I have to quit reading all these publications I receive on the various email accounts I have open. They keep giving me crazy ideas how to make more money in this industry, but at the same time disrupt the status quo.
For example, I am looking at an article that appeared in Equipment World... and I am telling myself that I am looking at the future of most of the equipment industry. Let me show you the headline for the article I am reading:
Texas shop remanufactures pickups in under 48 hours, sells them for half price.
Wow... I say... are they kidding me? And I look again at a picture of a nice looking F150 and say what will that sell for ....$20,000- $25,000? If so, quite a deal, especially when you receive a three-year, 75,000-mile warranty as part of the deal. The rebuild includes rebuilt engine, transmission, drivetrain and any necessary interior and body work. The article does not spell out if a core is required or how they get the trucks they rebuild.
The company name is Vehicle Reman and the website is www.vehiclereman.com.
And the answer is... we can and probably in line with a similar timetable to the F150 rebuild.
Where I work in the rental industry we have been refurbishing (not remanufacturing) units for about 30-60 hours that adds another four or five years of time utilization to a rental unit. All I would need to do is basically replace the engine with a rebuilt engine and I am pretty close to the F150 model.
So, if you were a customer would you look at a remanufactured unit for a 40-50% discount? I think many would be willing to give it a try, which is why I believe this extended-life equipment scenario is going to disrupt the standard OEM/dealer supply chain as we know it today.
Should this disruption continue, fewer new units will be required to the extent that many OEM's would have their supply chain materially disrupted. OEM's would do great selling parts, but still require a reduction in fixed cost to cover their current financial commitments.
The used equipment market would firm up because you would have rebuilders looking for core units to remanufacture. If they are dealers they would have attractive parts pricing which will help offset the loss of gross profit margins from selling new units. Who knows, OEM's may have to compete in this business themselves and most likely compete against their own dealer network.
So far this sounds very feasible... if not for the appraisal and financing aspects of the transactions. This probably requires a new category within the used equipment sector so that these remanufactured units receive a reasonable valuation in terms of their extended useful life. I imagine a buyer would have a file supporting all the work done to the unit, along with the cost of the remanufactured unit being purchased, that supports the expected time utilization similar to what a new unit would deliver. All we have to do now is convince a bank or appraiser that we have a transaction that supports financing similar to what a customer would get when financing a new unit (similar being the key word). The loan terms may not exactly duplicate new unit terms but should be close, with residuals being another key issue to deal with until a history of these remanufactured units is established.
In any event, both banks and appraisers will have a hard time trying to segregate remanufactured units into a new category for reporting and analysis purposes.
Dealers with the capacity to manage their shop to do this type of work should find it quite profitable compared to new unit margins.
OEM's would need to adopt their supply chain to one with fewer new sales but higher parts sales, which may work out ok since parts sales are quite profitable for OEM's. And, it is entirely possible that lift truck rental units (as opposed to customer owned units) could make up for missed sales opportunities.
Take a look at that crystal ball in front of you and tell me what you see. Do you see your dealership getting more into rental units, refurbished units and possibly remanufactured units? I see equipment costs going higher and higher each year with customers looking for cheaper solutions to what they have now.
Look closer, you may see yourself being a remanufactured unit OEM.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail firstname.lastname@example.org to contact Garry.
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