Diesel Equipment Affects Your Bottom Line
5 Ways Buying Diesel Equipment Affects Your Bottom Line
The business owners and managers we work with know that buying diesel trucks or other pieces of heavy equipment is a big decision. But sometimes they might not realize just how big that decision will be, and all the ways that it will eventually affect their bottom line. If anything, they tend to focus on the sticker price of the particular model and look for ways to decrease the immediate financial hit.
That’s certainly a good thing to do, but it sometimes misses the point. That’s because, in the long run, what you pay for a particular truck or engine might not be the factor that determines whether you get good value or not. The ongoing running costs add up over time, to the point that they might go far beyond your original expenditure.
To give you a sense of what this looks like, why it matters, and (most importantly) how you can make good investments for your company, we want to offer some perspective. Let’s go over five distinct ways that buying trucks, generators, and other items affects your bottom line, based on our decades of experience as one of the largest diesel engine dealers in the western states.
#1 The Purchase Price
Let’s begin with the obvious. If you purchase a truck or a generator, there is going to be a purchase price for the equipment. In most cases that price is going to be fairly consistent from one dealer to the next (despite what some businesses might want you to believe).
As we have already mentioned, this is the part of the calculation that business owners and managers tend to be familiar with and focus on. It’s also the most straightforward. So, there isn’t much to say about the financial implications of this part of the purchase. You already know what it’s going to do to your budget. However, there are a couple of things we should highlight.
The first is that you’re generally going to get what you pay for. In the past, we’ve posted about the value of branding when it comes to trucks, diesel engines, and other forms of heavy equipment. If you don’t want to read the whole article, the takeaway is that established brands can charge a bit more because they have a reputation for quality. That matters when your profitability as a business is on the line.
In other words, you should be careful about your budget, but also know that reliable equipment is going to come with a price.
The second thing to remember about purchase costs is that they tend to be pretty even from one dealer to the next. Some business owners will take that as a sign that they shouldn’t worry about choosing the right company to do business with. We see it the other way: if you’re going to get similar pricing, then why not a long history of service and after-sale care? Why wouldn’t you go for the more knowledgeable team if it wouldn’t add anything to your initial invoice?
With those small caveats out of the way, let’s move to the financial implications that might not be as obvious.
#2 The Finance Terms
Most of the business owners and operations managers we work with are savvy enough to understand that heavy equipment financing can be more significant than the purchase price itself. If you get a low rate on credit terms while upgrading your fleet, then it’s going to save you huge amounts of money in the years to come.
As with the first point, this one is fairly obvious. But once again, there are a couple of finer points that should be mentioned.
The first is that you should always compare credit terms and offers on an apples-to-apples basis. The devil is often in the fine print, and what can seem like a good deal might not turn out to be so advantageous if you look a bit closer. If you have a good dealership on your side, they can help you not only comb through the contractual details of a financing agreement, but also look out for common pitfalls.
The second is to be aware that you may have more options than you think. When you work with as many trusted brands as we do, you start to become familiar with the huge number of offers and incentives to be found on the market. It’s sometimes the case that a top brand or bank, for example, will give you special terms based on brand loyalty or seasonal promotions.
Remember that every tenth of a percentage point can make a big difference to your bottom line. Sometimes business owners or CFOs come to us with financing already in place. That’s certainly acceptable, but we always love it when they give us a chance to find something even better.
In the end, any finance terms you agree to should work for your business. That doesn’t just mean being affordable, but also offering features like early payoffs, trade-ins, etc., if those actions are in your possible plans for the future.
#3 Fuel and Maintenance Costs
It isn’t unusual for us to sell a diesel engine that will eventually end up covering more than a million miles. That’s a testament to modern engineering and the quality of the brands we offer. It’s also a reminder that expenses related to fuel and maintenance could eventually become a substantial part of your budget.
To go with the most basic example of this, consider two different pieces of equipment. One costs $50,000 less, but the other is more efficient and burns only two-thirds of the diesel than its competing model does. Which one would be the better deal for your business?
The answer would obviously depend on how you were going to use the equipment, how long you have it, and what fuel prices are like – both at the time of purchase and in the future. So there isn’t a set answer, but we can tell you that many of our customers are starting to plan for a future when the costs and availability of petroleum-sourced fuels will be a bigger concern… both in California and beyond.
