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The Used Machinery Business, Past and Present
By Lloyd Graff
(taken from Screw Machine World magazine, with thanks to "just south of North Pole" Stan for the link)
They bought the little storefronts on Lake Street in Chicago, Centre Street in New York, and Sante Fe in Los Angeles. Rickety buildings with low ceilings and roofs that leaked. Little communities of hardened, driven, clever men; one flatbed north of the junk dealers who sometimes sold them barely-breathing iron hulks.
I knew these men, and their sons, and their sons' sons. They were crude guys, sometimes shady. They talked in accents, smoked cigars, played poker, bribed purchasing agents and found them broads. These guys were the pioneers of the used machinery business.
They had nicknames like Cockeyed Charlie and Crazy Louie. They partnered deals and bickered over the profits while belching over lunch at the neighborhood delicatessens. If things were slow at the joint, they'd get together for a game of poker at 2:30. Merchandising was sticking a Bridgeport in the window. You screwed these men at your peril, but they all did it to one another.
Business was like boxing. You battered your opponent. You smacked him hard, knocked him down, broke his nose, and then hugged the bloody bastard and bought him schnapps. They were a tough lot, these machinery dealers of the 1930’s and 1940’s.
The business has changed today. Dealers wear ties; some even choose not to wear them. They are civil, occasionally charming, but it's an aging lot that I saw at the Machinery Dealers National Association (MDNA) convention in Chicago at the end of April.
"I sold my first machine when I was ten," said Michael Berliner, a veteran of the industry, now working for Freemarkets.com. He sold the machine to his grammar school for demonstration purposes. "Today they'd buy a computer. In the 1950's, they picked up a lathe."
“Some of the old dealers made fortunes. Today you can earn a nice living, but it’s tough business,” said Berliner.
The used machinery business grew up to meet the needs of smaller companies who lacked the capital to buy new machinery. As the United States industrialized in the 1920’s and 1930’s, a need grew for some kind of distribution of cheap machine tools for companies that needed equipment quickly, cheaply, or both.
Enter the entrepreneurs who saw opportunity in the marketplace. They bought up the discards of the bigger factories. Some started small emporiums where they displayed their iron in the window. In cities like Chicago, New York, and Los Angeles, the dealers congregated on the same streets so shoppers could arrive by train or car and walk down Lake Street, Centre Street, or Sante Fe and find the milling machine, or lathe, or shaper they needed to make their products.
As America came out of the Depression, demand for machinery picked up both in the United States and Europe. Some manufacturers in England saw World War II coming. They needed equipment for building the implements of war, but England couldn't make the machine tools fast enough. American builders were trying to gear up for domestic demand. The British tapped into the nascent American used machinery market.
A dealer by the name of Louie Emerson capitalized on the British effort. He bought up vast quantities of American machine tools and made a tidy fortune for himself by shipping them to England.
The American used machinery business came to be dominated by Jewish men, most of whom were immigrants - or the sons of immigrants - from Eastern Europe. Their customers tended to be the descendants of Germans, Swedes, Irish, and Italians who went into engineering and machining.
I grew up on stories about the people in the industry. My father, Leonard Graff, got into the business from the scrap iron side. His father, Louis Graff, made a living as a junk dealer. Louis did not have a yard, but he had a couple of trucks and a handful of regular customers. My father graduated from the University of Chicago in 1938 and interviewed with Procter and Gamble because their new hires received a car - but he didn't make the cut. He joined his dad in the scrap business and quickly learned that his father's business was based on charm and chicanery. As a little guy who had to sell his material to a bigger yard, Louis had to buy cheap to make any money. He possessed a third grade education, but he was a big, warm, charismatic guy. His customers loved him. Unfortunately, he had to cheat them to survive in the cutthroat commodity business he was in. Louis paid his customers by the pound. The less weight counted, the less money his customers got, and the more profit for Louis. Clever ruses were perpetrated to jimmy the scales. Tires filled with water were smuggled into the trucks before the drivers came into the factory so the trucks would be heavy when they were initially weighed. The water was dumped before they hit the scales on the way out.
My grandfather lived in mortal fear that his little scam would be found out by the customers who so enjoyed dealing with him - the gentle junk man who could barely sign his name.
So my father Leonard came into the business as a graduate of one of the world's renowned universities, a man who had studied the Great Books. And now he had to learn how to cook the books.
