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Repair Or Replace: [What Should Dealers Do With Damaged Equipment]

By Seth Hird | Posted on March 21, 2022

REP™ (Rental Equipment Protection)| Equipment Industry

Background

Recently, our CEO, Jayme Bates, spoke with an employee of one of our REP Dealers. In that conversation, they talked about the change in the climate of the rental industry due to decreased access to equipment parts. This conversation sparked a brilliant idea for when the damages cause the machine to be considered a “total loss”, dealers could replace the equipment instead of repairing it.

Industry Shortage and Pressure

EquipmentWorld Video: The Chip Shortage: How Did We Get Here? | The Dirt #37 – Here’s a video that dives into the chip shortage, which has been contributing to lower inventories for some equipment manufacturers.

Nonetheless, the equipment rental industry is not facing the challenge of equipment production. Instead, dealers are asking, “How can I keep equipment out of the repair shop and available to rent?”

Replacing vs. Repairing Damaged Equipment

The client concluded that in this circumstance replacing the damaged equipment with a used piece would be more financially beneficial than fixing it. However, this is only an option for machines that are considered a total loss.

*The adjuster must determine that the damages are above a certain percentage of the actual cost value of the machine before it can be replaced by a used one. If it does not reach that percentage point, the adjuster will only approve repairs to the equipment.*

Before making this decision, many factors have to be considered during the decision-making process.

Things to consider when equipment damage occurs:

  • Parts and materials cost
  • Labor costs
  • Labor/resources cost during the claims process
  • Resources needed to recover the machine (depending on the damage, this can vary dramatically)
  • Loss earnings from rental sales – (Sometimes it can take up to a year to replace a piece of equipment. Therefore, this can have devestating effects on your rental sales.)
  • Cost of used / replacement equipment

The common thread for all the factors above is variance and unpredictability.

Predictability vs. Unpredictability

Unfortunately, the decision to replace your damaged equipment is not an easy one. However, taking this approach comes with a silver lining.

Our business primarily involves mitigating dealers’ risk. Therefore, you can understand that we have a blatant bias toward lower-risk actions. So, considering all the supply chain issues, we believe that proper access to necessary equipment parts is highly unpredictable.

In light of this, we are becoming advocates for dealers trying to source used equipment to replace their damaged equipment. This approach has yielded significant benefits to dealers because they don’t lose out on rental revenue. Additionally, they increase relationship collateral with their customers by continually having machines available for rent.

REP™ Covers Replacement or Repair Cost

Of course, the final decision is for the dealer to make. Every situation is different and varies widely, so you and your team will have to decide that fits your needs the best. However, we’re able to help either way. In the event of a covered loss, REP™ will either pay for repair costs or the cost of the used machine.

If you would like to talk to someone about options for protecting your rental fleet, our team of insurance experts can help find a solution for you (even if it’s not us).

Click below to call or email our team. If you choose to email us, please allow for a 24-hour response time.

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