The off-season typically engenders plans for preventive maintenance. A proper regimen should include more than changing the oil and kicking the tires—and, with the economy in a continued slump, extending the life of expensive machinery has become an even more important element of the financial equation for many contractors.
Mark Paterson, director of parts marketing, and Matt Beinlich, manager, technical support Center for Komatsu America, report an increase in the number of technical support requests on older machines, leading them to believe that contractors are interested in options aside from trading them in for new equipment.
Demand is up, due to the economy: More contractors are fixing older machines, believes Chad Ellis, product manager for heavy equipment, Doosan Infracore Construction Equipment America. “Maintenance is huge to keep the cost of ownership down. A piece of equipment may cost $200,000 new or $30,000 to fix.”
It’s time to take a hard look at maintenance, which the economy has placed on the back burner of late. Over the past year and a half, says Brian Spencer, parts and service marketing manager, New Holland Construction, “many contractors were just holding on for the ride trying to stay alive.” In the process of survival, they extended regular maintenance intervals, stretched repairs, and even alternated machines in the fleet to get through a season.
With signs pointing to an improved economy, according to Larry Kapellusch, parts and service marketing manager for Kobelco, “contractors know they can’t afford to have machines down, so they’re starting to get older equipment in working order through regular maintenance.”
“They realize they cannot afford to have machines down,” Spencer elaborates, “so whether through regular maintenance—such as oil changes and new bucket teeth or cutting edges—or chronic issues such as hydraulic cylinder leakage where it may be just a matter of time before a failure occurs, contractors are now taking the time to correct those issues.”
Pushing the rush to repair is a shortage of materials. Because the recession was deep and extended, it hit all aspects of business worldwide, making it difficult for manufacturers to ramp up quickly enough to keep up with new demand. That, however, merely complements the hesitation contractors are exhibiting toward returning to old habits. As some industry insiders speculate, contractors are tentative about hiring staff and buying new equipment in an uncertain economic environment. There’s more work, but there is insecurity about how much work there is and how long it will last, leaving some contractors to wonder if they should buy new equipment or refurbish what they already own.
Renew
Many are choosing a less costly alternative to buying new equipment. A year or two ago, that alternative may have been parking broken equipment, speculates Patrick Carpenter, director of sales and marketing for Springfield ReManufacturing Corp., but now, they are repairing it. Increasingly, they are opting for remanufactured equipment because keeping equipment through multiple life cycles can reduce the total ownership cost.
Remanufactured parts can cost up to 40% less than the original equipment part, states John Harper, senior marketing manager, parts and service, Case Construction Equipment, although the savings vary with the part. The benefits don’t vary, however, and he says they are the same as with the OEM part, or even better, because “reman parts may have new engineering upgrades designed into them.”
The quality and the guarantees are consistent, but giving new life to old machinery offers multiple options for customers to choose what best suits their needs. “Whether a dealer is trying to assist in the [refurbishment] of an older machine for a customer or a trade-in on the lot, they can usually choose from component rebuilds, partial assemblies, complete assemblies for new OEM parts, remanufactured parts, and even alternative lines of economy parts,” explains Spencer. For the working machine, new OEM and reman are the main options.
Too many confuse reman with rebuild and repair, Carpenter worries. Rebuilds or refurbishments encompass disassembling equipment to find point of failure and repairing the problem; reman includes completely disassembling, cleaning, and inspecting all parts. Damaged parts are replaced with new; surfaces are machined to OEM standard, tested, and inspected for component failures; and the machinery goes to the paint booth for a like-new finish.
“Reman is on the up,” Carpenter believes. “It’s sexy.” Setting aside personal predilections, remanufactured machinery offers an economical and ecological alternative to buying new. Reman products cost 60%–70% of new, Carpenter calculates, and the current economy affects that decision…to the benefit of the environment. “There is an environmental issue. By remanufacturing, we’re not throwing all this iron into a landfill. People are conscious of their carbon footprint. You also have to realize that only so many resources are available, so it makes sense to reuse it. Scrap value is less than core value, anyway.” Old blocks have a lot of metal, he points out: They’re made to last. Because they’re typically able to reclaim 70%–80% of what they need to make it new, it saves money and the environment. Now that the quality has improved, more people are considering it, he adds.
