November/December 2011
Used equipment can save time and money—or it can cost more in time, money, and aggravation than buying new. Heed the following advice to avoid costly mistakes when making the buying decision.
By Jim Fowler
The best way to save money on scrap processing equipment—new or used—is to buy only what you really need. Before starting an equipment search, scrapyard owners should answer a few questions, says Marc Staff, area director for North American heavy equipment at Terex Fuchs (Southaven, Miss.): Will this piece of equipment diversify your business? Will it allow you to handle your current volume more quickly and efficiently? Will it help you reduce downtime and increase the volume of material you handle? After confirming that the equipment is indeed necessary, the next question might be, new or used?
At first glance, the benefits of buying used might make it seem like an easy decision. The first benefit is time: The equipment is available immediately, whereas a new product might take months to be designed and manufactured according to your specifications or to arrive from a distant factory. Time is important when markets are changing rapidly and the equipment is needed to keep an operation running at peak efficiency. Sometimes a scrapyard needs an essential piece of equipment right away, or the entire operation grinds to a halt. In such situations, scrap processors must consider current market conditions, the location of the equipment in relation to the scrapyard, and the length of the wait for a new machine, says Alan Zelunka, president of Gensco Equipment (1990) (Toronto). “The copper market can go from $4 per pound to $2 per pound in six months,” he says. “If you put an order in for a new baler, it takes six months to get it, and you have copper to bale [now], you’re in big trouble. … If you buy a baler that’s used and available in three or four weeks, you may not have that problem.”
The second benefit of buying used is price, which might be 60 percent of the price for the same machine new, or even less. Price is related to supply and demand, of course. If a particular type of equipment is in high demand, expect to pay more for it used. For example, “there’s just a shortage of good scrap processing shears,” says Percy Ransome, owner and CEO of Ransome Equipment Sales (Marlton, N.J.), of these popular hydraulic attachments. “If you can find a good used shear priced at 50 percent of the price new, you’re doing good. However, because of the current shortage of shears, you might have to pay 65 to 75 percent of [the cost of one] new for one in good shape.”
Used equipment is not just cheaper, it can get you more for your money. Just because the equipment is used doesn’t mean it’s nearing the end of its service life, points out Charlie Fritz, vice president of scrap recycling firm Area Material (Kankakee, Ill.). “I recently bought a couple of material handlers that had about 2,500 hours each. They are expected to last 15,000 hours. New, one of these machines would be in the $230,000 range; I paid $130,000.” As Staff puts it, “Equipment is what makes you money in this industry. You can make a lot more money faster if you can lower your acquisition cost [for] a piece of machinery that also allows you to increase the volume of material handled.” In other words, the less you pay for the equipment, the better the return on your investment.
If the price is right and the equipment is available right away, a scrapyard equipment buyer might be ready to make a deal. But these purchases require the same due diligence as the purchase of a used car, caution those who buy and sell scrap processing equipment. Before signing on the dotted line, consider advice such as the following.
Buy from a trustworthy seller. “You have to work with a dealer who is familiar with the scrap industry—someone who understands the business,” Fritz says. “You have to know and trust the dealer or private party you’re buying from.”
If you’re not buying from an equipment dealer, the first question you should ask is, “Who has title to the machine, and is that title encumbered in any way—[is there] a lien on the machine or a security agreement?” says Rustin Ross, president of Alan Ross Machinery Corp. (Northbrook, Ill.). “You’ve got to be concerned with whether a bank has a claim in it, particularly with more expensive equipment. That’s critically important, and with today’s climate in the banking industry, banks are increasingly reluctant to release liens on machinery. A benefit of buying from a credible machinery dealer is the help to ensure the machine being purchased has a clear title.”