Leonard Graff wanted out of the scrap business after finding out how the game was played. He quickly developed an expertise in junking defunct ice cream making plants, and in the process got to know a successful machinery dealer, Isaac Blumberg (and his sons, Eli and Harold), who owned Adams machinery.
The Blumbergs invited my father into a deal in Iola, Kansas to evaluate the scrap component of the factory. They chartered a plane, and on the ride down to Kansas they bragged about how much money they were making in the machinery business. This was just before World War II, so the market was heating up.
My father hated the trickery of the 'scrappies'. His father had died in 1940 of a heart attack, and he felt that all the lying Louis had done to his customers had hastened his death. When he listened to the Blumbergs talk about big numbers, he vowed to himself to exit the scrap business as soon as he possibly could.
Ironically, Leonard's father had laid the groundwork for him by giving him a hardbound used machinery catalogue from the king of the used machinery dealers, Emerman Machinery. Louis Graff had discovered the little red book in a desk he had bought at an auction in 1938. The catalogue had photos, descriptions, and prices of machine tools from 1935. Leonard figured that if he could buy machines like the ones in the pictures at 1935 asking prices, he couldn’t miss.
After selling off his father's trucks and borrowing $5,000 from the Chicago City Bank, he hit the road looking for the machinery in the Emerman red book. As soon as he bought a piece, he would call the Blumbergs or another established Chicago machinery dealer to wholesale the machine. A used machine dealer was born.
The machinery business of the 1940’s and 1950’s followed the business cycles which followed the ups and downs of war and recovery. Many young men got into the business after the war selling off U.S. Government-owned machine tools on a commission. It required very little capital and the Government had mountains of equipment to sell. Many people expected another depression after World War II, but the pent-up demand of the returning veterans fueled a postwar boom.
The young machinery dealers vied for business with the established dealers who did business the old-fashioned way. Graft, collusion, and bid rigging were the modus operandi of business for the old guys. The young guys were certainly not virgins, but there was a cultural divide between the college-educated, battle-toughened war veterans and the street smart, depression-hardened crew that preceded them.
Geographical differences also sprang up. The New England dealers seemed like old Yankees with a veneer of gentility. Wigglesworth of Boston, J.L. Lucas, and Fairfield Machinery were renown for integrity, stability, and knowledge of machinery. Botwinik Brothers of New Haven, Connecticut rose to prominence in the 1950’s and 1960’s, only to have the brothers die off regularly afterwards. The story is told of Sam Botwinik, who left high school in New Haven and vowed to come back a success. One of his teachers had told him he'd be lucky to end up as a pants presser. A few years later, Sam drove up to his old high school in a brand new, chauffeur-driven Cadillac to inform that same teacher that he had just bought the assets of the company that made the pants pressers.
The dealers in the 1950’s were known for gambling. In Chicago, if it was a slow day, a poker game would usually form at one of the storefronts on Lake Street. Austin Lucas, now in his late eighties and still buying and selling machinery, told me at the last MDNA convention (Machinery Dealers National Association) that at conventions of that era, the guys would often start a craps game in the bathroom while the meetings were going on. Local chapter meetings were perfunctory affairs. The real action took place during backroom card games after formal meetings.
The backroom was also where the real business was done after auction sales.
In the 1960’s and into the 1970’s, the machinery auction business was refined. Machinery was no longer being sold one piece at a time. Whole plants were being liquidated regularly as the pace of business speeded up in North America. Auctioneers like the Kriser brothers (Sidney and Leonard, who owned Industrial Plants), Norman Levy of Detroit, David Weisz of Los Angeles, and the Rabins of San Francisco developed dealer networks that enabled them to assess and buy whole factories for liquidation on an almost weekly basis. These men were big risk takers for their time, but they hedged their bets by taking in partners who could put machines that did not hit the required number at the auction into their inventory for future sale at retail prices. The auction, which was heralded as an honest bidding brawl, was really an orchestrated event that protected the auctioneer.
The dealers who were not a part of the owning clique of an auction would often form ad hoc buying consortiums - called 'rings' - at the auction sales to combat what they saw as a bidding process rigged against them. They would then have their own auction after the sale. Auctions were a slightly civilized form of jousting tournaments. Going to an auction was like going into combat.
