When you’re operating a construction business, you need to decide where to spend your capital wisely. When you need equipment for a job, you can always buy new, but there are times when it can make sense for your bottom line to invest in used Cat® equipment. There are also a number of benefits to buying previously-owned machinery from an authorized dealer, like Holt of California.
Construction Industry Facts and Statistics
The construction industry is the largest employer in the world. It is expected to grow by 70 percent by the year 2025. With demand for more workers, there will be a growing demand for more equipment. Companies will need to look at their options to keep their fleet at full capacity in order to keep up with the projects they have scheduled. Construction is a dynamic industry that continues to grow and change. Take a look at the following facts and statistics:
- In the US, construction is one of the largest industries. It makes up about 10 percent of the Gross Domestic Product (GDP).
- Construction-related jobs made up two-thirds of all jobs in the US.
- The total number of construction machines in the United States is approximately three million units. About one-third of the fleet is in use at any given time.
- Caterpillar is the No. 1 rated heavy equipment manufacturer in the world. Komatsu and Hitachi are ranked Nos. 2 and 3, respectively.
While construction may be the largest employer in the world, you still need to make sure you have what you need to complete the job — but that doesn’t always mean buying new equipment.
Advantages of Buying Used Cat Construction Equipment
It may be the first instinct to buy new equipment when you need it to complete a job, but there are many advantages to buying used construction equipment as well. Let’s take a look:
1. Purchase Equipment at a Lower Cost
Buying new equipment is an investment that can have a significant impact on your company’s cash flow. However, you can purchase quality used equipment and at a much lower cost. It’s possible to save thousands over the cost of buying new machinery by choosing this option.
The price of new equipment has increased over the past several years. It’s always nice to think about buying something brand new, but you don’t need to sacrifice quality simply because the machinery has been previously owned. If the equipment has been well maintained, you can still get several years of reliable service from it.
Buying used equipment means paying less in sales tax as well as a lower initial purchase price. You could decide to use the savings toward attachments, maintenance costs for your fleet or toward the cost of buying a second piece of equipment.
2. Avoid Initial Depreciation on Equipment
Construction equipment starts to depreciate as soon as you take it off a dealer’s lot in the same manner as your truck or car. In the first 12 months after purchase, double-digit depreciation is normal, and then it slows down in the second, third and fourth years of ownership. By choosing to buy a used piece of equipment, you are avoiding taking the “hit” on the initial depreciation.
If you decide to buy a new piece of equipment, and it depreciates as the same rate as a new car (between 20-40 percent in the first year), it’s possible for you to owe more on it than what its worth after 12 months or so. No one ever wants to be underwater on a car or truck loan, a mortgage or financing for heavy equipment if they ever had to consider selling the asset after the first year or so.
By choosing to buy a piece of used equipment, you avoid the situation with the particular asset and can focus on building your fleet. You can also turn your attention to the projects you have booked for completion.
3. Hold Equipment Value Longer
As long as the used equipment is properly maintained, it will hold its value. As a reputable used Cat equipment dealer, we track the maintenance history on the equipment we sell. Our customers know how many hours various parts can work before they need to be serviced or rebuilt.
Once you take delivery of your used Cat construction equipment, make a point of keeping detailed service records. Not only will you need to track any expenses incurred in keeping the equipment serviced for income tax purposes, but this information will be very important when the time comes that you want to sell the equipment later on. Prospective buyers will be very interested to find out when the machinery was serviced and what was done. The more details you can provide, the more likely you will be to find a buyer quickly and get an offer close to, or at, your asking price.
4. Find the Features You Need
If you were to make a list of the must-have features when looking for equipment, you’ll likely find them on newer used models. Technology in this market doesn’t move as quickly as other niches, such as computers, where new features and updates that were not available before are being introduced with each new version.
Compare the features of Cat used construction equipment for sale with those of newer models. If you are already a Cat owner and you want to add a similar piece of equipment to your fleet, consider how your existing machinery operates. The mechanisms of a used piece of equipment may be similar to its predecessors in the same model on a year-by-year basis. You can expect to get some of the same functions of the new model, but at a lower price when you choose to purchase a used version.
5. Get Your Equipment Right When You Need It
Buying new may mean placing an order and waiting for your piece of machinery to be manufactured for you. While there is the advantage of taking delivery of a new machine that has just rolled off the assembly line, you do have to contend with any possible lag time involved. This is a situation where you’ll need to evaluate exactly how important speed of delivery is to the equation when you’re looking for heavy equipment for your business.