SRC, the “brand behind the brand,” provides remanufacturing for such OE manufacturers as John Deere, Case, New Holland, and Komatsu. Working with the OEM has its advantages, Carpenter indicates. Parts and testing specifications are readily available. “We reman back to OEM spec: we strip to bare metal, mag light it, test it…” He considers remanned equipment the rival of new products—sometimes even better than new because flaws discovered in the original machinery are “remanned out.”
“Maybe a new part stinks,” Carpenter hypothesizes. In that situation, “reman is immediately relevant. It can be 20% of new parts sales for an OEM—and up to 60% for on-road trucking.” In fact, he notes, many OEMs launch reman and new [products] at the same time. New products sometimes have design issues; reman gets benefit of product updates, so it could be more reliable and longer lived. “The majority of reman is thoughtful execution, not just repairing what’s bad in the market.”
Double Time
Despite the benefits, Carpenter advises considering all options: Does it really need to be remanned, or can it be repaired locally? Is replacement a better choice? Parts aren’t available forever, and the life of a piece can only be extended so long.
- Buy and trade—the owner keeps equipment through its warranty period and sells before its first major rebuild cycle
- Buy used equipment
- Buy and hold—the owner keeps it through multiple life cycles
Whatever option the customer chooses, John Taaffe, marketing and sales manager and customer support for Volvo Construction Equipment, advises replacing components before they fail, typically around the 12,000- to 15,000-hour range. “After 12,000 hours, you’re dependent on maintenance to predict component failure. Get new life before you have catastrophic downtime.” Unfortunately, he says, too many don’t. “Only 2% of downtime is for planned preventive maintenance.” Another 2% is for unplanned repairs, with a further 10% for random repairs, which can escalate as the unit ages.
Refurbishing machinery can increase dependability and availability through uptime, which are as important to customers as equipment costs, according to Volvo’s customer focus groups. “It all comes down to lowest total cost of ownership. That includes fuel, maintenance and wear parts. The goal is to optimize the total cost of operation per hour.”
Piecemeal repairs are expensive, as is new machinery. But, Taaffe says, “a used machine has unknowns.” Refurbishing equipment typically costs 40%–50% of new for a like-new machine with which the customer is familiar.
Refurbishing is different than remanufacturing. “We don’t take it all apart,” Taaffe clarifies. “We focus on what needs work.” Basic refurbishment covers the drivetrain, with a factory remanufactured engine, transmission, and drop box; inspection of the center hitch—where the machine oscillates—disc brakes, driveshaft, hydraulic pump, and motor; and, depending on the application, replacement of pins and bushings on the linkage, specific hydraulic hoses, and any worn-out wiring harnesses. The technician also does a walk-around visual inspection to observe such aspects as sheet metal and tire life. Computer diagnostics are used for less visible issues.
Not all machines can or should be refurbished. “Going from Tier 0 to Tier 4 is almost impossible,” Taaffe says. The differences in sheet metal, cooling and the dynamics of components between transmission and engine are too drastic, he believes. “You have to determine what makes sense.”
When it does make sense, the benefits of a certified refurbishment include getting greater productivity at the least cost, upgrading machines to the latest specs and guaranteeing the lowest carbon footprint by preserving major components. “It can help meet [carbon emissions] fleet requirements if you do the machines that can be done,” Taaffe elaborates. Because moving to Tier 4 is expected to be expensive, he considers this is a good option.
There’s also a psychological gain. “The machines come in looking horrible, but go out like new. We even refit the cab with new floormats. That makes the operators happy.” A happy operator takes better care of the machine, he believes. “They want their machines to last.”
So does the manufacturer. Taaffe believes certified refurbishment protects brand integrity.
