Discover why now may be the time to invest in used equipment.
Buying used equipment can be a smart way to reduce investment costs and increase profit margins. And as a result of the down economy, a surplus of used equipment is now available.
“We’re in a unique situation right now,” says John Poag, sales operations manager for Terex Construction Americas. “The economy has taken its toll on many contractors, but for those who do have money to spend, now is the time to invest—and with the surplus of used equipment available, you will get a lot more for your money.
Recognize the Benefits
With lower equipment costs, contractors can tailor their fleets to the needs of today’s market. Some specialized machines might be more affordable now, which will allow you to bid on more jobs at a competitive price.
To decide if you should invest in used equipment now, Poag suggests doing a simple analysis comparing the acquisition cost versus the utilization rate.
Consider these questions:
- Will the equipment allow you to do more specialized jobs?
- Will it allow you to do your current jobs more efficiently?
- Will it allow you to do jobs your competitors cannot do?
Answers to these questions will help you decide if buying used is a better option for you than new.
“Equipment is what makes you money in this industry,” says Poag. “But you can make a lot more money a lot faster if you can lower your acquisition cost on a piece of machinery that also allows you to increase your work.”
Since more contractors see value in purchasing used equipment, many major manufacturers are helping contractors make the purchase.
Poag says it is in the manufacturer’s best interest to provide customers with a range of equipment solutions, including both new and used. “Today’s economic conditions have created different needs for different contractors....”
Inspect Before You Buy
To reduce the risks involved, perform an inspection before making a purchase.
“The degree of the inspection largely depends upon the age of the machine and the reputation of the seller,” says Poag. “An appropriate inspection of the machine should expose any potential problems or money pitfalls.”
For newer machines, a routine/basic inspection should be sufficient—find out the condition of tires, belts and hoses, and look 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 be adjusted based on the type of equipment, weather conditions and other geographical conditions the machine has been exposed to. The more severe the environment, the more thorough the inspection needs to be.
Updated maintenance records will also indicate the equipment’s condition. Larger contractors and auction houses should have service records, but if these records are unavailable—which may be the case when purchasing from a smaller distributor—the Internet is a great resource for owners’ manuals and consumer reports.
Common wear points, such as hydraulic hoses, tracks and tires and the engine should also be inspected. Scrapes and scuffs, chipping paint and rust are other red flags. “Remember, this is construction equipment,” Poag says. “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.”
Poag does offer a word of caution: “With used equipment, you don’t get a manufacturer’s warranty, so it’s up to you to do a thorough inspection, and determine if the used piece of equipment is worth the risk of possibly incurring problems down the road. It could be that you are better off just going with new and mitigating that risk.”
Know When to Walk Away
Although the price tag on a piece of used equipment may be appealing, the deal may be too good to be true in certain situations.
“If you’ve done your homework, you should have an idea about what kind of condition a machine should be in order for it to run properly,” says Poag. “Then, you need to decide at what point your repair cost will exceed your budget. You don’t ever want to put more money into a piece of equipment than you’re going to get out of it.”
Poag also suggests asking the seller numerous questions. If the owner can’t answer basic questions about the machine history, it might be wise to continue shopping. Poag recommends taking the product serial number to a local distributor to have the machine’s recall information verified.
Maintenance and service records tell a lot about a machine’s history. At some point, equipment may simply be too old to run safely and efficiently. “With older machines, you also need to find out if the manufacturer even supports that particular model anymore,” Poag says. “It might end up costing you more to replace parts if the manufacturer no longer supports it, not to mention the additional time it will take you to hunt down the part you need.”
Find What You Need
In today’s market, many resources are available for buying used equipment. Local distributors are one of the most trusted outlets since most already have relationships built with their customers. Distributors base their reputations on the equipment they sell, which means they will most likely not invest in “junk” equipment. Distributors also offer the added benefit of after-sales service.
Auctions are another popular resource. “Many contractors like the excitement and atmosphere of a live auction, and you can usually find some really great deals,” says Poag. “However, the auction is gone the next day, so there’s no after-sale service if you encounter a problem.”
Many manufacturers are trying to alleviate the surplus of used equipment inventory by providing resources on their websites.
Local bid books are more traditional forms of locating used equipment. These books can be used to find local distributors for future reference or to check a piece of equipment’s value, but the listings are not always updated.
A healthy used market is good for everyone. For those buying new, it helps them sell their older equipment and promote good residual value. “It’s so good to see the industry as a whole embracing the trend of selling and purchasing used equipment,” Poag says. “At the end of the day, the sale of a piece of equipment, whether it’s new or used, benefits everyone.”
Construction Nusiness Owner, October 2011