The auctions in the late 1980’s and well into the 1990’s were true theater. Fortunes were made and lost in one day. Great auctioneers on the stand, like a Stanley Friedman of David Weisz Co., could sense a hot bidder by the glint in his eye. It was a common joke at an auction to say that "all it takes is two bidders to make a sale," to which an auctioneer would remark, "for me, it only takes one."
The hostility between dealers and auctioneers became more pronounced with the clever introduction of the buyer's premium in the 1980’s. The buyer's premium was a tax on the purchases, usually kept by the auctioneer as a fee. Since the auctioneer was often a participant in the deal, the buyer's premium was a nice cushion.
I think that the buyer's premium drove a deeper rift between the auctioneers and their natural customers, the machinery dealers. Before the buyer's premium, the auctioneer's fee came out of the seller's take on a deal - if there was any fee at all. Dealers and auctioneers competed to buy a deal on a more equal footing. With the buyer's premium, auctioneers became more insulated from the selling price of the machinery. They had their fee built into the deal so that even if a deal brought a break-even price, they still recouped their expenses with a profit.
One of the most important trends in the used machinery business has been specialization. Since the 1940’s, the number of dealers with a narrow focus on the type of equipment they handle has grown significantly.
Graff-Pinkert was one of the earliest niche players. In 1942, with World War II in full swing, Leonard Graff knew he would be drafted very soon. Just married, with his 2-year old business doing well, and a profound fear of getting killed in the trenches, he looked for a way out of the Army. Going into the screw machine business was the ticket. He found some Model G Gridley's and set up shop in an old pickle factory on the south side of Chicago. Why screw machines? His father had had a few screw machine shops as clients. The owners were boozers and not very shrewd at assessing the value of their scrap, but they bought new Parkards every year. Louis Graff told his son that running a screw shop couldn't be that tough, a lesson that Leonard remembered when he was looking desperately to avoid a uniform.
Leonard Graff quickly set up the shop, hired his cousin Aaron Pinkert, a lawyer, to help him run it, and began hunting for machinery to buy and sell in his spare time. Getting contracts to run parts for the war effort was easy. Graff and Company soon was up to 80 people and running 24 hours a day to make the tools of war. Leonard was doing good by doing good. The shop prospered. He and Aaron avoided the draft and learned about running Acme Gridley's, Davenports, and New Britains.
They continued in the screw machine business until 1949, when a recession hit the nation. Leonard and Aaron had lived through the Depression in their formative years. They feared that a new one was coming. They had made a lot of money and were worried about losing it. So they liquidated the shop in 1949, six months before the beginning of the Korean War. They sold 1" Model 60 New Britains for $3,000 each. Six months later, back in the machinery business, they were buying them back for $12,000. They went back into the used machinery business because they were familiar with it and it suited their mindset more than manufacturing. Leonard Graff loved buying and selling. He loved deals. Even though he had made a lot of money in the screw machine business, he didn't like the 24-hour grind and the wear and tear of dealing with a lot of employees. The joy of making parts eluded him.
But he figured he knew automatics, he understood the jargon, and he had contacts in the industry, so he might as well concentrate on the used screw machine market.
Back in the early 1950’s, there was little competition in screw machines. Roy Beaver in Chicago focused on Brown and Sharpes. Max Noble in New York also did single spindles, along with Bill Currier. Ivan Doverspike was starting up in Detroit. The field was not picked over.
Other specialties developed in the machinery business. Joe Weiss dominated the press business at Interstate Machinery in Chicago. J.L. Lucas was strong in cold heading out in Bridgeport. Michael Goldstein led Cadillac Machinery into the gear machinery business.
The great challenge of the machinery business was always in the buying. What do you pay for a used Acme, or Cincinnati OM centerless, or Minster 120 ton Piecemaker? If you could buy the machine cheap, you could always sell it for a profit. But what was cheap?
The used machinery market is a classic imperfect market. A myriad of variables - such as condition, age, market timing, manufacturer, attachments, size, technological change, and location - all affect the value of a particular machine at a given moment. Unlike the used car market, which has a Blue Book that gives approximate values of most cars, the used machinery market is a cloudy mystery to most buyers.
The specialized used machinery dealer developed an advantage over his competitors and his customers by first building his own private blue book of data on a particular category of machinery and then developing a customer base of companies that needed the equipment he traded in.
