Deciding Between Forklift Repairs and Replacement to Maximize Forklift Fleet Value
We heard a funny anecdote from a customer’s maintenance manager recently: “Whether your forklift is always in the shop or never in the shop, either way it probably means that you’re ignoring something important that’s going to cost a lot more later on.” Isn’t that the truth!
While this quote was originally about the perils of poor maintenance scheduling, we realized that this sentiment also rings true for misjudging when to repair a forklift versus when to replace a forklift. In fact, these two topics start to blend into one – when forklift maintenance isn’t performed consistently, a lift will inevitably succumb to a costly failure, which in turn accelerates a decision around replacing the lift to avoid the expensive repair.
We see this situation arise often enough that we’d like to share our thoughts on how best to contemplate the choice of repairing or replacing a forklift. We have a unique perspective on this topic, one that differs a bit from many other sources you’ll find online. In our eyes, repairing a forklift for as long as possible is the preferred route, so as to achieve these three goals:
- Maximize Operational Value – we believe that businesses procure capital equipment for the purpose of extracting maximum value towards the company’s operations. This means that assets should be kept in service as long as they’re safe and effective, not replaced prematurely.
- Minimize Resource Consumption – all else equal, repairing forklifts is a much better use of resources than replacing forklifts, especially when new lifts provide no new benefits or efficiency to the business.
- Prioritize Least-Cost Reliability – from a purely financial standpoint, businesses strive to find the point where the lowest operating expenses provide the highest operational performance. Regarding forklifts, if repairs or replacement both result in a reliable lift, repairs will typically be the lower cost option.
With the above said, we’re not trying to convince you to repair a forklift indefinitely. All forklifts will need replacement eventually. Instead, we’re urging readers to err on the side of repairs as your first choice, and to consider replacement as your second choice only after repairs are deemed inadvisable. Next, let’s break each of these choices down into further detail.
Knowing When Repairs Make Perfect Sense
So far, we’ve made the clear case that forklift repairs should be your default selection over replacing a forklift. When you’re first faced with this decision, compare your situation against this list of indicators that repairs are the right choice:
- Repairs are Routine– even if the price tag is relatively high, a repair that is considered routine or expected (per the OEM’s service manual or a qualified service technician) and occurs roughly at the mileage or hours expected is well worth completing.
- The Issue is Isolated – it’s expected that individual issues will pop up due to normal wear and tear, requiring simple repairs. These isolated repairs can be costly, but are typically a normal part of maintaining complex equipment like forklifts.
- The Forklift is Relatively Young – though there is no single measure of a “young” vs “old” forklift, a generally accepted mid-age point for a moderately used forklift is 10 years or 20,000 hours. Up to this point, repairs are certainly preferred over replacement, even as repair costs increase proportional to age.
Indications that it’s Time for Forklift Replacement
There will certainly come a time when replacing a forklift is the only remaining choice, which will typically come as the result of one of these conditions:
- Increasing Maintenance Frequency – aging forklifts tend to experience multi-system issues that drive up maintenance frequencies and decrease reliability. Once repairs can no longer keep up with these issues, replacement is often the next step.
- Safety Risks – it goes without saying that safety lapses in a forklift are unacceptable, making any issues that cannot be immediately resolved through maintenance a sign that the forklift likely needs replacement.
- Permanent Reliability Declines – certain forklift systems experience permanent drops in reliability as they age, such as seen with worn transmission gearing and scarred engine cylinders. When such problems can’t be easily or cost-effectively resolved through repairs, the lift is likely at its end of life.
- OEM End of Life – speaking of end of life, forklift manufacturers and third-party OEMs will often reach a point where they stop supporting legacy forklift models and their spare parts in favor of more current models. When that occurs, forklift owners often have no other choice but to replace their lift.
- Emissions Compliance – in some states and applications, environmental regulators are increasingly targeting forklifts for reduction of harmful emissions. This growing body of regulations puts many lifts at risk of needing replacement to stay compliant.
- Business & Financial Needs – apart from technical reasons, many businesses will find themselves faced with purely financial motivations to replace forklifts, such as tax circumstances, asset divestment needs, increasing total cost of ownership, climbing energy costs, and available economic stimuli.
A Word on “The 50% Rule”
There is a frequently reoccurring trope found online which states that “the industry standard rule of thumb is to replace a forklift whenever repair costs reach 50% of a forklift’s market value.” From our direct experience over decades in the material handling industry, we can’t say that this rule actually turns up in real life practice. In our opinion, this rule seems to be the unfortunate result of marketing echo – the repetition of claims copied from one piece of content to the next, over and over, making the claim appear legitimate just because it’s so widely referenced. In actuality, there is no correlation between a 50% market value point and any financial basis to divest an asset. In fact, we think this rule promotes the wrong virtues that businesses would be wise to avoid, as follows:
- Incorrect Priorities – the 50% rule suggests that your greatest priority in forklift ownership is to recoup maximum cash value at the first high repair cost you experience. This is not a real business objective, as the goal of owning equipment is not cash recuperation upon its sale. Instead, material handling companies should prioritize maximizing equipment performance value by keeping that asset in use as long as possible.
- Ethical Considerations – this rule suggests that owners should sell forklifts when faced with a high repair cost, passing the repair burden off to the next owner or scraping the lift entirely. In pushing for the highest resale value, that dances dangerously close to inferring that owners should downplay the magnitude of repairs needed. These two factors create obvious ethical concerns, not to mention potential legal liabilities.
- Asset Lifecycle – a repair cost has more to do with the forklift’s lifecycle than its current resale value. For example, if a $10,000 (market value) forklift requires a $5,000 repair, but that repair will extend the lift’s reliable, performative lifespan another 5 years, that is clearly a good investment. In making the repair, the business can extract more operational value from the lift while also preserving resale value into the future.
We hope that this discussion on material handling techniques and technologies proves useful to your manufacturing, construction, and distribution interests.