REPAIR, REBUILD, REPLACE: WHAT’S IN YOUR COST-BENEFIT CALCULATION?
As your equipment ages, the day will come when you’ll have to decide whether to repair, rebuild or replace it. Some use a rule of thumb to make that decision: When the price of fixing an old unit exceeds 50% of the price of a new machine, it’s probably time to replace. Although the 50-50 rule can be a good indicator, there are other important factors to consider. Here are some of them.
• Taxes. You’ll pay higher taxes on a new machine than you will on a repair or rebuild.
• Depreciation. High depreciation expenses incurred during the first few years after a new machine is purchased can deliver a big hit to the income statement. The economics of repairing or rebuilding an older asset that’s already been depreciated may be more favorable.
• Warranty. Future repair costs can be reduced or avoided with a new-machine warranty. Some rebuilt units also come with same-as-new warranty coverage which help control repair costs.
• Fuel. Newer models use fuel more efficiently than older ones. But you can buy a lot of diesel with the money you’d save repairing or rebuilding a machine, rather than replacing it.
• Disposal fees. If you’re getting rid of an asset, make sure you understand your responsibilities for safe disposal.
• Training. If you replace an aging asset, will you need to spend extra time and money on operator training? How long will it take your team to work productively?
• Production losses. Any time a machine plays a key role in production, the impact of downtime on revenues must be considered. Repairs are usually the fastest way to get machines back to work. Rebuilding takes longer, and a new machine purchase can require even more lead time.
• Opportunity costs. Consider the other investments you’ll have to forego if you choose to replace a machine. Would it make more sense to repair or rebuild the asset, freeing up the extra capital to fund other priorities?
• Competitiveness. As you consider the options, think about how each affects your competitive position. Will a repair or rebuild keep you in the game for a sufficient amount of time? Or do you need new capabilities to bid more jobs, serve more customers and grow top-line revenues?
There’s nothing simple about the decision to repair, replace or rebuild. For best results, run the numbers with someone who knows your equipment, understands your business and can guide you through a thorough analysis of the costs and benefits.