Another trend in the machinery business, which started in the 1960’s and continues today, is the globalization of the marketplace. Globalization of the used machinery trade goes back to the 1930’s, when the English hurriedly tried to beef up their machine tool stock by importing used machines from wherever they could get them. After World War II, particularly in the late 1950’s and early 1960’s, a lot of machinery that had been shipped to Europe during the 1940’s and early 1950’s came back to the United States - mainly from England. Phillip Norton of England made a million British pounds by buying machines cheap from the British Ministry of Defense and packaging them for eager American dealers.
The Mexican market has been an up and down buyer of American used machinery, but South America has been a total non-factor for most North American dealers. European dealers, who have a smaller natural trading arena in their native countries, have been much more aggressive in cultivating third world trade in used machinery.
The vast North American marketplace of manufacturers has been enough to satisfy most American dealers. Most machinery dealers are small, family-run affairs that define their company's business narrowly.
There are very few mergers in the machinery business. Businesses are rarely sold. When the owners die or retire without heirs to take over the operation, the inventory is liquidated and the business vanishes.
One of the few machinery businesses to change hands without disappearing is Perfection Machinery of Elk Grove Village, Illinois. Sid Lieberstein built the business, which specialized in metalforming machinery. Sid's children were not interested in the business, but his two very able assistants, David Muslin and Patrick Angus, were eager to take over.
Lieberstein concocted a multi-year buyout plan in which Muslin and Angus paid out Sid from the profits and borrowings. Lieberstein continued to work extremely hard, and the business succeeded enough to make the younger men owners and Lieberstein liquid. This type of foresight has been rare in the used machinery business.
It is obvious that the business is changing in the Internet age. The MDNA was started 60 years ago by Thomas Scanlan Sr., the publisher of Surplus Record Magazine, and Harold and Eli Blumberg, the second generation of leaders at Adams Machinery.
Tom Scanlan, Jr., Thomas Scanlan's grandson, was at the MDNA convention still representing Surplus Record. Tom sold the publication a couple of years ago to Freemarkets.com for $17 million. Freemarkets wanted his database, knowledge, and stature in the metalworking industry. The fact that his company made money didn't hurt, either. Tom says he took the money because his siblings, who do not work at Surplus Record, forced him to. He says he would have preferred to stay independent.
Adams Machinery was represented by Tony and Vince Blumberg, the fourth generation of Blumbergs. Adams was named after the downtown Chicago street where the company started, but it is still located at the big warehouse on the Northside of Chicago, which it has occupied for 50 years.
These two companies embody the American used machinery business. Surplus Record has diligently served the used machinery dealers for more than 60 years. Tom Jr. knows every dealer, understands the business' nuances, listens well, and leverages the Internet. While other publications dawdled, Scanlan invested in the Internet hardware and software and developed a Spanish language adjunct publication. When the dotcoms came calling, he had his act together. Scanlan still runs Surplus Record from his offices at the Civic Opera House Building in Chicago, where his grandparents started the business 87 years ago.
Adams Machinery is run by Jerry Blumberg, Harold Blumberg's son, a third generation dealer. His first cousin, Jimmy Blumberg, a charismatic dealmaker, retired to the Bahamas in his fifties to go fishing.
Jerry and Jimmy's grandfather started Adams in 1912. He made his money and decided to go into horse racing, of all things. He laughed at the blueblood racing establishment by owning a Kentucky Derby winner and a Derby runner-up within five years, naming them both after streets in Miami Beach - Lincoln Road and Venetian Way. Jerry and Jimmy's fathers were tough machinery dealers, but also became philanthropists. But Adams Machinery goes on. They have a great customer base and a bunch of hardworking Blumbergs beating the bushes. But the traditional used machinery business is a tough one today.
The cloudy, imperfect market that machinery dealers loved has been illuminated a little by the Internet. User to user contact has been enhanced through the web. Online auctions have popularized auction buying, and more big companies are using this approach to sell their equipment. Aggressive selling of new machinery - particularly imports - now competes strongly with used. Micro specialists, dealers who know a tiny niche of the market very well, compete vigorously with bigger dealers.
It makes it a tough world for dealers like Adams, and especially for dealers who lack the same capital and commitment.
But used machinery dealers will survive. Those that add value for the customers while honoring the bottom line will prosper. The poker games in the back rooms of Lake Street are history, but the commandments of “buy low, sell high” and “turn the inventory” live on.
