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The Pluses and Minuses of Buying Used
September 1, 2005 By: Tom Andel Paperboard PackagingUsed converting equipment can be a bargain, but some deals are more basement than bargain. Here's how to tell the difference.
It's a buyer's market for used paperboard converting equipment. Has been for quite a while. Used machinery prices are depressed. That may sound like great news to someone looking to make a purchase, but the old "caveat emptor" advisory — "Buyer Beware" — should be spelled out boldface in the paperboard packaging world.
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"It's getting a little better out there, but the problem is there's so much bad used equipment," says Tom Wightman, vice president of operations, Hitek Equipment, Inc., Kenosha, Wis. "Either someone didn't take care of it or they wanted to get rid of it for some reason in the first place."
If you're going to buy used, unless you really know what you're doing, you could be inheriting someone else's problems. It's like buying a used car. You may have to spend quite a bit fixing that machine until it's good enough to go the distance.
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The Case for Buying Used
The Internet has changed the used machinery marketplace, just as it has changed other aspects of our lives. It has made information about good deals more readily available and more transparent.
"You could get a 50 to 80 percent discount buying used versus new equipment," says Mike Downing, partner, Global Equipment and Machinery Sales Inc., Montgomeryville, Pa. "Whether someone is paying $50,000 for a used machine or $200,000 for a new one, they're paying a lot of money. If they can rationalize it in their budget and they can sell their board of directors, it may be easier to rationalize the $200,000 new purchase if there's a one-year warranty rather than going out on a limb for the $50,000 machine. Still, savvy buyers who have done this before know that if you go with the $50,000 machine and it blows a component in the first year and you have to put another $50,000 in as an extreme case, that's still only half the cost of the new machine."
You may be able to get a good deal on used equipment directly from another converter. With the consolidation among integrated converters, plants are closing, and that helps fuel the used equipment market.
"Stone Container is brokering their own equipment," Wightman notes. "The positive about used equipment is that it is available immediately and there's a cost savings. The used brokers put out publications and their websites list available machinery."
Wightman adds that although his company doesn't market other brands of used equipment, it does offer its own. He recommends you ask OEMs about whether they support their own lines of used equipment, or whether they know of other used equipment channels.
"Because we're in contact with such a large number of people, we know companies selling good pieces of equipment," he says. "We know some customers can't afford a new piece of equipment, so we reason, why not get on their good side and some day they may be able to afford buying a new piece of equipment from us."
In one recent transaction, Hitek installed a used diecutter that was purchased for $151,000. A brand new one with the same features would have cost close to $500,000.
"We installed it, gave it a warranty, and the guy loves it," Wightman adds. "He's looking to buy another one."
The Case Against Used
For every happy ending there are many more horror stories, according to Wightman.
"One converter I know bought a specialty folder-gluer that was to come with all the bells and whistles," he recalls. "It didn't do anything that was promised. He just put it back up for sale. That happens a lot."
If they don't realize it up front, buyers of used equipment soon learn that, for the most part, they're on their own — from installation to training. Good OEMs will admit that buying a new piece of equipment will cost more money, but part of the price includes warranties as long as three years. On top of that, if improved efficiency is a must, Wightman says new equipment can't be beaten.
"Our new machines are better performers than machines that are four years old," he attests. "Converters trying to compete with China need to be very efficient, and the new machines are designed for that, while the old machines are not. The controls respond quicker. It may involve a longer payback time, but over the years you'll make more profit because you're being more efficient."
In the final analysis of used equipment, remember, the "as-is" sign on the machine means there's not much more you can expect from that purchase. The fact that most brokers don't make much more than 10 percent on the deal guarantees there won't be any guarantees with the transaction.