Buy the right tool for the job. Make sure the equipment is suited to its intended use and is the right size for the application. Some scrap processors try to save money by buying used excavators and converting them for use in their yard, says Ivan Jacobs, owner of Equipment International (Aurora, Colo.). “They mount a generator on it and a magnet or grapple, but [they] just get by with it because it doesn’t have a long enough reach or a cab riser for visibility. If the operator is loading a high-sided trailer ‘blind,’ it is dangerous, and they usually can’t get the correct weight into their trailer. If it’s a crawler, every time the operator makes a turn, the tracks tear up the driveways,” he explains. “In such situations, I’ve sold one used material handler with a hydraulic cab riser that has replaced as many as three old excavators. Scrap dealers are ecstatic with the change and say they’ll never go back to a converted excavator.” Compatibility also is essential if one piece of equipment must work in tandem with another. With mobile shear attachments, for example, “be sure your machine is hydraulically capable of handling the shear and that the shear will physically attach to it,” Ransome says.
Examine the machine’s condition. When Rick Gertler, an owner and chief operating officer of Scrap Metal Services (Burnham, Ill.), is considering buying a used material handler, he goes through a checklist of questions for the seller before he’ll agree to a deal:
--For what process was the machine used?
--How many hours was it in operation?
--What is the overall condition of the machine?
--What components have been replaced, and at what hours?
--What is the maintenance history? Are the maintenance records available?
“While the hour meter tells you the total hours on the machine, you have to rely on the seller to learn what components have been changed and when,” says Don Davies, sales manager for Sargent’s Equipment and Repair (Chicago Heights, Ill.). “Material handlers today are designed to give you a lot of hours, but if it’s a high-hour machine, you need to pay attention to the component changes throughout its life, such as the engine, hydraulic pumps, and undercarriage.”
Different types of equipment have different items of concern when it comes to maintenance and condition. For material handlers, some buyers assume certain items need to be replaced from the outset. “I will figure into the purchase price the cost of replacing the engine and some of the pumps,” Gertler says. “I’ll also look at the pins, boom, and the integrity of the undercarriage. A lot of times I’ll get a second opinion from a host of dealers I have relationships with—and trust—before I buy.” Jacobs adds that “it’s also important to know if and when major components—such as the engine, pumps, and turntable bearing—were rebuilt, and who did the work. You need to ask, was it done in house or sent out, and does it still have a factory warranty in play?”
An unscrupulous seller might dress up used equipment in poor condition with temporary patches and lie about the number of hours a machine has been in service, Fritz says. “You have to know and trust the dealer or private party you’re buying from. You need to inspect the material handler and be sure the hour meter is correct so that you’re not buying a machine with 5,000 hours that is only showing 2,000 [hours].” If the machine’s undercarriage and boom look like they’ve experienced heavier usage than the hour meter indicates, it might be worth getting a second opinion.
For some deceptive practices, “it takes an experienced individual to detect potential problems,” Ransome says. “You can buy a shear and find that, while it looked good, it needs $20,000 to $30,000 worth of work. This can happen when buying a shear at auction. It looks great, but it’s been doctored up. Auto body putty has been used to fill any flaws and cracks; it’s been painted and re-decaled. Then on the first cut, it falls apart.”
For balers, check wear items like liner plates and shear blades, advises Kenneth Ely III, sales executive for Ely Enterprises (Lorain, Ohio). Worn parts, if they fail, can cause expensive damage to the machine, he says. “You want to make sure the liner plates on the inside of the baler’s chamber are still within the factory-recommended tolerance for thickness. You also want to look at the shear blade on the ram face knife and the shear blade that sits on the frame. They wear down with time.” When they’re worn, “in addition to not cutting well, this will put undue stress on the frame and your hydraulic system and might even damage the cylinders,” he says.
Seeing the machine in action also is important, Zelunka says. Let the value of the equipment being purchased determine the inspection approach. “If a processor wants to buy a $5,000 cable stripper, he can do it [after seeing] a picture [of it]. If it’s a $150,000 baler or logger/shear, you get on the airplane to take a look at it. It depends on value. Anyone who is going to spend $100,000 or more on a machine and doesn’t see it running is crazy.” Before booking a flight to inspect a potential purchase, ask the seller the following questions, Ross suggests:
--Is the machine running now?
--If not, when was the last time it ran?
--Did it run with material in it?
--Did you notice any problems when it ran with material in it?
--Can you send a video of the machine running?
Equipment International makes it easier for potential customers to see the used material handler they want to buy in action: Jacobs says he will take half the cost of the machine as a down payment and ship the material handler to the buyer’s yard. If the machine performs as advertised, the buyer will wire him the balance the next day. His company’s machines come with a 30-day warranty, he adds.
