Plavecsky's Ponderings By Jim Plavecsky
by Jim Plavecsky
April 6th, 2017

When is It Time to Retire ‘Old Reliable’?

I got a call today from someone trying to keep a 20-year-old vinyl welder in service. “Well, I can find a service guy who still knows that machine,” I said, “but parts are no longer available.” I asked if it might be time to buy a new one. “Well, money is tight,” was the reply. “And this welder has been our go-to machine since Day 1.”

This led to a discussion with one of the equipment companies that I sell for about when is the right time to finally replace what has come to be considered a beloved and reliable piece of equipment.

Heck, I myself am guilty of keeping some machines well past their prime. I still own a Philips turntable and a nice collection of vinyl LP records that I still occasionally play on it. But it is like a collector’s item. I play the majority of my tunes from my phone through Bluetooth connected to my speakers in my hot tub.

So the discussion ensued: “When is it time to retire ‘old reliable’ and buy new?”

The first answer that came to mind is “Before it totally breaks down and shuts down your production with no backup immediately available!” So, what if it is still chugging along? Maybe it works just fine for now. But if all is not well underneath the hood, then an older machine can leave your business incredibly vulnerable. The old norm was that a piece of machinery had a useful lifespan of ten years. The company accountant would depreciate the new asset on a straight-line basis over a period of ten years, taking an equal deduction each year during that time. The machine would usually last a minimum of ten years and sometimes many more. So is this concept of the useful life of a machine still valid?

Well, there are several factors to consider:

Availability of parts. If direct replacement parts or reasonable substitutes are no longer available, then it is time to buy a new machine. If your machine goes down and you cannot find the parts to fix it, then plan on being without it for a long time. Lead times for new machinery can be as long as six months. This depends on the degree of custom features involved. Expensive machines or machines with custom dimensions and features will not be sitting on the floor ready to ship. They are made to order, and this takes time.

How much electronics are involved? If you are talking about a CNC machine with PLCs, stepper drives or servo drives, then it is highly likely that technology improvements will have obsoleted your equipment well before the ten years is up. The servo or stepper drives may be no longer available after five years. That means that if one of these drives goes out, you may not be able to find a replacement. The whole machine will have to be rebuilt, which could cost tens of thousands of dollars, More important, it may take weeks to accomplish this, and can you really afford to be without that piece of equipment for more than a weekend? However, if you are talking about an old glass washer that has motors, brushes, water jets and air knives and minimal electronic controls, then these machines can last decades. I sell used ones all the time that are 15 and even 20 years old, and they are still humming away if well maintained. Parts are simple and still easy to come by.

Is the machine driven by a computer interface? If so, it will likely be obsolete if the operating system becomes obsolete. I have had companies call me and ask for repairs on old glass cutters and I ask, “So what type of operating system does it use?” If the answer is “Windows XP”, then it is time to buy a new one. If the answer is “DOS,” then it is time to donate it to the Smithsonian Museum.

Is the machine unsafe? If a machine becomes unsafe for any reason at all, do not hesitate to take it out of service. No machine is worth jeopardizing life or limb of your valuable employees. Perhaps it was considered safe 20 years ago, but times have changed, and many new machines now exist with many modern safety features that were not available ten or 20 years ago. So, the concept of safety must be reviewed in terms of what is now available as “state-of-the-art safe.” When it comes to safety, safer is always better and is worth the investment

What are the potential tax savings on buying a new or more modern used machine? The concept of ten-year straight-line depreciation, in my opinion, is obsolete. Today, we have Section 179 in the tax code, which allows the full cost of a new or used machine to be written off in the same tax year that it is purchased. In my book, a tax dollar saved and invested today is worth more than one saved next year, let alone one saved nine years from now. The Section 179 deduction is now $500,000 for 2017. This means businesses can deduct the full cost of equipment from their 2017 taxes, up to $500,000, with a “total equipment purchased for the year” threshold of $2 million. This is a substantial tax deduction that many companies overlook but should take full advantage of in 2017. For example, investing in $500,000 of new or used equipment in 2017 can save you $175,000 in taxes, assuming a 35 percent tax bracket. This reduces the “net cost” of the equipment to only $325,000. There is also “bonus depreciation” on investments above $500,000.

So , before things get hairy and you find yourself behind the eight-ball in terms of getting production out the door, it is time to look under the hood of the critical machines that you rely upon daily and make smart decisions before you find yourself in an ugly predicament with no immediate solution.

When it comes to making the proper equipment decisions, the proactive approach is the only approach.

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  1. Good article Jim !

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