Upsize? Downsize? Some Right-Sizing Choices

Oct. 5, 2011
Gx Bug Web
Gx Bug Web
Gx Bug Web
Gx Bug Web
Gx Bug Web

Is it time to re-equip with more compacts? Or is it still smartest to buy big? In making the right moves, you face several opposing forces.

The first (as always) is cost. Sticker price almost always drives you to look for smaller, cheaper, whatever the equipment class, before any other factor. A shiny new backhoe priced at $60,000 suddenly doesn’t look as nice next to a bucket-equipped skid-steer loader at $24,000. Included in your calculation is resale value. These days, small machines reportedly depreciate less quickly and will fetch more, relative to their original cost, on the used market. However, small machines with high hours are much likelier to be worn out than bigger equipment.

Another subset of the cost equation is financing. As J.R. Bowling of Rayco Manufacturing notes, “Money is tight now, and bigger machines with high dollar costs are harder and harder to get financed.” Lenders greatly prefer the smaller initial outlay, greater liquidity, and larger resale market for compacts. “A guy who would easily have been financed two or three years ago Š right now, it’s like pulling teeth,” he remarks.

Master everything from OSHA regulations, to high-tech safety equipment in this FREE Special Report: Construction Safety Topics That Can Save Lives. Download it now!

A second factor, often underrated, is ease of use – i.e., how does the equipment handle? Good or bad machine design can either increase or diminish the resulting productivity, the operator’s job satisfaction, and the availability of people willing to drive it. Factors such as hydraulic strength, the joystick’s touch, the feel of the controls, wrist action being neither too light nor too heavy, and even air conditioning are all critical features to assess, points out Gehl’s Pat Bright. Florida contractor Bob Taylor hears his crews raving about new computer software installed in some Kobelco excavators that automatically evaluates machine jerkiness as it digs, then alters the suspension hydraulics to compensate. If an operator must live in a cab for hours a day, minor comforts or discomforts become magnified.

A related issue: If you’re a stationary business using dedicated graders, you usually can train operators locally for anything you buy – and thus, ease of use perhaps isn’t quite as critical. However, if you’re a highly mobile subcontractor ranging over many miles, you must consider the availability of capable operators wherever you go, notes Wes Lee, director of marketing for heavy range products at Case Construction Equipment. “You may be able to get someone to drive the equipment, but to get true productivity, ease of learning becomes critical.”

Add Grading & Excavation Contractor Weekly to  your newsletter preferences and keep up with the latest articles on grading and excavation: construction equipment, insurance, materials, safety, software, and trucks and trailers.    

Probably most important is the question of what you’re actually going to do with the new equipment. Call this category profitable utilization. Here again, you encounter several tradeoffs and opposing forces. Bigger nearly always means getting work done faster, but the tonnage often soaks up more time and expense in long-haul transportation. And again, a big piece still can’t often access tight spots once it arrives. Thus, your key decision-factor is obviously: How much of your future work really will involve space limits that preclude using a good-size excavator? You should project the type of usage you anticipate for the months or years ahead. In general, you’ll want the biggest you can afford – i.e., a machine to bang out the majority of your jobs at the fastest possible speed. After meeting this need, if you still anticipate significant work to do in tights spots, or in cleanup and finishing and so on, consider a compact. You can rent them affordably, deferring purchase until utilization becomes consistent.

The same principle applies to a contractor whose primary work occurs in space-constrained areas but who wins the occasional road-building or rural job. One of Bright’s customers, whose main business was digging basements, pools, and small trenches, landed a big sewer contract for which he bought a 60,000-lb. excavator for depth and lifting strength. “When the job was over, the machine spent a lot of time sitting,” notes Bright, and the contractor’s profits evaporated in the rusting hardware. “The advice I give is to buy equipment equal to the size of your primary jobs,” he emphasizes, echoing a common theme. “If you do occasionally bid jobs that require larger equipment for a short term, you’re usually better off renting it.”

Projected utilization can also be correlated with terrain type and population density. If you’re in a rural community and do such jobs as clearing undeveloped tracts; installing roads, sewers, and bridges; or servicing farmland, you’ll get far more profitable use from medium or large pieces. Conversely, if urban and suburban work is your niche – home lots, small strip malls, gas stations, convenience stores, landscaping, small parking lots, basements, patch work, concrete fixtures, and so on – you’ll be happiest if you buy the most powerful and best engineered compact.

The purchase decision often changes, though, if you’re a mobile subcontractor who is not tied to a definable terrain and density, states Lee. Here the equipment choice often is driven by economic determinants such as state-by-state highway or sewer budgets and private-sector construction. If you have a modest-size subcontracting business and are able to win bids in these sectors, again, invest in the largest piece that can be well utilized.

All of this might seem obvious. Butas Dan Rafferty, product manager for Takeuchi, points out, some buyers still regard equipment purchases as somewhat like “buying a neat toy” such as a pleasure boat or RV, “but it really doesn’t do what they need,” he says. This can cut both ways: “I’ve seen people come in and buy a skid-steer that they had no business having. What they really needed was a big articulated loader.” Two years later, the underused piece is up for sale. “Or there’s the guy who sees a new D7 and says, ŒOh, that’s so cool,’ and he winds up using it only twice in five years.” Accurately forecasting utilization is all-important.

Finally, there’s the question of growing your business. What’s your long-term goal? Buy equipment suited for the niche you’re seeking, as you expand. A common growth path, observes Lee, is to begin with local excavating jobs using 13- to 16-ton equipment – for trenching, footings, small utility jobs, basements, septic systems. After a few years, as you sense that you’re maxed out on this market, “you may want to compete for major road projects on which you bid as a subcontractor,” he says. “[For these] you’ll be laying larger pipe, digging deeper trenches, and setting bigger boxes, so you’ll need a bigger machine – 21 to 33 tons.”

A similar path occurs with dozer purchases: You’ll start small for doing site prep and cleanup work around housing foundations, then you’ll look for jobs moving a lot of material and cutting into large embankments. “You’ve got to rent them at first,” Lee advises, “then ultimately consider buying a larger dozer.”