Should you buy or rent heavy equipment?
The proper equipment is essential for driving business. Deciding to rent or buy equipment to add to a fleet goes beyond available capital, and it can be challenging to determine which option is best. Several skid steer loader and excavator manufacturers took part in a panel discussion, titled “Purchasing Earthmoving Equipment—How to Decide New vs. Used” during the 2011 ConExpo/Con-Agg in Las Vegas. Panelists Randy Hall of Case Construction, Edinburgh, Ind., and Doug Morris, product manager, excavators, Komatsu America Corp., Rolling Meadows, Ill., discussed how to decide between renting and owning earthmoving equipment for a job or business. The following are edited excerpts from the session.
Hall explained what factors to consider when shopping for new equipment and how renting can help reduce risk:
“There are a few factors that are some game changers that determine whether you rent or buy.
Capital – What is your current capital situation? Renting is a good way to conserve capital. There are a lot of companies that are going out of business because they couldn’t make their current payments. Cash is always something you want to consider. Cash is making the payments and making the payroll. Renting is a good alternative. Sometimes we get into the mindset that buying is what we always did. We traded it in when it got some hours in it and we built some equity in it. Conserving cash is one of the greatest things about rentals.
Government Regulations – California Admissions Resource Board (CARB), the Texas Emissions Reduction and Tier IV are some game changing regulations—especially Tier IV. Anything above 100 horsepower units had to be Tier IV by Jan. 1, 2011, and units under 100 horsepower have to be Tier IV by Jan.1, 2011. That’s Tier IV A. When we get to Tier IV B, can anyone say it won’t be a game changer? I don’t think anyone knows the impact of pricing will have once we get to Tier IV B. For rental houses that have good rental equipment and has to register it with the California Admissions Resource Board and has to track it with the Texas Emissions Resource Plan, renting is a good option.
Fleet management – Is your core competency fleet management? If you excel at transportation, logistics, equipment service and maintenance then continue to purchase your fleet. It may be the thing to do to continue to purchase 100 percent of your fleet. If you don’t excel at those things, maybe rental is a good alternative.
What are some of the things that are costly in fleet management? Service trucks that today cost what the big shiny trucks used to cost. And you’ve got to have someone to drive that and all of his tools. A lot of you like the equipment disposal side of it, and think ‘Well if those guys can do it and make a profit on it, I can probably get rich off it.’ But disposal is something you always have to worry about. When you use it, you buy it and it’s just never worth what you think its worth.
Risk – Are you a risk taker or are you adverse to risk? In this economy we are entering into, I’m not sure what we are into. From where I sit, I see my customers are beginning to buy. We are at the beginning of a good year, but I think that is because of you and other contractors not willing to step out there and make that purchase because you’re not really sure of the economy. Las Vegas was built by risk takers with risk takers money. Renting helps reduce risk,” Hall concluded.
Komatsu’s Morris remarked on the potential benefits of purchasing new equipment:
“What is efficiency? How do we define it? Generally there are a couple of ways to define efficiency. What many contractors might do is look at production and fuel consumption. Fuel is a major expense in your owning and operating costs. You might measure gallons or tons per yard for fuel. Another way is to look at your cost per ton. How much is this machine going to cost me per ton or yard that it actually moves? It really comes down to two factors: production and cost. When you are looking to buy new equipment, everything I’m looking at is related to these factors. The goal, whether you buy new or used, is to get the biggest bang for your buck. The goal is to maximize your equipment efficiency. Ways to do that are increase production, which could mean faster cycle times, moving more per cycle and increasing utilization and availability. The other thing is decreasing costs by reducing fuel consumption and reducing operating costs.
Buying new equipment is a major investment. We all know that, so what are the benefits and what do you want to look at when you are buying new? The standard that everyone will bring up right from the get-go is the standard OEM (original equipment manufacturer) warranty offering. Obviously it depends on who you buy it from. If you go through dealer or certified OEM machine there are some warranty options. Machine availability is key. Cash is king, but so is machine availability and repair requirements. If I can buy a new piece of equipment and get additional 5-10 percent availability out of it over the course of the year, I am really going to get more out of it versus down time of a used piece of equipment.
Higher efficiency and lower emissions are two different things to talk about. As you’re introducing new machines, you’re getting higher efficiency and technology. I don’t think any manufacturer releases new machinery that is less fuel efficient than the previous. That is something we are constantly focusing driving fuel consumption costs down with new machines.
Emissions are an important topic. It seems like yesterday, we were just starting to talk about the introduction of Tier IV and now it has been introduced. When you’re looking at emissions, something to consider when you’re buying new versus new is, do you have funds available if you do lower your fleet emissions on a new piece of equipment versus a five-year old piece of equipment?
You really need to focus on where you live, where you will be working, what funds are available and what governmental regulations are in that specific area.
A lot of areas are requiring up-to-date technologies. It is a lot easier to update a Tier III to a Tier IV than take something that is older.
We know that you try to do the best with what you have, especially considering the last couple of years, you are trying to do as much as you possibly can with that last piece of equipment,” Morris concluded.