Investing in used equipment

by Amy Schneider  

Savvy company owners know that buying used equipment can be a smart way to reduce investment cost and increase profit margins. And as a result of the lingering effects of the slow economy over the last several years on the scrap and recycling markets, there is a surplus of used equipment available. 

With lower commodity prices and volumes compared to several years ago, some scrap operators have downsized their fleets in order to match reduced demand, creating an opportunity for companies in a position to buy to take advantage of unprecedented deals.  

“We’re still in a unique situation,” says Mark Staff, area director, North American heavy equipment for Terex Construction Americas. “The economy has taken its toll on many operations, but for those who do have money to spend, now is the time to invest – and with the surplus of used equipment available, you’ll get a lot more for your money.”

To determine if now is the right time to invest in “new” used equipment, Staff suggests doing a simple acquisition cost versus utilization rate analysis. Some questions to consider are: Will this piece of equipment diversify your business? Will it allow you to handle your current volume more quickly and efficiently? Will purchasing this piece of equipment help you to reduce downtime and increase the volume of material you handle? 

“Equipment is what makes you money in this industry,” explains Staff, “but you can make a lot more money faster if you can lower your acquisition cost on a piece of machinery that also allows you to increase the volume of material handled.”

According to Steve Brezinski, heavy equipment product manager – material handling at Terex Construction Americas, it is in the manufacturer’s best interest to provide customers with a range of equipment solutions, including both new and used. 

“Sluggish economic conditions have created different needs for different scrap operations. It’s important for manufacturers to respond to these different needs, which is why Terex offers financing options on both its new and used equipment.”  

Inspect before you buy
To reduce the risk associated with purchasing a piece of used equipment, it is important to do an inspection of the machine before making a purchase.  For newer machines, a routine/basic inspection should be sufficient, including condition of tires, belts, hoses, and looking for leaks, signs of damage or unusual wear and tear. For older machines with higher hours, oil and hydraulic fluid samples should be taken to check for any contaminants or system problems. The thoroughness of the inspection should also be adjusted based on the type of equipment and the weather and geographical conditions the machine has been exposed to. The more severe the environment, the more thorough the inspection needs to be.

Up-to-date maintenance records will also give a good indication of the condition of the equipment. Larger operators and auction houses should have service records, but if these records are unavailable – which may be the case when purchasing from a smaller company – the internet is a great resource for owner’s manuals and consumer reports.  Common wear points, such as hydraulic hoses, tires, slewing rings and the engine should also be inspected. Scrapes and scuffs, chipping paint and rust are other red flags to look out for. 

“Remember, this is scrap handling and processing equipment,” points out Staff. “Abuse and normal wear and tear are two different things. If you do your homework before you go shopping, you’ll be better equipped to make an informed decision.”  

When to walk away from a deal
Although the price tag on a piece of used equipment may be appealing, there are certain situations when the deal may just be too good to be true.

“If you’ve done your homework, you should have an idea about what kind of condition a machine should be in, in order for it to run properly,” says Staff. “Then you need to decide at what point will your repair cost exceed your budget?”

Staff also suggests asking the seller lots of questions. If the owner can’t answer basic questions about the machine history, it might be a good idea to continue shopping. He recommends taking the product serial number into a local distributor to have them verify update and recall information on the machine.

“With older machines you also need to find out if the manufacturer even supports that particular model anymore,” adds Brezinski. “It might end up costing you more to replace parts if the manufacturer no longer supports it, not to mention the additional time it’ll take you to hunt down the part you need.”

How to find what  you need
In today’s market, there are lots of resources for buying used equipment. Local distributors are one of the most trusted outlets, since most already have a relationship built with their customers, and since they are basing their reputation on the equipment they sell, they are less likely to invest in “junk” equipment. Distributors also have the added benefit of after-sale service and support.  Besides local bid books and publications, auctions are another popular resource. 

“Many like the excitement and atmosphere of a live auction,” says Staff, “and you can usually find some really great deals. However, the auction is gone the next day, so there’s no after-sale service if you encounter a problem.”

Many manufacturers are also looking to help alleviate the surplus of used equipment inventory. For example, www.terex.com/used is an online tool that allows customers to access spec information, photos and MSRP on used equipment for sale through Terex. 

Both Staff and Brezinski agree that it boils down to an informed business decision for every contractor – for some used equals better – for others, new will be the way to go. And for those buying new, a healthy used market helps them sell their old equipment and promote good residual value, so it is good for everyone. 

“It’s so good to see the industry as a whole embracing the trend of selling and purchasing used equipment,” says Staff. “At the end of the day, the sale of a piece of equipment, whether it’s new or used, benefits everyone.”