Email Lloyd at [email protected]
By Lloyd Graff
(taken from Screw Machine World magazine, with thanks to "just south of North Pole" Stan for the link)
They bought the little storefronts on Lake Street in Chicago, Centre Street in New York, and Sante Fe in Los Angeles. Rickety buildings with low ceilings and roofs that leaked. Little communities of hardened, driven, clever men; one flatbed north of the junk dealers who sometimes sold them barely-breathing iron hulks.
I knew these men, and their sons, and their sons' sons. They were crude guys, sometimes shady. They talked in accents, smoked cigars, played poker, bribed purchasing agents and found them broads. These guys were the pioneers of the used machinery business.
They had nicknames like Cockeyed Charlie and Crazy Louie. They partnered deals and bickered over the profits while belching over lunch at the neighborhood delicatessens. If things were slow at the joint, they'd get together for a game of poker at 2:30. Merchandising was sticking a Bridgeport in the window. You screwed these men at your peril, but they all did it to one another.
Business was like boxing. You battered your opponent. You smacked him hard, knocked him down, broke his nose, and then hugged the bloody bastard and bought him schnapps. They were a tough lot, these machinery dealers of the 1930’s and 1940’s.
The business has changed today. Dealers wear ties; some even choose not to wear them. They are civil, occasionally charming, but it's an aging lot that I saw at the Machinery Dealers National Association (MDNA) convention in Chicago at the end of April.
"I sold my first machine when I was ten," said Michael Berliner, a veteran of the industry, now working for Freemarkets.com. He sold the machine to his grammar school for demonstration purposes. "Today they'd buy a computer. In the 1950's, they picked up a lathe."
“Some of the old dealers made fortunes. Today you can earn a nice living, but it’s tough business,” said Berliner.
The used machinery business grew up to meet the needs of smaller companies who lacked the capital to buy new machinery. As the United States industrialized in the 1920’s and 1930’s, a need grew for some kind of distribution of cheap machine tools for companies that needed equipment quickly, cheaply, or both.
Enter the entrepreneurs who saw opportunity in the marketplace. They bought up the discards of the bigger factories. Some started small emporiums where they displayed their iron in the window. In cities like Chicago, New York, and Los Angeles, the dealers congregated on the same streets so shoppers could arrive by train or car and walk down Lake Street, Centre Street, or Sante Fe and find the milling machine, or lathe, or shaper they needed to make their products.
As America came out of the Depression, demand for machinery picked up both in the United States and Europe. Some manufacturers in England saw World War II coming. They needed equipment for building the implements of war, but England couldn't make the machine tools fast enough. American builders were trying to gear up for domestic demand. The British tapped into the nascent American used machinery market.
A dealer by the name of Louie Emerson capitalized on the British effort. He bought up vast quantities of American machine tools and made a tidy fortune for himself by shipping them to England.
The American used machinery business came to be dominated by Jewish men, most of whom were immigrants - or the sons of immigrants - from Eastern Europe. Their customers tended to be the descendants of Germans, Swedes, Irish, and Italians who went into engineering and machining.
I grew up on stories about the people in the industry. My father, Leonard Graff, got into the business from the scrap iron side. His father, Louis Graff, made a living as a junk dealer. Louis did not have a yard, but he had a couple of trucks and a handful of regular customers. My father graduated from the University of Chicago in 1938 and interviewed with Procter and Gamble because their new hires received a car - but he didn't make the cut. He joined his dad in the scrap business and quickly learned that his father's business was based on charm and chicanery. As a little guy who had to sell his material to a bigger yard, Louis had to buy cheap to make any money. He possessed a third grade education, but he was a big, warm, charismatic guy. His customers loved him. Unfortunately, he had to cheat them to survive in the cutthroat commodity business he was in. Louis paid his customers by the pound. The less weight counted, the less money his customers got, and the more profit for Louis. Clever ruses were perpetrated to jimmy the scales. Tires filled with water were smuggled into the trucks before the drivers came into the factory so the trucks would be heavy when they were initially weighed. The water was dumped before they hit the scales on the way out.
My grandfather lived in mortal fear that his little scam would be found out by the customers who so enjoyed dealing with him - the gentle junk man who could barely sign his name.
So my father Leonard came into the business as a graduate of one of the world's renowned universities, a man who had studied the Great Books. And now he had to learn how to cook the books.
