Buying Used Equipment: Do’s and Don’ts

When facing the difficult decision of buying new or used machinery for your shop, take these suggestions into consideration.

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For those of you who didn’t attend the recent American Gear Manufacturers Association (AGMA) annual meeting, you missed a great opportunity to network and hear about a number of issues that are and will affect the gear industry here and around the world.
One of other major takeaways from the meeting was that many of the gear manufacturers are buying equipment — mostly new — to modernize their shops and help them compete for work. I’m sure that some of you are thinking, “ I can’t afford to buy a new or even used machine.” Well, I contend the opposite. You can’t afford not to.

New and used gear equipment is some of the most expensive on the machine tool market. A new, basic, entry-level CNC hobber can cost $350,000. Adding options and additional capabilities like skiving, loaders, high-precision or high-speed hob heads, 90-degree hob heads, etc., can add on tens of thousands of dollars quickly. Add in the work holding and cutting tooling and well, the sky is truly the limit. However, these machines can be very productive and make higher quality parts than machines made even 10–15 years ago.

As an example of what new machines are capable of, when my company purchased it’s first CNC shaper from Fellows, we had some jobs that we were cutting approximately five to eight pieces-per-hour. In addition, tool life was bad — only five pieces-per-grind due to excessive rubbing. After purchasing the new shaper, we were cutting nearly 25 pieces-per-hour and tool life was about 35 pieces-per-sharpening. What were the benefits you ask? Obviously, lower costs that allowed us lower the price to customer and still make more money per hour. The cutters lasted longer allowing us to ship parts quicker (fewer shutdowns for sharpening) and clearly the increase in piece rate helped as well. The first machine purchase helped us pay for the second.

Another key thought here is that while you can “gamble” and get a machine that has some features that you don’t currently have on other machines, you must have at least a base book of business to support the machine. While trite, machines only make money when the spindles are turning (or going up and down). With the prices of machines at the levels they are, they must run the maximum amount possible. You cannot afford to buy a machine on a “build it and they will come” basis.

Now that I’ve got you convinced to modernize your shop, do you buy new or used equipment? This decision depends on what the use is going to be and what you can afford. If your backlog of work for this machine is thin, or if your quality requirements are not super high, used machines may get the job done. On the other hand, if you need high quality and have a ton of work, a new machine with a loader might be the ticket. New or used, your best bet is to deal with reputable OEMs and used machine dealers. Just make sure you get the right machine sized for your work. Tooling and initial setups should also be discussed.

New machines normally carry a warranty of a year of parts and labor. Used machines are generally as sold as-is with no warranties expressed or implied. This is where dealing with a used machine dealer with a history in the gear industry is the only sure way to get maximum value.

There is another alternative to buying new or used. You can contract with manufacturers who specialize in re-building or re-manufacturing machines. You can send them one of your machines to put through the process, buy a used machine yourself and send to them, or just buy the machine completely done from the manufacturer. A good re-manufacturer will completely strip the machine to the casting and start there to replace wear items and add additional components such as CNC, loaders etc. The approximate cost for this process is about 60-70 percent of a new machine, but you are getting a warranty and a lot more functionality.

Now, here comes the hard part — how to pay for the machine. Obviously, if you’ve got the cash, you may want to consider paying for it out right. Talk to your accountant about this as they may suggest you take out a loan or lease the machine instead. According to David Bolt of SBG Capital in Chandler, Arizona, there is really no difference in the amount of the payment between a lease and a loan. Leases normally carry a one -dollar buyout at the end, but the monthly check is the same. Most leases and loans are for five years and companies with stronger credit will receive the best terms and rates. And, just so you know, all banks and other lenders will put liens on the machines to protect the asset until it is paid off.

Used equipment as well as re-building and re-manufacturing costs can also be leased or put on a loan. Again, talk to a well-established bank or machine finance company to avoid any problems. In all cases, make sure your accounting firm is in the loop to help you make the right choice and also to insure how they will treat your purchase on your financial statements.

As I indicated earlier, you’ve got to stay current with your machine and process technology. If you don’t, your competition surely will.

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is the president of TopGun Consulting, a manufacturing consultancy with a focus on helping companies improve their practices and processes to increase the profitability and satisfaction of the owners of those companies. David has over 30 years of experience in manufacturing, more specifically in the gear industry. Using his experience, David is able to quickly assess difficulties  and recommend simple, yet effective, solutions to those issues. For more information, contact David Senkfor at david@topgunconsulting.net or (602) 510-5998, or visit Top Gun’s website at www.topgunconsulting.com.