July/August 1989
When is used equipment really a great buy and when isn't it? When is new equipment a better bargain? Scrap processors and dealers of both new and used equipment offer guidelines for making these crucial purchasing decisions.
By Madelyn R. Callahan
Madelyn R. Callahan is a Washington, D.C., writer who specializes in business issues.
Without a doubt, good used equipment's outstanding benefits are dollar savings and immediate delivery. Of course, the buyer doesn't receive the warranty that comes with new equipment, but then he doesn't have to wait six months or more for the machinery to arrive. He must, however, have the time to look for the equipment and the expertise to evaluate it. And, in this healthy economy, he may be searching a market that many believe to be virtually dried up. Still, brokers and dealers of secondhand equipment offer a range of services that help processors find what they need, even in today's market.
According to Cap Grossman of Grossman Iron & Steel Co. in St. Louis, buying used equipment raises many questions, not the least of which is, When is a bargain not a good deal? The president and chief operating officer of this medium-sized processor of ferrous and nonferrous metals says that a "good buy" on used equipment isn't always a smart buy for the company. "People have to be wary of thinking, 'This equipment is a great deal.' If they're not improving their operation by increasing capacity or efficiency with it, they merely keep adding to the operation with good buys. In the long run these aren't necessarily prudent investments."
Grossman, whose company purchases used and new equipment, says carefully assessing a purchase may prevent problems. And that means considering "how well the equipment was maintained and whether or not it's exactly what you want. Is it just a bargain or should you spec what you really want, buy it new, and get the full warranty value?"
He adds that a good relationship with a used equipment dealer can alleviate some concerns. "Working with an equipment broker aligned with a specific industry like scrap processing can help cut through that feeling of uncertainty about dealing in used equipment."
At Cambridge Iron & Metal Co., Inc., a processor of ferrous metals in Baltimore, the company's secretary-treasurer, Sandy Shapiro, has hired a consultant with expertise in evaluating equipment.
"He doesn't sell equipment, so he has nothing to gain or lose by the sale; he just charges me for his time. I turn it over to him, and when he finds what he thinks is good for me, we look at it together. He has the time to look at a lot of equipment, whereas I don't.
"He's the expert. He can look at a piece of equipment and tell, even better than my maintenance people, whether the machine is in good shape. We actually go out there and, before we consider buying it, he gets in the machine and runs it. So he knows how to evaluate a piece of equipment and determine its value. I don't have the expertise and my people don't." Shapiro's consultant has helped him purchase two cranes and has "looked into a myriad of other problems."
Besides advising processors to hire equipment experts, Shapiro advises against buying equipment that cannot be serviced easily. Even though the machine may be in good working order and right for the particular job, "if you can't get parts or service--even though you maintain the equipment yourself--there's no sense in getting it. I've turned down good buys because of this."
At Chicago's Cozzi Iron & Metal, Inc., a processor of ferrous and nonferrous metals and exporter and broker of ferrous metal, material handier Mike Sargent is the staff expert on equipment. Prior to joining Cozzi, Sargent spent 12 years as general services manager for equipment dealer Crane and Machinery in Bridgeview, Illinois, where he represented trailers, scrap grabbers, wheel loaders, pumps, and cranes. At Cozzi he's in charge of all material handling, production equipment, and building maintenance.
His first recommendation to processors considering buying used equipment is to shy away from something that's been in a heavy-duty cycle application, for this is the hardest application for any type of equipment.
Another tip from Sargent: Explore several sources of information. "Some [processors] get comfortable with suppliers over the years. Check around--check the marketplace, the bid books, and the auctions to see what equipment has been going for so you can get a fair market value when you're both selling and buying equipment."
He says processors who haven't educated themselves in today's market may think they're getting a great deal on a piece of equipment when they're not. "When a broker is selling you machinery," Sargent says, "take maximum advantage of his contacts, and make sure you're knowledgeable about current prices. That education is worth it, particularly since it shouldn't take more than a week or two to learn about prices of the particular piece you're buying or selling."