On the other hand, used equipment is available, in stock and at the dealer’s lot right away. Once you have made arrangements to buy it and have it delivered to your facility or directly to a job site, you can start working with it (and have it start paying for itself) right away.
You can review the available inventory online at any time that is convenient for you. Simply click on the models you are most interested in to find out more about them before you even go out to visit the lot. The used construction equipment dealer should be able to provide you with the following information about each used item in their inventory:
- Model/serial number
- Hours of use
- Asking price
You should also be able to find out where the equipment was used previously, which will give you some idea of the type of conditions it has been exposed to. You’ll want to know whether it was used in a part of the US or Canada that is predominantly wet, dry, warm or cold since this will give you some clues as to how well the equipment may perform if it was well maintained and stored appropriately between jobs.
6. Have Lower Costs of Ownership
Since used equipment holds its value quite well after the first 12 months, you can buy it for specialty jobs, and then sell it and recoup an amount that reflects a good percentage of what you paid for it. In the meantime, you can deduct expenses such as amortization, interest on financing costs, maintenance, insurance, etc. on your income tax return starting in the year you purchased the equipment.
The equipment represents an expense to your business, but it also will help to pay for itself with increased revenue. The more equipment you have available to you in your fleet, the bigger the jobs you will be able to take on. You’ll also have equipment available to send your employees out to more than one job site at the same time. When you can start to generate income from more than one project simultaneously, you will be able to really reap the benefit of having the used equipment available to you. It will allow your income to increase exponentially.
7. Increase Flexibility
Since you can acquire used equipment rather easily and for less cash outlay than a similar model of a new truck, dozer, loader or other piece of equipment, you will be able to consider bidding on jobs you wouldn’t be able to consider if it was conditional on you buying new machinery. The cost of financing the used equipment temporarily is something you can factor in as one of the costs of taking on a specialized job for several months or the term of a contract. When the work ends, if you don’t end up landing another contract where you would need the specialized machinery again, you have the option of selling it and recouping much of your initial outlay.
In the meantime, your company and crew have gained experience working on a specialized project. This can only add to your reputation in the industry and with prospective customers. The next time you are approached about doing similar work, you can point to your previous project and explain you have experience in that area. Depending on the amount of work being offered, you can make a decision at that point whether it makes sense to buy a used piece of equipment again or make an alternate decision about how to get the equipment you need for the projects you are being hired to complete.
8. Take Advantage of Available Warranties
The dealer often offers a warranty on used construction equipment. If you know that the equipment is being backed by a maintenance plan, you will feel a lot more comfortable about committing to a purchase.
The maintenance plan benefits you in other ways, too. It helps you to plan for maintenance expenses. These include not only parts and labor, but also items such as supplies and lubricants. When you know how much these expenses will cost per month and over the lifetime of the maintenance plan, you are shielded from the impact of large business costs, as well as having to deal with small repairs that tend to add up over the course of a month or more.
Your dealer will work with you to give you an estimate for the amount you would pay for a package for the particular make and model of Cat used construction equipment for sale that you are interested in. It would include a specific basket of services, maintenance intervals and replacement parts that would fit your particular business. The estimate would be worked up to be a reasonable cost per operating hour for the equipment.
If the maintenance cost is too high, you won’t want to buy the protection plan and if it’s too low then there is no benefit to you as a consumer to consider buying a maintenance agreement to keep your equipment repair costs under control. For the arrangement to benefit both sides, it must contain conditions that will end up benefitting both of you.
9. Enjoy Lower Insurance Costs
The cost of insuring used equipment is usually lower than insuring a similar model of new equipment. Insurance companies generally base their premiums on the equipment’s replacement cost, not on how much you would be able to sell it for after you have owned it for a time. In the case of used construction equipment, the overall cost of coverage is generally less expensive since the replacement cost is lower than for a new piece of equipment. Here are a couple things to look at when determining the insurance for a used piece of equipment:
- Replacement value vs. cash value. When discussing adding your new purchase to your policy, make sure your agent or broker understands that you want to insure the equipment for its replacement value, not the cash value. These are two very different terms for insurance purposes, and failing to recognize the difference could end up costing you a lot of money if you have to make a claim against your policy.
