Adding used to minimize risk
By KIERAN HOLMConstruction Equipment Financing
Including used equipment in a fleet strategy mix can help contractors navigate the ups and downs of uncertain times.
The entire construction industry has a big job ahead of it as we move through 2023: figuring out how to navigate economic uncertainty while continuing to thrive in an increasingly competitive market.
Lessons from the major upheaval in 2008 taught many how financial flexibility and quick decision-making were keys to survival. When the global construction industry started to point negative, some equipment owners held off from making fleet right-sizing decisions. Unfortunately, waiting to see if the markets would turn around quickly would prove costly.
Fast-forward more than a decade and we now know the importance of making smart, agile equipment decisions. We’d like to think we’re better prepared this time around, but the challenge of knowing where to start remains.
Better informed planning begins with an understanding of market conditions, and how existing fleet inventory correlates with upcoming project demands. Working with the right equipment dealer can help you craft the best solution for your fleet management strategy, and not repeat mistakes from 2008.
ADAPTING TO MARKET FLUCTUATIONS
While the road ahead has the potential to be a bumpy one, there are ways equipment owners can prepare their businesses to weather the storm. The first is right-sizing the fleet using a combination of equipment rentals, sales and purchases to ensure there is balance between capital and operating expenses.
The second is maintenance and repair. Balancing scheduled and required investments in machine conditions and uptime help ensure maximum profitability and market value. A third is giving yourself the flexibility to manage the sometimes-difficult decisions that may become necessary.
Deciding on the right ownership mix is a combined effort between fleet owners, their financial advisors, vendors and dealers. A full-service dealer can be a critical part of this partnership. The right dealer can offer transparent advice on market values, machine condition and required maintenance, and ownership solutions. Conversations between the team can include harvesting equity from owned machines, adding used machines, rental purchase options (RPOs) and leases. A benefit of replacing part of your fleet with used equipment is that you can better moderate cash flow and overall expenditures. Used equipment often maintains its value better on a balance sheet while still getting the job done.
When it comes to calculating depreciation, there’s no blanket approach. There are tools that can give estimates, but actual valuation is dependent on several factors, including condition, maintenance history, market trends, and supply and demand curves. Your dealer will be able to help determine value and overall market conditions, if you are thinking about selling.
With ongoing supply chain issues and manufacturing delays, new equipment can also come with long wait times. It’s often easier to find the right used equipment for upcoming projects and then resell it when you have completed the work. An added bonus is that dealers are often able to source equipment from other locations to meet needs.
WORKING WITH DEALERS YOU TRUST
Reputable equipment dealers aren’t just out to sell used equipment. Many will also purchase old equipment in exchange for cash, which can help to support a business as it grows or even help with immediate cashflow if a need arises.
Just as a dealer can help by validating used equipment purchases, they can also help with the equipment’s maintenance schedule. Deferring maintenance or repairs can save money in the short run but this tactic can cost dearly when trying to sell or trade a machine.
Warranties are also an important part of any large purchase, and used equipment is no exception. Full-service dealers can offer warranties and even certify the condition on some machines. Increasingly, used equipment trends are following those of used car trends with “Certified Used” becoming an attractive feature for buyers.
A NEW LEVEL OF CAUTION
No matter what 2023 brings us, having the right fleet strategy mix in place will help a company react quickly when needed. We can’t always predict what business will look like in the future, but having flexibility when market conditions are unpredictable is important. That starts by partnering with a reputable equipment dealer who can support you and your company through economic ups and downs.
Kieran Holm is the global executive vice-president of used equipment with Finning, a Canadian industrial equipment dealer specializing in Caterpillar products.