Machine Replacement: Should You, or Shouldn’t You?
New or used, construction equipment is expensive. You need to get the longest, most productive life from every machine. Here at Tracey Road Equipment, we know our customers often struggle over whether to repair or replace aging machines. It can be a tough decision that directly affects your on-the-job productivity as well as your year-end profitability.
Keep the big picture in mind. While you want to evaluate each piece of equipment according to its individual capabilities and potential for cost-effective operation, you also need to think about where it fits into your fleet as a whole. And that means you have to look into the future. What will your fleet make-up need to be in order to the jobs you want and complete them efficiently?
What are your choices?
The machine clearly needs to go.
It may not be ready for retirement, but it has outlived its usefulness for your firm. For example, it may be a specialized machine for work you no longer do. Or it may be a duplicate that has become redundant. No point in keeping machines that require upkeep but are just sitting around instead of working. You can sell this machine and not replace it.
That said, if you think chances are good enough you’ll need this type of machine again, you could retain it in a holding pattern rather than selling it. The key question is whether the cost of upkeep will outstrip the machine’s potential for future earnings. And just how confident are you about those future earnings?
It’s worth fixing – at least for now.
At some point, aging equipment requires significant repair or a component rebuild. The only way to know if the expensive rebuild will be worth the cost is to pencil it out. If you can significantly extend the productive life of the machine, this is likely to be a smart decision, especially if it will be in high demand for your jobs. Before making any decision, be sure to conduct a thorough inspection so you have the clearest picture of the machine’s future viability.
You may also have a machine that you’d dearly love to replace due to its repair needs, but you just don’t have the money to replace it right now. Or you aren’t sure how much you’ll need it for upcoming work. The best short-term solution may be to repair it and keep it working until you have more capital and a better picture of your future workload.
Replacement is required.
You’ve decided this particular machine is no longer financially viable – or is headed in that direction. However, it is a vital part of your fleet and you are certain this type of equipment will continue to be essential going forward. So you will need to replace this machine. Should you purchase another one just like it (or very similar), or opt for a newer, more advanced version? More features or a machine with somewhat different capabilities could bring new opportunities to your fleet and your ability to bid on a broader range of jobs. How important is that to you?
You’ll also need to decide when is the best time, financially speaking, to replace the existing machine. To determine that, you’ll need to compare it to its prospective replacement. Basically, you want to know at what point cost-effective operation will tip in favor of the replacement.
- First, estimate what the existing machine is likely to cost you to own and operate over the next year or two, especially any predictable higher costs for incremental service, etc. aging equipment typically costs you more, year-to-year, and you know costs will continue to increase.
- Then, figure as best you can what the replacement machine would cost you to own and operate over the same period.
The point at which the current equipment starts to cost more than its potential machine replacement is your “go” date. It’s time to make the switch.