This is a David-vs.-Goliath yarn with an intriguing twist: In this scenario, David is armed with something more than a slingshot.
The David in this saga is a Shakopee construction equipment auction company, Cat Auction Services, which peddled consignments worth about $48 million in 2009, its first year in business.
Goliath takes the form of Vancouver-based Ritchie Bros., a highly regarded equipment auctioneer whose annual auction volume is tabulated in the billions.
But our David, personified by Cat Auctions founder Rick Albin, has a not-so-secret weapon: It has licensed the name and enjoys the endorsement of Caterpillar Inc., the world's leading manufacturer of construction and other heavy equipment.
Indeed, Albin so far has recruited as co-owners nine Caterpillar dealers operating in 11 midcontinent states from North Dakota to Texas and from New Mexico and Colorado to Michigan. And others might be joining the group soon.
Although Caterpillar has no financial interest in the auction company, its website announces each of Cat Auctions' sales for days ahead of time.
As a result, there's already some serious growth: With 12 to 14 auctions expected this year, Albin is projecting a sales volume of about $70 million, a 46 percent increase. Given its 10 percent commission, Cat Auctions thus would bank about $7 million this year, vs. $4.7 million in 2009.
But sales and commissions are just a part of the objective behind Cat Auctions' founding. Perhaps as important, Albin and his investors see the auction company as a way for Caterpillar dealers to stay connected to their customers "from purchase to disposal," as he puts it.
"Caterpillar and its dealers have long been viewed as new equipment and service providers, but often not as an option for disposal of used equipment," said Albin, 58. Instead, many owners choose to dispose of used equipment via the auction route, a decision that can mean the loss of a Caterpillar customer, he said.
When dealers lose touch with their customers this way, the owners might opt to buy a new piece of equipment from a competing brand, Albin said. Or they might buy a newer piece of used equipment at the auction.
Either way, the dealer loses out. And that isn't the only risk.
"A Caterpillar study in 2007 found that customers who buy used equipment via auction are 25 percent less likely to return to the dealers for parts and service," said Albin, who was sales manager at Twin Cities-based Ziegler Inc., Caterpillar's dealer in Minnesota and Iowa, when he conceived the Cat Auctions idea.
Albin, who once owned his own auction company and spent several years as a Ritchie Bros. auctioneer and territory manager, has come up with a variety of strategies to differentiate Cat Auctions from the competition. Two Minnesota auctions early last month in Blaine and Harris offered an example.
Auction theater
There's the "auction theater" concept, with scores of bulldozers, excavators, wheel loaders and dump trucks arranged in concentric semicircles radiating out from the bidding arena.
And the engine warmup, in which all the diesel engines are started up prior to the auction, creating a rumble that "you almost feel more than hear," as one observer put it. Albin might have said it best: "It sounds like power; it sounds like work."
Inside the auction arena is his most inventive innovation: Instead of the common practice of driving each piece of equipment into the arena to be auctioned, Cat Auctions offers a giant "leaderboard" that runs videos of each piece of equipment in action as the auctioneer delivers his rhythmic cadence. Meanwhile, the warranty data and the latest bid and asked prices also are displayed.
Better yet, the videos are available to online bidders, who accounted for 30 percent of the sales at last month's Minnesota auctions.
In the end, however, the key to the growth is leveraging Cat Auctions' relationship with Caterpillar and its dealers to establish its credibility. This includes having Caterpillar's financing, insurance and parts and service divisions planted at tables near the registration desk at each auction.
More important in terms of credibility is Albin's insistence on what he calls his "buyer-be-informed" policy: Technicians trained by Caterpillar inspect each piece of equipment to provide bidders with "in-depth" reports on machine's condition.
All of which can add up to some impressive numbers: The two Minnesota auctions last month moved nearly 600 pieces of equipment for a total of $8.8 million. The resulting commissions approached $1 million.
Dick Youngblood • 612-673-4439 • yblood@startribune.com
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