Used Equipment Avoiding the Pitfalls

The savings can be significant when choosing a piece of pre-owned equipment, but the wrong choice can negate that potential reward.

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July 27, 2001

For smaller recycling operations, buying pre-owned equipment is often the only option available. But even the largest scrap processors will purchase used equipment when the situation is appropriate, and 1999 is proving to be a buyer’s market.

The difficult commodities market of late 1998—and in particular the plunge of ferrous scrap and old corrugated container (OCC) pricing—has caused several business closings. The ensuing sales and auctions have flooded the market with equipment ranging from forklifts and small balers all the way to automobile shredding plants. “Right now there is a plethora of equipment out there,” says Norman Kramer of Kramer Consultants LLC, Dallas. “It’s definitely a buyer’s market today for those looking for a piece of used equipment.”

FIRST STEPS

Where does someone shopping for, say, a pre-owned baler or a used wheel loader begin the process? “When you go looking for a piece of equipment—used or new—write a brief specification of what you are looking for,” says Albert C. Schultz, president of Counselor Engineering Inc., Hudson, Ohio.

As an example, Schultz notes a prospective buyer should determine in advance “on a crane, how long of a boom do you want? Are you going to use a grapple or magnet? Do you want the crane to be a crawler type or rubber tired?”

To get a feel for the market and current pricing, one can examine trade publications and equipment fliers or catalogs put out by distributors. There are also several companies that can be contacted that specialize in finding and inspecting used recycling equipment.

Kramer recommends examining the promotional materials published by manufacturers to accompany their new equipment being sold through distributors. “Get all the information on new equipment you can and establish what new equipment is out there that does what you need and see how it might fit into your operation,” he says.

When it comes time to look over a prospective piece of equipment, Kramer and others strongly recommend that an engineer or maintenance expert be a part of the team making any on-site visits.

“A smart used equipment purchase typically involves gathering together the people who are going to be responsible for paying for, operating and maintaining that piece of equipment and inspecting it together and researching the parts availability,” says Rustin Ross of Alan Ross Machinery Corp., Northbrook, Ill.

Ross also says that processors need to ask themselves whether they have the ability to take on the responsibility of buying equipment that is not under warranty and that they will have to maintain. “If you buy ‘as is’ and you know you need to work with it, you have to have the people, the tools or other vendors that you know you can turn to for servicing that equipment. So it can become a larger management task, and it can be time-consuming.”

RUDIMENTARY RESEARCH

There is no shortage of potential issues to explore as one begins to narrow the search to certain equipment models or even one prospective piece of equipment.

Among the largest of ongoing costs for virtually any piece of equipment is the cost of power or fuel. Are there any reliable ways to determine how much diesel fuel a mobile material handling machine will guzzle? Can records adequately determine how many kilowatt/hours of electricity a baler will require?

Such records may or may not exist, but it never hurts to ask. “You pretty much have to rely on the veracity of the owner to tell you if this thing is really taking a lot of maintenance and extra power,” notes Kramer.

“If I were going to buy a piece of equipment I would check where the current owners have been buying their parts and who does the maintenance,” says Kramer. “Try to find out if there have been any major breakdowns and how many parts they have been going through. Most companies also keep a log, which hopefully they will be willing to show you.”

Ross has an added recommendation: “You need to talk to other processors who have run similar equipment.” He cautions, though, that the industry is one that varies greatly from region to region and location to location. “There are just so many variables as far as things like capacity and operating expenses. It depends on the region of the country. It depends on from whom you’re purchasing your scrap. People even have different ways of feeding scrap into their machines.”

But the fact that established equipment models have a track record is one of the advantages of buying pre-owned equipment, says Ross. “There’s a longer history and industry track record to draw from if you want to take the time to talk to people who have run that type of machine.”

Ross contends, though, that the operating history of an actual unit up for sale is not as important as the current condition of that machine’s crucial components. “Operating history doesn’t matter. What matters is in what condition the various parts are in. What you want to be able to do is inspect the parts of the machine that are going to be the most costly to replace.”

For general operating and maintenance information, experienced equipment buyers and sellers note that the manufacturing companies themselves can be very helpful. “Most manufacturers are cooperative,” says Kramer. “They’re looking for parts business and the good reputation that might bring a repeat purchase. They might even furnish you with operating and maintenance manuals.” Most such manuals can also be purchased.

According to Ross, part of the research process should involve investigating the parts availability situation. “Find out if you can you get parts from a local vendor,” he notes. “You want to have an alternative source for parts and have local vendors. It’s nice to buy from a used equipment dealer because we have that information.”

Judging the current value of a piece of equipment by age alone is probably not a wise course to follow. Says Kramer, “I’ve seen equipment that has been in use for a year that looks like it has been operating for 15 years, and then I’ve seen equipment that has been used for 15 years that look like it’s only a year old.”

AVOIDING MAJOR MISHAPS

The most devastating pitfalls that can confront a used equipment buyer are purchasing what in automotive terms is known as a lemon or buying a machine and finding out that you do not possess clear title to it.

A detailed inspection by a qualified individual is still considered the best way to make sure a lemon hasn’t been brought into the fold. Most experienced buyers and sellers of used equipment also strongly recommend viewing the equipment in operation if at all possible.

“One of the most important things you can do is have a good engineer go with you and do some testing onsite,” says Kramer.

“You really do want to take a close look at overall appearance,” says Greg Gaither, a sales representative with McIntyre Machinery America Ltd., Stow, Ohio. “You always want to see it running, if at all possible. On things like grapples, make sure the hydraulic lines do not have large cracks or any major leaks evident in the hoses or within the cylinders. A lot of pit marks and gouges on the cylinder might indicate it has had a rough history.”

While warranties can of course make an important difference, Ross cautions that “the most important thing about warranties is that they are only as good as the company from which you are purchasing the piece of equipment.”

It does not happen often, but buyers have had equipment that was repossessed because the seller did not possess legitimate ownership. For some pieces of equipment, searches can be performed based on the serial number.

“If the machine has a serial number, there are ways to perform searches to find out that the person selling it has a legitimate right to sell it,” says Ross. “If it doesn’t have a serial number, there is no way to know for sure.”

“I demand a serial number and as a verification of that number you check it out with the manufacturer,” says Kramer. He notes that he has seen counterfeit pieces that have been “given the nameplate of another manufacturer. You wouldn’t know it was phony unless you checked the serial number.” He adds that, “if a number is filed off, you had better be very, very careful.”

How do scrap processors get into equipment buying scenarios that turn into major mistakes? “ By moving too quickly,” says Ross. “By not doing research. By not calculating or factoring the indirect costs, such as electrical upgrades that may be needed to support a new baler.”

Another common mistake is one often made by consumers who buy a sale item at a bargain price only to find they have purchased something that is quickly stored in the attic. “People sometimes bite at a cheap price but don’t really have a need for the equipment. That’s how a lot of idle equipment comes to get that way,” says Ross.

The current down market combined, perhaps, with purchases made by companies that may have overbought during the good years, has made for a crowded used equipment market in early 1999. “It seems like you can call up anybody and get a great deal on anything,” says Gaither.

“There have been many auctions in this market,” adds Kramer. “Equipment across the entire gamut is out there.”

The author is editor of Recycling Today.