You should perform similar calculations when it comes to diesel engine maintenance. Some domestic brands are established and common. Most shops will have technicians who can work on them, and parts are generally available on a same-day basis. Other companies are less well-known and don’t have the same kinds of distribution networks. So, shop visits might take a bit longer and cost a bit more.
These expenses are magnified as your fleet grows. And, it’s easier to keep buying the same models over time if you can to make it easier to stay on top of operating manual updates, recalls, changes to maintenance suggestions, and so on.
The point is that the bigger your business becomes, the more fuel and maintenance factor into your bottom line. So, even if you think these are minor concerns, don’t discount the idea that they might impact you in a big way going forward.
#4 Unplanned Downtime
You may have noticed that we began with the obvious expenses and are moving toward the ones that are harder to both calculate and anticipate. But when it comes to unplanned downtime, there isn’t any doubt that you should try to factor several possibilities into your decision-making process.
It isn’t hard to figure out why. Having just one or two trucks go offline unexpectedly can cause huge problems in your business and operations. That’s particularly true if you don’t have spare inventory to pull from.
We sometimes meet new customers who have turned to us because they have been impacted by problems stemming from a bad purchase they made with another dealership. For example, imagine what happens on a construction site when land-clearing equipment can’t move. Not only can work grind to a halt, but now you have a dead piece of metal that weighs several tons and itself needs to be cleared from the scene.
In other instances, we have met delivery teams without functioning transportation. That makes it impossible for the business to take in revenue. In fact, it usually means the company is paying out to issue rebates and refunds, or to get help to perform the basic tasks they’ve been hired for.
These are straightforward business examples, but we also supply equipment and maintenance to fire departments and first responders. For them, unplanned maintenance and breakdowns could be a matter of life and death.
All of this is to say that you sometimes pay a premium for reliability, but that added expense is almost always worth the cost. It’s painful to pay a bit extra on the purchase price of the diesel engine. However, that expense works out to be very small when you consider the alternatives, and especially what happens if your equipment stops working the way it’s supposed to.
You might not know the exact costs associated with unplanned downtime, but you don’t have to. Talk to your diesel engine dealer about your needs and make sure they set you up with equipment that will perform as expected.
#5 Delivery Deadlines
Finally, we come to one more hidden cost that can be incredibly difficult to enter on a spreadsheet but can significantly impact your bottom line. And that comes with the consequences of missing deliveries, deadlines, or other expected performance goals.
We touched on this in the last point, but in this case we aren’t talking about the actual revenue that is lost when your equipment isn’t operating. Those costs can be substantial, especially if you have contracts that require you to offer discounts or issue refunds when you don’t meet a customer’s expectation. However, the bigger losses associated with failing equipment are more substantial.
Ask yourself the following: if one of your vendors couldn’t meet the deadlines they had agreed to, would you keep working with them? And if you did, would you pay a premium price or find ways to get some savings? Would you keep one eye open for an alternate vendor who might be more reliable?
Smaller businesses need to be particularly attuned to threats to their reputation, but even the biggest organizations can’t afford to see standards slip. It doesn’t matter how hard your team works, how strong your business model is, or what kind of marketing you do if you develop a reputation for falling short of your commitments and guarantees. And in many industries that comes down to (or is heavily influenced by) the reliability of your equipment.
It takes a lot to build a thriving and profitable business. It’s certainly not all about the diesel engines and heavy equipment you buy. However, if you’re in the kind of market where tools and transportation are an important part of your service mix, then you can’t afford to get these decisions wrong. That’s because your reputation might not show up as a line item on an invoice, but it will determine how willing customers are to keep working with you… and how much they are open to paying when they do.
Looking for Real Value in Diesel Fleet Buying?
There are a lot of vendors out there who can sell you a truck, a boat, or a piece of heavy diesel equipment. But few of them can come close to matching the service and reputation you get from Valley Power.
In our many years of working with business owners and managers like you, we have developed relationships and insights that still continue today. We aren’t just looking to make a sale; we want to be your choice for power equipment buying, maintenance, and planning for decades to come.
To get a sense of what this service looks like in the real world, contact us today to schedule a free consultation with a member of our sales team. It won’t take you long to figure out why so many of our customers refuse to work with anyone else.