Understanding Cost

Apr 4th, 2014 | By | Category: Jack Schrock's Blog

Jack SchrockWhen you buy a new wrecker or carrier, the greatest cost is not maintenance, insurance, fuel or a total of all three — it is depreciation. So towers would be well advised to look carefully at depreciation before making a capital purchase. Generally speaking, manufactured equipment depreciates at a rate much lower than shop-built or fabricated equipment. There are several reasons for this.

First, there is a readily-available marketplace for known and proven equipment. Next, manufacturers regularly employ qualified engineers, which assures performance through design. Also, useful life of manufactured equipment is generally twice that of fabricated wreckers. And manufacturing is more efficient which results in lower cost through “economies of scale.” Finally, in the unlikely event of a major failure, the manufacturer stands behind its equipment, which means you are better protected.

On the other hand, the shop-built wrecker is an accumulation of piece parts, which means there is little, if any, engineering guiding the overall project. Indeed, most of these parts are purchased on the competitive market so your new wrecker is built on the “cheap.” And there is also the question of mis-matched components. Remember how a 25T boom was installed on a 40T rated wrecker that retained a 40T rating? If you don’t then you must know that the strength of a chain is determined by its weakest link. Fabricated equipment is usually priced by the pound and then rated based more on appearance than proven performance.

And if you can accept the fact that depreciation is your major cost in the purchase, then consider this: a $250,000 50T fabricated wrecker can easily depreciate a whopping 50 percent (or more) when you first drive it away and a like amount by the end of the first year, which computes to a fair market value of $50K on its first birthday. In comparison, a manufactured wrecker with the same initial price will usually be worth several times more than its fabricated cousin throughout its useful life, which also happens to be longer.

Buy smart to increase profits.