Original Options
“There are a lot of copycats out there,” declares Jeff Irr, remanufactured marketing development manager for Mack and Volvo. “We want to keep our product pure to preserve the same quality, reliability and durability the original product has. No other aftermarket rebuilder has the original drawings or knows the updates.” Without the updates, he says, you don’t get the same performance.
Admittedly, that can cost more, but Irr explains the difference between price and cost as “pay today or pay tomorrow,” meaning that quality work lasts. Or, as he puts it, “We’re never the cheapest date, but you’ll get plenty of popcorn and a good time.”
You’ll also get one of the strongest warranties on the market, he insists, which covers contingency damage as long as the part was installed by their technicians. “We’re here after you buy the product,” Irr states, “and we’ll support it cradle to grave,” Even with the higher price tag, he says you can double the life of a machine for a percentage of the cost of new. “The key is it will have the same integrity.”
He realizes there are “price shoppers” who will seek different avenues to save money by just fixing the immediate problem, but believes that reman is the better option because the whole product is inspected. “We want the customer to understand the need to get to the root of the problem.” Ultimately, he believes the customer will get more “bang for the buck” plus the manufacturer support, technology, and engineering that lower the life cycle costs of Mack and Volvo products.
Life cycle costs can be contained and the useful life of an asset extended through factory-certified programs like Caterpillar’s, which returns machinery in like-new condition with the same standard, a new warranty and even a new serial number—all for about 60% of the cost of a new machine, depending on age and condition.
Because Cat can certify a frame-off rebuild only once, Wille suggests a certified power-train rebuild (engine, transmission, torque converter) at mid-life before a complete rebuild. Power-train rebuilds are more common and can be a less expensive option, but it’s dependent on the condition of the component.
Although repair before failure is always cheaper than after, Wille says Cat tries to find the most economic point for planned downtime. “You don’t want to do the engine now and the transmission three months later.” On the other hand, because contingent parts might be affected, it’s best not to wait too long. He suggests checking Level 1 components—piston rings, bearings, turbo charger, fuel injector—at midlife, before a major overhaul. “Don’t let wear items take out Level 3 items,” he cautions. Level 3 items, such as the crankshaft and engine block, can have multiple lives and overhauls if properly maintained. “It’s important to pay attention to the warning signs.
“We used to overhaul based on time,” he continues, but with up to 30% to 40% of machine usage in idle time, you could be leaving money on the table. “Are you prematurely overhauling or do you risk it?” Time is one indicator; the amount of fuel burned is another. It indicates the amount of work done through the power train. To help judge a machine’s condition, monitoring can be performed with Cat’s telematics system, Product Link/Vision Link.
When all indications point to an overhaul, Wille says options still exist, such as dealer rebuild programs—although he cautions they may not meet all of the requirements of the Certified Rebuild Program. Cat’s Reman division has been around nearly 40 years, converting worn iron from salvage to like-new condition. “It’s a sustainable program,” he emphasizes. “You get another life out of components. If the engine block can be salvaged, it’s cost-effective: You reuse the block and get another life.”
Customers are looking for value, he observes; they like options to maximize their investment. With individual components offered at a fraction of the cost of new, “Cat has the capability to offer a range of options,” Will sums up.
No Trade-offs for Trade-ins
Most manufacturers offer several options tailored to the customer’s needs. “For working machines, the main options are usually new OEM and reman,” says Kapellusch, who adds that service support is also critical.
The importance of service is one reason Komatsu offers a Second Life Rebuild Program with bundled discounts for customers performing extensive rebuilds on older machines. Discounts are also offered for component exchanges planned 6 to 12 months in advance. Paterson and Beinlich add that Komatsu employees and their distributors use their experience to consult on unique jobs involving older equipment that are difficult to complete with aftermarket components.
When machinery has been traded in, dealers have options to maximize machine turnaround, Harper says. “Reman parts are a great option for a dealer that wants to save the dollars they have to invest in the trade-in that may sit on a lot for an extended period of time.”