Leonard Graff wanted out of the scrap business after finding out how the game was played. He quickly developed an expertise in junking defunct ice cream making plants, and in the process got to know a successful machinery dealer, Isaac Blumberg (and his sons, Eli and Harold), who owned Adams machinery.
The Blumbergs invited my father into a deal in Iola, Kansas to evaluate the scrap component of the factory. They chartered a plane, and on the ride down to Kansas they bragged about how much money they were making in the machinery business. This was just before World War II, so the market was heating up.
My father hated the trickery of the 'scrappies'. His father had died in 1940 of a heart attack, and he felt that all the lying Louis had done to his customers had hastened his death. When he listened to the Blumbergs talk about big numbers, he vowed to himself to exit the scrap business as soon as he possibly could.
Ironically, Leonard's father had laid the groundwork for him by giving him a hardbound used machinery catalogue from the king of the used machinery dealers, Emerman Machinery. Louis Graff had discovered the little red book in a desk he had bought at an auction in 1938. The catalogue had photos, descriptions, and prices of machine tools from 1935. Leonard figured that if he could buy machines like the ones in the pictures at 1935 asking prices, he couldn’t miss.
After selling off his father's trucks and borrowing $5,000 from the Chicago City Bank, he hit the road looking for the machinery in the Emerman red book. As soon as he bought a piece, he would call the Blumbergs or another established Chicago machinery dealer to wholesale the machine. A used machine dealer was born.
The machinery business of the 1940’s and 1950’s followed the business cycles which followed the ups and downs of war and recovery. Many young men got into the business after the war selling off U.S. Government-owned machine tools on a commission. It required very little capital and the Government had mountains of equipment to sell. Many people expected another depression after World War II, but the pent-up demand of the returning veterans fueled a postwar boom.
The young machinery dealers vied for business with the established dealers who did business the old-fashioned way. Graft, collusion, and bid rigging were the modus operandi of business for the old guys. The young guys were certainly not virgins, but there was a cultural divide between the college-educated, battle-toughened war veterans and the street smart, depression-hardened crew that preceded them.
Geographical differences also sprang up. The New England dealers seemed like old Yankees with a veneer of gentility. Wigglesworth of Boston, J.L. Lucas, and Fairfield Machinery were renown for integrity, stability, and knowledge of machinery. Botwinik Brothers of New Haven, Connecticut rose to prominence in the 1950’s and 1960’s, only to have the brothers die off regularly afterwards. The story is told of Sam Botwinik, who left high school in New Haven and vowed to come back a success. One of his teachers had told him he'd be lucky to end up as a pants presser. A few years later, Sam drove up to his old high school in a brand new, chauffeur-driven Cadillac to inform that same teacher that he had just bought the assets of the company that made the pants pressers.
The dealers in the 1950’s were known for gambling. In Chicago, if it was a slow day, a poker game would usually form at one of the storefronts on Lake Street. Austin Lucas, now in his late eighties and still buying and selling machinery, told me at the last MDNA convention (Machinery Dealers National Association) that at conventions of that era, the guys would often start a craps game in the bathroom while the meetings were going on. Local chapter meetings were perfunctory affairs. The real action took place during backroom card games after formal meetings.
The backroom was also where the real business was done after auction sales.
In the 1960’s and into the 1970’s, the machinery auction business was refined. Machinery was no longer being sold one piece at a time. Whole plants were being liquidated regularly as the pace of business speeded up in North America. Auctioneers like the Kriser brothers (Sidney and Leonard, who owned Industrial Plants), Norman Levy of Detroit, David Weisz of Los Angeles, and the Rabins of San Francisco developed dealer networks that enabled them to assess and buy whole factories for liquidation on an almost weekly basis. These men were big risk takers for their time, but they hedged their bets by taking in partners who could put machines that did not hit the required number at the auction into their inventory for future sale at retail prices. The auction, which was heralded as an honest bidding brawl, was really an orchestrated event that protected the auctioneer.
The dealers who were not a part of the owning clique of an auction would often form ad hoc buying consortiums - called 'rings' - at the auction sales to combat what they saw as a bidding process rigged against them. They would then have their own auction after the sale. Auctions were a slightly civilized form of jousting tournaments. Going to an auction was like going into combat.