If you decide to insure it for the cash value only, you will be entitled only to the depreciated amount if there is a loss. Even though depreciation slows down after the first year, the equipment does continue to depreciate, and you will be faced with a financial deficit if you decide to buy this type of coverage for your used construction equipment.
Choosing replacement value means you will be entitled to compensation for the value of a similar year and model of the type of equipment that was destroyed in a total loss. The insurance company wouldn’t fund the cost of brand new equipment, but you would be “made whole” to the time that the loss occurred.
- Per incident limit vs. overall policy limit. When you take out insurance coverage on your construction equipment, keep in mind that your overall policy limit may be a certain figure, but that number may not be the amount you would receive if your fleet was destroyed in a complete loss. You may have an overall policy limit of $X dollars, but the limit the insurance company assigns for any single loss could be a much lower amount.
If an accident involving equipment occurred, the most you could receive to replace it would be limited to a fixed amount, even if there was damage caused to more than one piece of equipment. It’s very important to understand all of your insurance policy provisions before you agree to purchase coverage.
Examine the Equipment Before You Buy
Before you commit to buying the previously-owned construction equipment, do make a point of examining it thoroughly, both inside and out. The dealer should allow you to inspect it completely before you make your buying decision so you can familiarize yourself with all the details of the equipment. You’ll want to make a point of going over the following details:
The cab is an important part of any piece of equipment. Whether you plan to operate it yourself or have someone on your team work with the equipment once you buy it, this is the place where all the action happens throughout the day. If it’s not comfortable for the operator or the controls are difficult to read or reach, your entire crew won’t be as productive. That will affect your bottom line.
Sit down in the cab, in the same manner as if you were buying a car or a truck. Get an idea of what the operator sees when they sit in it during the day. Find out whether the seat is adjustable in height to conform to different operators’ leg lengths and if the backrest can be adjusted as well.
Next, look at the console and consider how the operator is expected to read the instrument panel. You’ll want to ensure it is well lit and that the information can be read in bright sunlight as well as in low light conditions, since you may need to operate the machinery after dark. Consider, too, whether the equipment is operated with foot pedals or a joystick to lower the risk of neck and back fatigue, as well as repetitive strain injuries to the operator’s hands and wrists.
2. Tires and tracks
Carefully look at the tires on the piece of equipment you are considering. You’ll want to make sure the treads are intact. Cracks and bubbles on the tires are indications that the equipment has been left outside. If the equipment has been exposed to the elements for some time by a previous owner, its condition may not be as good as a similar model that has been stored in an enclosed space when not in use.
Use a tread gauge to check the tires for uneven wear. If you discover any signs, it could indicate a problem with the drivetrain. You’ll want to have that issue fully investigated before moving forward with a potential purchase on a particular piece of equipment.
If you are interested in adding a track machine to your fleet, make sure the tracks and the bolts are firmly in place. Keep in mind that tire and track replacements can often be quite expensive. You’ll want to make a point of finding out the general price on replacement costs for the machine you are considering purchasing.
You can learn a lot about a piece of equipment’s condition by examining the chassis. Carefully inspect the metal frame to look for signs of welding around the locks, arms, tracks and sprockets. Check the engine, hydraulic parts, hoses, pumps and rams for any indications of leaks. It’s normal for a used vehicle to have some minor signs of wear, but you should be wary of any untreated damage that shows a lack of regular maintenance on the part of the previous owner. Indications of damage that may compromise you or your operator’s comfort or safety also constitute red flags that at least warrant further investigation.
4. Engine and transmission
You can tell a lot about a piece of machinery by examining the state of its engine and transmission. You or one of your professional operators should start the engine and listen for any sounds that are out of the ordinary. You’ll also want to check for emissions to make sure no warning signals go off.
Test the gear and put the machine into reverse to see how well it runs. Any unusual noise from the rollers could indicate that one or more parts are worn out. Do double-check the engine to ensure the hot, moving parts are guarded and that they are working properly. Check the pump and the swing bearing for signs of wear and to make sure there are no leaks anywhere.
Contact Holt of California for Your Used Cat Equipment
If you’re looking for more information about used construction equipment from a California dealer, contact us today. We have an extensive selection of previously-owned equipment, including air compressors, articulated trucks, asphalt pavers, backhoe loaders, compactors, off highway trucks and more. We would be happy to answer any questions you may have, so you can get the right equipment to get the job done.