Scrap Handler Supplement -- Scrap Handler Buying Decisions

For more than two decades, Jerry Bruce of Railcrane Corp., Chagrin Falls, Ohio, has sold scrap handling equipment, both new and used. He has seen his share of good decisions, and he also admits he has witnessed his share of purchases that were not well planned.

What Bruce has come to appreciate is the buyer’s point of view in the scrap handler purchasing decision. He put together a step-by-step outline of equipment buying decisions, with the following axiom as its focal point: “Informed decisions cannot be made without reliable information.”

Bruce’s outline consists of 10 components with several sub-categories.

I. EQUIPMENT CONSIDERATIONS

A.  When evaluating different brands, are the specifications and histories truly comparable? Critical elements include horsepower, operating weight and lifting capacities. For used equipment, age, total operating hours and condition need to be evaluated. Bruce notes that machines of similar size, weight and reach can be well under-powered with a smaller engine, smaller pumps, “smaller everything.” Buying an under-powered scrap handler means the magnet or grapple “just won’t move the metal as fast,” says Bruce. Relative to age and operating history, he notes “there are machines that are old that have low time on them, and others not so old that have been working three shifts,” and thus a lot more wear and tear. He notes in particular that machines coming from a steel mill or a mine, for instance, probably have a lot more hours put on them. “The age can thus be misleading,” he remarks.

B. Do both the product and the seller have excellent reputations in the scrap industry? “A processor should be able to call up yards in other locations and find out about both the product and the seller,” says Bruce.

C. For a piece of used equipment, is the model currently manufactured?

D. Again for used equipment, does the manufacturer still supply parts for this model? Bruce notes that one of the most popular series and models of one manufacturer have different “generations” that have different parts that often aren’t compatible. Thus you’re dealing with an existing company, and even a model name that is still being marketed, but the actual model (and its components) may not have been produced in years.

E. Is the seller an authorized dealer for the brand offered?

F. Does the seller of the equipment (if authorized by the manufacturer) keep parts for this model in stock?

G. If the manufacturer is based overseas, what level of domestic parts support is really available? There is certainly no absolute truism on overseas companies and their parts availability—each company operates differently—but there are lessons to be learned. He notes that some foreign-made material handlers contain engines made overseas for which parts are so expensive that replacing the entire engine often becomes necessary when facing a major repair. Other companies, however, are able to support their equipment with large North American warehouses and parts distribution systems. “Foreign companies can have good parts and support systems in place, but make sure that’s the case before you buy,” says Bruce. He adds “the evidence comes from a satisfied user, not from the seller.”

H. Is the seller locally based, or does the seller have a service contract with a local company? Bruce says this is especially important for new equipment buyers, who may require the dealer to support the warranty.

I. Is the seller able to offer (or include) the support of factory-trained service people?

J. Is the machine purpose-built, or is it an excavator converted by an aftermarket company? If it was converted:

1) Does the aftermarket company have an excellent reputation in the scrap industry?

2) Were the modifications done by qualified methods and according to appropriate design/engineering standards? Bruce says, unfortunately, he has seen instances where counterweights were added on converted models that were too heavy for the excavator’s frame. Buyers of converted machines must be aware, because reliable lifting capacity charts may not exist for the re-configured machine. When working with a conversion shop, try to determine the engineering qualifications of those performing the work. “Those doing the retrofitting may know how to weld, but not necessarily how to engineer a good lifting machine,” cautions Bruce.

3) Does this modification now impose loads and stresses that exceed the original manufacturer’s design limits? If so, premature failure is assured, Bruce believes.

4) Are there other conversions exactly like this one, and are they successfully operating in a very similar application to what you intend?

II. OPTIONS

Will any optional equipment or attachments correctly match the machine, and be fully operable within the original manufacturer’s intended capacity limits? Research should be done in particular on mobile shears, says Bruce, since only those of a specified weight and with a certain amount of reach will work well with a given scrap handler. An oversized shear, he notes, will receive too little hydraulic power. “The shears might take 20 seconds instead of 10 to cycle,” he cites as an example.

III. CONDITIONS OF SALE

A. Does the selling price include?:

            1)            Freight

            2)            Assembly

            3)            Applicable sales taxes and levies

B. For how long is the price firm?

C. Is the offer subject to prior sale (first                 come, first served)? Or will the seller agree to put the machine “on-hold” for a few days to enable informed decision-making.

D. If renting is pursued:

1) Are multiple shifts/weekends included, or extra?