Consider the availability of parts and service. Every piece of equipment, regardless of its age or condition when purchased, will need repair and service at some point, so the purchasing decision should factor in the availability of support, service, and parts. “Your success with a machine is going to be dependent on the support you get from whom you are buying it and the amount of support you have available internally in your business,” Ross says. “What I’ve noticed through the years is that the folks who do not have a deep technical bench in their business really need a lot of support from whomever they’re buying the machine, new or used. How much technical capability you have access to, whether internally or from third parties, will determine how successful you’re going to be and the reliance you can have on used versus new.”
Ely tells the story of a customer who was excited about the “great deal” he got on a vertical baler at auction for just $900. “When he got it back to his yard and fired it up for the first time, it made a mess, spitting oil all over the place,” he says. “He wanted us to work on it, but the machine hadn’t been made for more than 30 years, and finding parts was a problem because the manufacturer was out of business. He ended up buying a new baler from us because he didn’t want the headache anymore.”
The best deals in used machines are those in the five- to 15-year-old range that the original manufacturer or current dealer will support, says Mike McChrystal, president of Ohio Baler Co. (Cleveland). Otherwise, he explains, “if you can’t get parts overnight from the manufacturer, it may take several days to figure out where to get the part, and then you have to order it.” If that’s the case, “the customer is down for a week to 10 days, and that’s not going to help his business,” he says.
Should you expect a warranty? “It’s a matter of the customer’s expectations versus the dollars he is spending,” McChrystal says. “If a buyer is spending 50 to 60 cents on the dollar for a used piece of equipment with no warranty, they’re probably overspending. Normally you’re going to be spending 60 percent of what it costs new for something reconditioned, with a 90-day warranty on parts and labor. If the machine is being bought ‘as-is,’” you should be spending no more than 30 to 40 percent of the new-equipment price, he says.
Ransome, in contrast, says that warranties are rare. “A warranty is reflected in the price and depends on how new or recently reconditioned the shear is. A buyer concerned about a warranty should purchase a new or near-new shear.”
Factor in additional costs. The equipment cost might be only one expense associated with the purchase. “When processors fail to consider the cost of disassembly, the condition of the machine and the cost to bring it into operating condition, the possibility of having to upgrade safety devices, the cost of transportation and installation of the machinery, and the cost of ownership,” they might be unpleasantly surprised by the total cost of their purchase, Ross says. “When all is said and done, and all the costs are tallied up, they [might] have spent more money getting the used machine up and running than what a comparable new piece of machinery would have cost,” he says. “Unless time or capability is a consideration, it would be a mistake to spend more on a used machine.”
McChrystal points out that the disassembly cost can equal the cost of the equipment, especially on larger pieces of machinery. “If you’re buying a 25-year-old, 500-ton shear, it might cost only $50,000 to $60,000, but you’ll spend that much on disassembly and loading because there is so much involved,” he says. Further, the weight will result in high transportation costs, “and then [there’s] the cost to reassemble, which is about the same as to disassemble. Then you have the foundation requirements and necessary electrical service.” The “soft costs” can cause a potential buyer to look at the total and back away from the sale, he says. (Some costs are the buyer’s responsibility regardless of whether the equipment is new or used, so be sure you’re comparing apples to apples.)
Operating costs are another consideration. Fuel efficiency technology has changed significantly over the past decade, especially for larger pieces of equipment, Jacobs says. “A big, older-model [material handler] burns 10 to 14 gallons of fuel per hour,” he says, whereas “a late-model material handler only burns five to eight gallons per hour. One scrap dealer told me his annual fuel savings” from replacing a big, older machine with a smaller, newer, used machine “were enough to pay for the machine in one year.”
If you’ve done your due diligence and made a purchase of used equipment, Ross offers one more piece of advice that could save scrapyards lots of money: “Make sure your yard workers know the machine is coming [so it] won’t accidentally be processed as scrap.”
Jim Fowler is retired publisher and editorial director of Scrap.
Used equipment can save time and money—or it can cost more in time, money, and aggravation than buying new. Heed the following advice to avoid costly mistakes when making the buying decision.