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When Should I Buy Used For My Rental Fleet?

Buying used equipment has always been an option for rental houses. Most of the larger national players prefer to buy new, but privately held companies need to understand when the time is right to buy used equipment.

There are several factors to consider when looking at used fleet.

Price

Market price isone of the biggest factors when considering buying used fleet. Prices move with the market. In a downturn, prices go down. As the economy ramps ups, prices rise. No great revelation there! The key is understanding how to take advantage of the market. Saving 25-30% on a piece can bring you a lot of profit later on.

Two sources of market price are Rouse Analytics and Ritchie Brothers Auctions. Rouse offers a service that analyzes trends in equipment prices for a cost. www.rouseservices.com. Ritchie Brothers tracks prices on pieces sold at their auctions. You can find this information for free by signing up to their website. www.rbauction.com.

You need to keep in mind your source when checking prices. Ritchie Brothers is an auction or "liquidation" price. As a result prices are usually lower. Rouse pulls more data. Both auction and sales from larger companies. Their prices are usually higher than Ritchies.

When buying used, make sure to always have the new price to compare to. As a simple calculation, take 20% off the new price per year. Of course, factors such as hours and extreme wear and tear must be considered.

Seasonality can also come into play regarding price. An example would be buying heat in the early spring or compaction in the winter. When time utilization is down due to season, the price may be reflective. The problem in this case is you have to sit on some fleet until the season comes back.

Technology

How does technology come into play when buying used equipment? I'll use one of the most recent examples of technology to demonstrate. I'm sure you have heard of Tier IV diesel engines. At present, there are many rental houses intentionally stretching the average age of some of their non Tier IV fleet. Other rental houses are buying used units in their market instead of Tier IV. By taking advantage of some grandfathering and re power regulations, they can stay with the older engines longer. Of course, your local laws and regulations will have to be considered in making a decision on Tier IV.

Technology also comes into play in the training of your employees. Sales and mechanical staff may require new training to sell and maintain new equipment. I wouldn't use this as the only reason not to buy new, but it may be a small part of your decision.

Opportunity

Sometimes the deal is just too good to pass up! It may be a customer looking to liquidate some fleet and you get first crack at it. Or a competitor deciding to liquidate some fleet in order to improve some year end metrics. It could be an equipment dealer looking to reduce their balance sheet and sell off some trade ins at a loss? If the deal makes sense, sometimes you have to jump at it.

In this case, make sure to do your research and get new and used prices to compare. Don't let emotion drive the decision.

Customer Preference

Don't forget your customer! You may have a customer that prefers an older model due to performance or familiarity. By actively searching for the "preferred" model or year, you may drive more business. This should also be considered when you decide to sell off some of your older units. It never hurts to ask your customer.

Try this next time you look at selling off a bigger piece of equipment. Look up the three biggest users of the piece and give them each a call to get their opinion. You may decide to keep in your fleet a bit longer. Or you may stumble into an opportunity to sell the piece to that customer?

Buying used is an option that should always be considered in rentals. A mix of new and used can greatly increase your profitability and cash flow.

If looking for new or used fleet, be sure to give us a call at Five Bo Inc. Or check out our NEW AND USED EQUIP DEALS section of this website.

Together, let's make our industry better.

JimBo