Graphics Network
Print & Graphics
Volume 25
No. 7
July 2004

Pressroom Report
By John Snyder

Ed. Note: This month's Graphics Network Print & Graphics introduces our new Pressroom Report columnist, John Snyder. John is president of HBP, Inc., a full-service graphic arts firm based in Hagerstown, MD, and offers a wealth of experience in managing efficient, profit-building press operations.

Buying a press: the pros and cons of new vs. used

For most printers, buying a press is an investment decision that impacts operations, sales, marketing and finance, and may indirectly determine the future direction of the business enterprise. It is a financial decision that can't be evaluated strictly in terms of ROI or payback, and yet it is vitally important to understand the financial impact of the investment on operations and on the debt structure of the business.

There are three basic reasons for buying a press: to increase capacity, improve quality, and remain competitive in your marketplace. There is usually a key factor driving the purchase decision, but it is preferable to have more than one of the reasons above justifying the investment. There are several other factors that should be considered prior to making such a big decision. These factors can vary greatly from printer to printer; determining which ones are most important to your business will help you decide between a new or used press.

Lay of the land

Understanding the dynamic "lay of the land" in the current economic environment is a requirement when buying a press today. Perhaps the most important factor is that today's marketplace is flooded with an unprecedented number of late-model used presses. For a variety of reasons - including industry attrition, a sluggish economy and overcapacity - these presses are available at very attractive prices.

Since the beginning of 2000, press manufacturers have been offering significant discounts off list prices and additional incentives on new presses. Therefore, you may be able to install a new press for far below its "sticker price." A new press purchase has become a realistic possibility for companies who previously wouldn't have considered it.

When deciding between new and used, you should also consider the cost of ownership - as with any major capital equipment, the ongoing cost of the equipment goes far beyond the purchase price. Depreciation is a consideration for both budgetary and tax purposes. You can depreciate a new press by 50 percent for tax purposes during the first year of ownership if it is installed before December 31, 2004. By comparison, a used press is not eligible for any of the bonus depreciation. While the accelerated depreciation rate is a significant incentive for capital investment on new equipment, it is also important to understand that the accelerated depreciation can significantly increase deferred taxes on the balance sheet. The treatment of depreciation for book purposes is the same for both used and new presses. It is based on the economic life of the machine.

New presses come with warranties, which are an important financial safeguard in the event of unexpected, costly repairs or print quality issues. While warranties for new presses are negotiable, they usually aren't available on most used press purchases. If you are evaluating the cost difference between a new press with a warranty and a used press without one, the decision ultimately comes down to factors such as the difference in purchase price, the condition of the used press, the terms of the new press warranty and the reputation of the press manufacturer's reliability.

Prospective used press buyers should also consider expected productivity gains. One of the main reasons for purchasing a press is to increase productivity. Depending on the size of your company and the vintage of your current equipment, a new press could potentially allow you to replace two existing presses, thus reducing labor costs.

If a new press is intended as an addition to your existing equipment instead of a replacement, you'll want to be sure that the machine offers capabilities that not only expand your capacity, but also allow you to reach new markets and expand your business. But before your finalize the purchase, you should quantify the productivity expectations, and if purchasing a new press, consider asking the manufacturer for some performance guarantees.

Know your requirements

Your new press must be driven by your productivity expectations, product mix and quality requirements. An important consideration is the degree of automation that makes sense for your operation. The sophistication and ease-of-use of these presses varies based on the age of the machine and the manufacturer. While you can expect most new presses to have automation features as available options, a used press that is a "great deal" may or may not have the options you need. Once again, analyze your company's product mix and determine if these features are "must haves" for your business.

Personnel and logistical issues are yet another aspect of productivity that must be factored into a press purchase. Production personnel must be retrained to fully take advantage of the faster running speeds and increased automation. Good logistical support is needed to increase productivity. It is self defeating to run a press at 13,000 impressions per hour if the operator has to wait for plates, ink or paper on the next job.

Once you've determined which features are important to your business, it's a good idea to forecast the impact the machine will have on your cost structure and expected revenues. Perform a side-by-side comparison of a new versus a used press, and to then compare those results with your current budget. As with any forecasting model, you'll need to make some assumptions about future customer requirements and projected sales volume.

Associate a capital cost with the projected level of productivity for each of the presses under consideration. For example, assume the average running speed for a new machine is 10,000 per hour and the average make ready and wash-up are 30 minutes each. A make ready and wash-up would be assigned a value of 5,000 equivalent impressions. (At 10,000 per hour, 30 minutes equals 5,000 equivalent impressions.) This allows you to compare the productivity of your existing presses against the projected productivity of an additional press.

If your current productivity is 5,000 equivalent impressions per hour and the new press' is 8,000 and costs $900,000, then each increase of 1,000 equivalent impressions per hour has a capital cost of approximately $300,000 ($900,000 divided by the increase in productivity of 3,000 per hour) associated with it. This method allows you to compare the capital costs of machines that have different make ready and running speeds on a basis of apples to apples.

And there's another thing to think about - market factors. Our industry does not operate in a vacuum. Market factors shape the prices we can expect to charge and the prices we pay for products or services. If six-color, 40" sheetfed presses with tower coaters are in demand, then you can expect to pay a premium for one, new or used.

It's important to determine your basic requirements in a press, and base your analysis on those requirements. Perhaps a five-color would suit your needs, or upgrading to an eight-color will bring even greater productivity gains and open up new markets for you. Regardless, take the time to see what other people in your area are adding to their shops. Get a feel for what you'll be competing against, not only at the time of the purchase itself, but also afterwards when you'll be working to sell time on your new press.

The purchase of a new or used press is a major decision for any printing company, and should not be taken lightly. There are many manufacturers out there that offer high-quality products and it is difficult to evaluate the differences. If you aren't sure which features you should have on your next press, visit a few other printers who have similar presses to those you're considering. That will give you an opportunity to kick the virtual tires and help you make the right decision for your company.

John Snyder, president of HBP, a full service communications solutions provider located in Hagerstown, MD, can be reached at 800-638-3508, or johns@hbp.com.

HBP Inc. • 952 Frederick St., Hagerstown, MD 21740 • 800-638-3508 • 301-733-2000 • FAX 301-733-6586