2) Who covers:

            a)            Maintenance

            b)            Breakdowns

            c)            Freight, to and from

            d)            Assembly/disassembly

            e)             Insurance

3) Is there a purchase option? If so, what percentage applies to equity? A buyer should always negotiate a selling price first, says Bruce, so that any purchasing ground rules are established up front.

4) What about applicable rental and/ or property taxes/levies? Make sure these  are researched ahead of time. Bruce recalls one situation where a large city government levied an “equipment tax”  on two material handling cranes that were being leased. The processor

insisted the leasing company should pay the taxes, and when they did, their profit margin disappeared and a good relationship was jeopardized.

IV. TERMS OF PAYMENT

A. Exactly when are payments due?

B. Are price—and due date—negotiable? A due date on payments may be negotiable. Subsized manufacturer financing may well be worth considering, but also explore the alternative of better pricing for cash payment.

V. DELIVERY

A. When will the equipment be available?

B. How critical is the promised date? The shipping schedules of established manufacturers are “fairly reliable,” says Bruce. He adds, though, that he has “seen suppliers who have difficulty meeting deadlines.” He notes that during boom times in particular, “when everyone is scrambling to get a machine, August can turn into September or October.”

VI. WARRANTY

A. If there is one, whose warranty is it?

            1) Manufacturer’s or

            2) Seller’s (if other than the manufacturer). There are many variations on warranties offered by sellers of used equipment, such as a 50/50 warranty on some used machines where the seller agrees to pay 50% of the parts and service costs for a period of time after the sale. A “major components warranty” means the seller agrees to cover the cost of any big ticket items that need to be replaced during the warranty period, but the new owner “solves his own smaller problems,” says Bruce. If any equipment dealer is claiming to offer a manufacturers’ warranty, “every buyer should ask for a written warranty on the manufacturer’s letterhead,” he remarks.

B. What is included?

            1)            Parts

            2)            Labor

            3)            Travel time

            4)            Mileage. Both mileage and travel time costs should be spelled out for buyers of equipment from dealers who are 20 or more miles away. “Clarification is most important,” Bruce says. “But as a buyer if you can negotiate that on to the seller, it can prove helpful.”

            5)            Premium time. Similar to mileage and travel time, premium time may be a negotiable expense. Premium time involves paying service personnel for evening or weekend hours, even if the machine is within its warranty period. Some dealers do offer around-the-clock service as part of their warranties. A small dealer may be less able to offer such support during premium hours. Again, clarification is the most important thing to establish up-front.

            6)            If 100% is not covered, exactly what responsibility rests with the buyer?

            7)        Is there a time limit?

                        a) Calendar days

                        b) Operating hours. “Some manufacturers have calendar time without engine time limits,” notes Bruce. “Another kind of warranty—an extended power train warranty—reduces the amount of coverage and are often simply purchased from insurance companies based on a percentage of the machine’s selling price,” says Bruce. “For an unproven machine, you would take a closer look at the extended warranty, versus a machine with an established reputation,” he adds.

VII. ASSEMBLY

A. Who pays for

            1)            Assembly labor?

            2)            Lifting/handling equipment, if

                        required?

B. Who is responsible for assembly supervision, and successful completion of the work? “This is almost always something that is negotiated,” says Bruce. “The machine itself can arrive on two or more trailers, with one load being a ‘permit’ load (larger or heavier than highway standard). You need mechanics and a crane or large forklift to put equipment into place. Determining who will be responsible for what needs to be part of the negotiations in the first place,” says Bruce. Logistically, someone needs to ensure equipment and  people are on hand to assemble a large material handler.

VIII. EQUIPMENT BACKGROUND

A. Are a used machine’s operating and maintenance history documentable?

IX. REFERENCES

A. An equipment buyer who is not familiar with the product, or the seller, should insist on names of customers who can be contacted for their opinions of the equipment—and the seller’s past performance. Many scrap processing families who have been in the business for decades have contacts throughout the country they can call for opinions. “In the 1970s and early1980s, anything an equipment dealer did that did not sit well with a scrap processor, the whole industry knew because of the good communication between family businesses,” says Bruce. He notes that now there may be more of a gulf between operations people of various companies, resulting in less exchanging of information about equipment than in the past. “Because of the trend toward large corporations, away from the family businesses, traders may not talk machines to each other as much as they used to. They are more like financial professionals and are not running the machines themselves.”

X. GOOD FAITH

A. Tough, hard-nosed negotiations can lead to a hollow victory. The equipment purchase must be good for both parties, particularly if there are intentions of doing future business with the seller, or if a warranty is involved. If negotiations produce a purchase agreement that is win/win, the good will that results always pays more dividends to the buyer, over the long haul, than the last few dollars won in a ruthless negotiation.