And, most important, when buying used equipment, do a thorough inspection, Sargent advises. The first thing he looks at is the structural integrity of the machine. "If there are cracks in the main frame they can be repaired, but there will be problems not too far down the line." And he adds: "Remove pans and covers to gear boxes. This should be done with your master mechanic or shop foreman. Often, people don't take the time to investigate the machinery thoroughly."
Vice president of sales and marketing for the Harris Group in St. Paul, Minnesota, Buck Hughes directs the sale of new shears and balers. Hughes also thinks a processor needs good resources and personnel to manage used equipment. "There are many good, well-known scrap processors who hardly ever buy new equipment, but they have the facilities and knowledge to rebuild used equipment. By and large, most [plants] are not equipped that way, and those that aren't run a risk, when buying used equipment, of ever-mounting costs."
His advice to potential buyers is, before making a capital investment, determine the volume of scrap that will be processed to be sure that the need will justify the expenditure. He says deciding between a used piece of equipment and its new counterpart is a matter of "weighing the difference between buying old technology and buying state-of-the-art technology. The initial investment for used equipment is less but the overall cost could end up being more than [the price of] a new machine."
Equipment expertise is key to successful purchasing says Albert C. Schulz, president of Hudson, Ohio-based Counselor Engineering, Inc., a broker and dealer of new and used scrap processing and recycling equipment. The company also builds all sizes of aluminum sweat furnaces, including rotary and reverberatory types, and appraises processing equipment.
He says a scrap processor who sees a used piece of machinery's potential can cut his expenditures for capital equipment tremendously. "The scrap processor is very creative, innovative, and savvy. A machine that doesn't look good to one person is a gold mine to the processor who can visualize how to fix it. He knows he can buy it for one-half, one-third, or even one-tenth of the price of a new one."
For processors who want to bypass used equipment auctions, Schulz's company offers assistance in the form of a computer data base listing more than 1,000 pieces of equipment, with a location and description for each. He says the listing cuts out the legwork for anyone wishing to buy or sell equipment. Sellers can list their machinery, and Counselor will advertise and screen buyers for them. Buyers can call for instant answers about available equipment and for advice. Says Schulz, his callers ask not only about the condition of a machine, but about its application. "They ask me whether it will do the job they want done."
Honesty is essential to good service, he says. Besides building the broker's reputation and ensuring repeat business, it creates vital trust between processor and broker. And, according to Schulz, that's particularly important because "the one thing a processor should understand about buying used equipment is that you more or less rely on the people you're dealing with to tell you honestly what it is."
What Drives the Market for Used Equipment?
At GENSCO Equipment Co., Ltd., in Toronto, Ontario, Vice President Alan Zelunka says he sees very little good secondhand equipment available right now. "Most people in the scrap business are using everything they have. We're selling more new than used equipment." The company also rebuilds and brokers equipment and provides parts and service for most of the equipment it sells.
According to Zelunka, buyers currently "aren't afraid of the prices for new equipment" because the industry is active and their businesses are prosperous. "They don't want to wait around for good used equipment to become available. So if you have the new equipment they'll buy that because they want to earn their profit on the scrap they process or produce at today's rates. They don't want to wait three to six months for the prices to fall."
He describes his company's function as "consultant with the intention to sell." Over 22 years he's built ongoing business relationships based on his experience recommending the right kind of equipment for a specific job. "We won't sell a customer something he doesn't need or something that won't do the job because we can't afford to jeopardize the business relationship. If I sell him the wrong magnet, he won't buy a baler from me."
Alan Ross, president of Alan Ross Machinery Corp. in Northbrook, Illinois, sells used and new processing and recycling equipment. He suggests to customers that, before they talk to his company, they plan some kind of layout of what's needed. "A processor should draw a chart of the project showing, for example, how he wants the conveyor to feed the crusher and how he wants the magnetic separator to be involved. Come in with a plan on paper."
Taking that a step further, Grossman advises to "be concerned about the big picture." He reminds processors not to lose sight of operational goals when they make purchasing decisions. "In the area of equipment purchasing, think about the effect on the plant, why you want the equipment, and what it can do for the company." •
When is used equipment really a great buy and when isn't it? When is new equipment a better bargain? Scrap processors and dealers of both new and used equipment offer guidelines for making these crucial purchasing decisions.