. So we have segments of an electric molding machine servo hydraulic which has impacted the industry significantly utilizing 50 to 70 percent less electricity than a traditional 20-year molding machine. So Nate, which is an A machine, and which is a D machine, by brand name? Can you share your opinion? I’d rather not go there because it’s a personal opinion, but we have class A, class B, class C and class D. On the forced liquidation value or the fair market value on a class A machine year one would be we’ve designated that on a fair market value 85 percent of the original cost okay when you look at a class D machine, okay the fair market value day one collapses 45 percent, fair market value. Forced would be 65%, so you can see it’s day one actually you get what you pay for you know. Absolutely that’s really an important point and not unlike the automobile as as we just discussed that tail then drives out but at some point that D machine’s valueless. Nobody’s gonna want it. Well it’s difficult. The D machines, you know we’ve taken and trade different machines and we’ve actually entered them into scrap within months of ownership because why sells frankly knowingly that we share this with the customer that perhaps there’ll be almost no support, so you might have to retrofit the controller, there might be substandard parts in the machine like valves, in various components in US manufacturing they want to get the most out of their machine, and their value. Why not invest in organizations and companies that support the machinery not only from a technical aspect and a quality aspect, but the support, the aftermarket support, is critical to the success of, I know our organization, and the part support. Really good information, Nate. Thanks for your time today. Thank you.