The auctions in the late 1980’s and well into the 1990’s were true theater. Fortunes were made and lost in one day. Great auctioneers on the stand, like a Stanley Friedman of David Weisz Co., could sense a hot bidder by the glint in his eye. It was a common joke at an auction to say that "all it takes is two bidders to make a sale," to which an auctioneer would remark, "for me, it only takes one."
The hostility between dealers and auctioneers became more pronounced with the clever introduction of the buyer's premium in the 1980’s. The buyer's premium was a tax on the purchases, usually kept by the auctioneer as a fee. Since the auctioneer was often a participant in the deal, the buyer's premium was a nice cushion.
I think that the buyer's premium drove a deeper rift between the auctioneers and their natural customers, the machinery dealers. Before the buyer's premium, the auctioneer's fee came out of the seller's take on a deal - if there was any fee at all. Dealers and auctioneers competed to buy a deal on a more equal footing. With the buyer's premium, auctioneers became more insulated from the selling price of the machinery. They had their fee built into the deal so that even if a deal brought a break-even price, they still recouped their expenses with a profit.
One of the most important trends in the used machinery business has been specialization. Since the 1940’s, the number of dealers with a narrow focus on the type of equipment they handle has grown significantly.
Graff-Pinkert was one of the earliest niche players. In 1942, with World War II in full swing, Leonard Graff knew he would be drafted very soon. Just married, with his 2-year old business doing well, and a profound fear of getting killed in the trenches, he looked for a way out of the Army. Going into the screw machine business was the ticket. He found some Model G Gridley's and set up shop in an old pickle factory on the south side of Chicago. Why screw machines? His father had had a few screw machine shops as clients. The owners were boozers and not very shrewd at assessing the value of their scrap, but they bought new Parkards every year. Louis Graff told his son that running a screw shop couldn't be that tough, a lesson that Leonard remembered when he was looking desperately to avoid a uniform.
Leonard Graff quickly set up the shop, hired his cousin Aaron Pinkert, a lawyer, to help him run it, and began hunting for machinery to buy and sell in his spare time. Getting contracts to run parts for the war effort was easy. Graff and Company soon was up to 80 people and running 24 hours a day to make the tools of war. Leonard was doing good by doing good. The shop prospered. He and Aaron avoided the draft and learned about running Acme Gridley's, Davenports, and New Britains.
They continued in the screw machine business until 1949, when a recession hit the nation. Leonard and Aaron had lived through the Depression in their formative years. They feared that a new one was coming. They had made a lot of money and were worried about losing it. So they liquidated the shop in 1949, six months before the beginning of the Korean War. They sold 1" Model 60 New Britains for $3,000 each. Six months later, back in the machinery business, they were buying them back for $12,000. They went back into the used machinery business because they were familiar with it and it suited their mindset more than manufacturing. Leonard Graff loved buying and selling. He loved deals. Even though he had made a lot of money in the screw machine business, he didn't like the 24-hour grind and the wear and tear of dealing with a lot of employees. The joy of making parts eluded him.
But he figured he knew automatics, he understood the jargon, and he had contacts in the industry, so he might as well concentrate on the used screw machine market.
Back in the early 1950’s, there was little competition in screw machines. Roy Beaver in Chicago focused on Brown and Sharpes. Max Noble in New York also did single spindles, along with Bill Currier. Ivan Doverspike was starting up in Detroit. The field was not picked over.
Other specialties developed in the machinery business. Joe Weiss dominated the press business at Interstate Machinery in Chicago. J.L. Lucas was strong in cold heading out in Bridgeport. Michael Goldstein led Cadillac Machinery into the gear machinery business.
The great challenge of the machinery business was always in the buying. What do you pay for a used Acme, or Cincinnati OM centerless, or Minster 120 ton Piecemaker? If you could buy the machine cheap, you could always sell it for a profit. But what was cheap?
The used machinery market is a classic imperfect market. A myriad of variables - such as condition, age, market timing, manufacturer, attachments, size, technological change, and location - all affect the value of a particular machine at a given moment. Unlike the used car market, which has a Blue Book that gives approximate values of most cars, the used machinery market is a cloudy mystery to most buyers.
The specialized used machinery dealer developed an advantage over his competitors and his customers by first building his own private blue book of data on a particular category of machinery and then developing a customer base of companies that needed the equipment he traded in.
