Repair, Rebuild or Replace Heavy Equipment? What is Better for You?

If it hasn’t happened yet, it is going to eventually happen. It is like marriage – the day will come when you need to decide whether to repair (go to therapy), rebuild (go to serious therapy) or replace (get a divorce) your machine(s).

The repair involves replacing only those components that are faulty. Rebuilding involves changes most of the major and the minor componentry. Replacing means that you will go out and buy a new or used machine. These are big decisions that need to be made and the objective of this blog is to guide you through the process. We will look at what you need to do in order to make an informed decision. We have made the assumption that the machine is no longer under warranty.

The 50/50 Rule of Equipment

This rule dictates that you should only consider replacing a machine in the event that the total cost (parts, labour, downtime, and associated costs) of repairing that machine exceeds 50% of the cost of the replacement machine. Associated costs can sometimes be hidden costs that are more difficult to calculate. As the machine gets older, so too with repair costs start to increase. Hidden costs include safety concerns – is the machine starting to place the operators at risk. This is a cost that is difficult to calculate but can be substantial.

Finance is a Key Factor

One would hope that most companies would not be willing to place their machine operators at risk and would look for the following balance: how do I save the most amount of money without compromising safety and quality? This leads to a situation where they will use the machine for as long as mechanically possible and then sell or dispose of it when it fails.

Here is a list of questions you need to answer: 1) how much could you get for the machine if you decide to sell?

2) do you still owe money on the machine?

3) what are the future maintenance costs on the machine?

4) do I have the cash flow to cover the repair costs?

5) Could a new machine add significant financial value, such as allowing for bids on more demanding contracts?

6) Does the machine pose a risk that could incur additional expenses?

7) Will the repair return the machine to an acceptable level of performance?

Equipment Life-cycle

There is no "typical" machine lifecycle because each machine is exposed to different conditions, undergoes different maintenance and is operated by people with different objectives. Below is some data that was extracted from a 2007 US study done by Construction Equipment (https://www.constructionequipment.com)

Scrapers Half of all scrapers persist in primary-production roles for 13,000 hours. It's the longest tenure among machine types Construction Equipment has researched (including excavators, wheel loaders, crawler dozers, articulated dump trucks, and backhoe-loaders). A significant portion — 20 percent — of all scrapers are still in primary production at 25,000 hours. Using median component lives, total scraper O&O cost remains within a 45-cent range from 10 to 13 years of age. Repairs in the 14th year cause O&O to jump 80 US cents per hour, making it (at about 17,500 hours) the most economical time to replace the average machine.

Motor Graders Using motor graders' very consistent median component lives in the ownership and operating (O&O) cost equation for many different years during a common machine's life yielded uncommon results. Stable ownership costs, plus climbing repair costs kept the total O&O fairly constant through the 13th year. Because grader residual values tend to flatten out after 13 years, and because hours of use per year tend to stabilize at about the same point in the machines' lives, total O&O cost drops slightly each year after year 14 (about 13,600 hours).

Crawler Loaders With a median production life of 10,000 hours, crawler loaders' usage more closely resembles that of wheel loaders, excavators, and other more populous earthmovers. The far reaches of the typical range remains an important distinction, however. Only wheel loaders and articulated dumps equal 20 percent of crawler loaders' ability to reach 18,000 hours in primary production. The track-loader sweet spot — the point in their life where O&O cost is at a minimum — appears to be in their 12th and 13th years, around 11,500 hours.

Advantages of Replacing with New Equipment:

• Newest technology

• Longer working life

• Highly efficient

• Warranty rights

• Low maintenance costs

Disadvantages of Replacing with New Equipment:

• Expensive option

• Need to train the operator

• Cash flow strain

• Warranty obligations

Advantages of Replacing with Used Equipment:

• Lower cost than new

• Low hours available

• Less depreciation than new

• Possible price deals

Disadvantages of Replacing with Used Equipment:

• Unknown history

• Shorter life than new

• May not include a warranty

Advantages of Rebuilding Current Equipment:

• Like-new for less money

• Avoids pain of depreciation

• Long life expectancy

• Avoids selling/trading

• Adds value to equipment

Disadvantages of Rebuilding Current Equipment:

• Downtime

• Not all technology can upgrade

• Major expense

• Service/build quality varies

Advantages of Repairing Current Equipment

• The fastest solution to run again

• Least amount of money

• No depreciation

• Keeps a familiar machine on fleet

Disadvantages of Repairing Current Equipment:

• Shortest life expectancy

• Parts may be hard to find

• No modernization of technology

• May have a long lead time

• Repair may find other problems