Dealers may do a multitude of things with machines taken in on trade, Kapellusch suggests—starting with basic cleaning, basic service inspection, and maintenance, including fluid and filter change. Others may expand upon this by adding key accessories to support their regional market and add some value into the machine for resale. “The key is not to tie up too much in the machine or add too much value to the machine that will slow down the resale. At the end of the day, the dealer needs to anticipate what will make the customer feel comfortable and what will help them move that piece of iron the quickest.”
However, Ellis sees a shift from dealers doing work in-house to manufacturers taking responsibility. “There’s been a change in technology; you really need specific equipment training, particularly for transmission and engine rebuilds. A qualified technician makes a difference; they see the same equipment all the time and can catch things.”
Underscoring the fact that “maintenance is key to prolonging life,” he says technology helps. “It gives you faster visibility to key systems.” Doosan’s software alerts the customer, the dealer and the manufacturer to high temps, low pressures, and service intervals.
“Manufacturers have to step it up,” Ellis envisages. Doosan is doing so, with a full reman program to support everything from older-generation machines to new, he says. The company checks all major key components and runs a full test on them, including all tolerance testing. “We have to do it; these are large-dollar items.” They also issue a warranty “as good as on a new product” because, as he acknowledges, contractors are looking for value.
Reman can mean a 40% difference in price from new, although Ellis cautions that EPA regulations increase price and reman has limits. “We can’t turn a Tier 1 into Tier 3 engine.” Nevertheless, he says, Doosan is meeting EPA regulations and promoting “green” for the environment while providing a cost benefit for the customer to get as much life as possible out of their equipment.
With warranties on reman parts that are the same as or better than new OEM parts, Case ensures that its customers are getting as much life as possible out of their machines. In addition, Harper mentions that CNH Capital has just introduced a new Reman Protection Plan program for extended protection on complete and long-block CNH Reman engines.
Second Time Around
“We’re in a unique situation right now,” says John Poag, sales operations manager, Terex Construction Americas. “The economy has taken its toll on many contractors, but for those who do have money to spend, now is the time to invest—and with the surplus of used equipment available, you’ll get a lot more for your money.”
Poag believes customers are making equipment decisions differently because of the economy. To help them, Terex is offering retail financing options or a cash-back option on used equipment. “Today’s economic conditions have created different needs for different contractors. It’s important for manufacturers to respond to these different needs.”
Komatsu responded by creating its Komatsu Distributors Certified Used Equipment program, which ensures that machines have been inspected and refurbished and may be eligible for extended warranty. Paterson and Beinlich say that lower-hour machines manufactured in the last several years are ideal for the program.
Inspections are particularly important when purchasing used equipment. For newer machines, a routine, basic inspection should be sufficient, Poag indicates: condition of tires, belts, hoses, looking for leaks, signs of damage, or unusual wear and tear. For older machines with higher hours, oil and hydraulic fluid samples should be taken to check for any contaminants or system problems. Such common wear points as hydraulic hoses, tracks, and tires should also be inspected. And don’t forget to check the engine. The thoroughness of the inspection should also be adjusted according to the type of equipment, the weather, and the geographical conditions to which the machine has been exposed. “The more severe the environment, the more thorough the inspection needs to be.”
Up-to-date maintenance records also give a good indication of the condition of the equipment. Scrapes and scuffs, chipping paint, and rust are other red flags to look out for. “Remember, this is construction equipment,” Poag says. “Abuse and normal wear and tear are two different things. If you’ve done your homework, you should have an idea about what kind of condition a machine should be in, in order for it to run properly. Then you need to decide at what point will your repair cost exceed your budget? You don’t ever want to put more money into a piece of equipment than you’re going to get out of it.”
Assuming all’s right with the equipment, Harrigan says the lower cost of used equipment allows contractors to add specialized machines that were previously unaffordable, enabling them to tailor their fleet to expanded markets. “In the long run, this means having the ability to bid on more jobs at a more competitive price.”
A healthy used market is good for everyone. While some contractors can take advantage of bargains, others have a market for equipment they no longer need. It’s in the manufacturer’s best interest to provide customers with a range of equipment solutions, including new, used, remanufactured and refurbished.