Another trend in the machinery business, which started in the 1960’s and continues today, is the globalization of the marketplace. Globalization of the used machinery trade goes back to the 1930’s, when the English hurriedly tried to beef up their machine tool stock by importing used machines from wherever they could get them. After World War II, particularly in the late 1950’s and early 1960’s, a lot of machinery that had been shipped to Europe during the 1940’s and early 1950’s came back to the United States - mainly from England. Phillip Norton of England made a million British pounds by buying machines cheap from the British Ministry of Defense and packaging them for eager American dealers.
The Mexican market has been an up and down buyer of American used machinery, but South America has been a total non-factor for most North American dealers. European dealers, who have a smaller natural trading arena in their native countries, have been much more aggressive in cultivating third world trade in used machinery.
The vast North American marketplace of manufacturers has been enough to satisfy most American dealers. Most machinery dealers are small, family-run affairs that define their company's business narrowly.
There are very few mergers in the machinery business. Businesses are rarely sold. When the owners die or retire without heirs to take over the operation, the inventory is liquidated and the business vanishes.
One of the few machinery businesses to change hands without disappearing is Perfection Machinery of Elk Grove Village, Illinois. Sid Lieberstein built the business, which specialized in metalforming machinery. Sid's children were not interested in the business, but his two very able assistants, David Muslin and Patrick Angus, were eager to take over.
Lieberstein concocted a multi-year buyout plan in which Muslin and Angus paid out Sid from the profits and borrowings. Lieberstein continued to work extremely hard, and the business succeeded enough to make the younger men owners and Lieberstein liquid. This type of foresight has been rare in the used machinery business.
It is obvious that the business is changing in the Internet age. The MDNA was started 60 years ago by Thomas Scanlan Sr., the publisher of Surplus Record Magazine, and Harold and Eli Blumberg, the second generation of leaders at Adams Machinery.
Tom Scanlan, Jr., Thomas Scanlan's grandson, was at the MDNA convention still representing Surplus Record. Tom sold the publication a couple of years ago to Freemarkets.com for $17 million. Freemarkets wanted his database, knowledge, and stature in the metalworking industry. The fact that his company made money didn't hurt, either. Tom says he took the money because his siblings, who do not work at Surplus Record, forced him to. He says he would have preferred to stay independent.
Adams Machinery was represented by Tony and Vince Blumberg, the fourth generation of Blumbergs. Adams was named after the downtown Chicago street where the company started, but it is still located at the big warehouse on the Northside of Chicago, which it has occupied for 50 years.
These two companies embody the American used machinery business. Surplus Record has diligently served the used machinery dealers for more than 60 years. Tom Jr. knows every dealer, understands the business' nuances, listens well, and leverages the Internet. While other publications dawdled, Scanlan invested in the Internet hardware and software and developed a Spanish language adjunct publication. When the dotcoms came calling, he had his act together. Scanlan still runs Surplus Record from his offices at the Civic Opera House Building in Chicago, where his grandparents started the business 87 years ago.
Adams Machinery is run by Jerry Blumberg, Harold Blumberg's son, a third generation dealer. His first cousin, Jimmy Blumberg, a charismatic dealmaker, retired to the Bahamas in his fifties to go fishing.
Jerry and Jimmy's grandfather started Adams in 1912. He made his money and decided to go into horse racing, of all things. He laughed at the blueblood racing establishment by owning a Kentucky Derby winner and a Derby runner-up within five years, naming them both after streets in Miami Beach - Lincoln Road and Venetian Way. Jerry and Jimmy's fathers were tough machinery dealers, but also became philanthropists. But Adams Machinery goes on. They have a great customer base and a bunch of hardworking Blumbergs beating the bushes. But the traditional used machinery business is a tough one today.
The cloudy, imperfect market that machinery dealers loved has been illuminated a little by the Internet. User to user contact has been enhanced through the web. Online auctions have popularized auction buying, and more big companies are using this approach to sell their equipment. Aggressive selling of new machinery - particularly imports - now competes strongly with used. Micro specialists, dealers who know a tiny niche of the market very well, compete vigorously with bigger dealers.
It makes it a tough world for dealers like Adams, and especially for dealers who lack the same capital and commitment.
But used machinery dealers will survive. Those that add value for the customers while honoring the bottom line will prosper. The poker games in the back rooms of Lake Street are history, but the commandments of “buy low, sell high” and “turn the inventory” live on.
Email Lloyd at [email protected]