How Much Does Equipment Depreciate When Not Being Used?

[MikePhua]

Depreciation is an inevitable part of owning heavy equipment, but the rate at which equipment depreciates can vary depending on several factors. One common question that arises among owners and operators is how much equipment depreciates when it is not actively used. This article delves into the factors that contribute to equipment depreciation when idle, the potential impact on equipment value, and strategies to mitigate depreciation loss.
What is Depreciation?
Depreciation refers to the reduction in the value of an asset over time. For heavy equipment, depreciation occurs due to wear and tear, age, technological advancements, and market demand. When equipment is used regularly, its value decreases more rapidly, but idle machines also experience depreciation, albeit at a different rate. Even when not in use, various factors can cause a machine’s value to decline.
Factors Contributing to Depreciation While Not in Use
Several elements contribute to the depreciation of equipment when it is not being used, including:

1. Age of Equipment
   The age of a machine is one of the biggest factors affecting depreciation. Older equipment naturally loses value even if it's not being operated. Components wear out over time, and the machine becomes less valuable as newer models with more advanced technology are introduced to the market.
   
2. Lack of Maintenance
   If equipment is left idle without proper maintenance, it can deteriorate faster. Even when not in use, systems such as the engine, hydraulics, and electrical components may suffer from neglect. For example, rust, fluid leaks, and battery degradation are common issues that arise when equipment is not maintained during periods of inactivity.
   
3. Storage Conditions
   Equipment stored outdoors without proper protection (e.g., covering, shelter) is more prone to weather damage such as rust and degradation from UV exposure. Even when stored indoors, poor ventilation and inadequate climate control can cause damage to sensitive components, leading to further depreciation.
   
4. Market Demand and Technological Advancements
   The market value of equipment is also influenced by industry demand and technological changes. When new models with improved features and performance are introduced, older equipment, especially when not being used, becomes less desirable. Machines that are idle for extended periods may not only lose value from age but also become less relevant due to advancements in technology.
   
5. Residual Value Loss
   Equipment that sits idle for too long without being put to use may experience a quicker reduction in residual value. This is the estimated value of the equipment at the end of its useful life, and when machines are not in operation, this value decreases faster because buyers may view them as "unreliable" or "outdated."
   

How Much Does Equipment Depreciate When Not in Use?
While it is difficult to pinpoint an exact percentage, studies suggest that equipment can lose anywhere from 10% to 30% of its value per year when idle, depending on various factors such as the equipment's type, age, and storage conditions. For example, heavy machinery like bulldozers or excavators may see a depreciation rate closer to 15% to 20% annually when not being used, while smaller equipment like skid steer loaders may depreciate more rapidly, especially if they are not stored correctly.
Impact of Idle Time on Equipment Depreciation

1. Loss of Immediate Value
   The most noticeable impact of idle time is the immediate loss of equipment value. Machines left in storage without regular use lose out on potential earnings, which also reflects on their resale price. A lack of demand from potential buyers due to idle time contributes to this loss in market value.
   
2. Future Repair Costs
   Idle equipment may require more maintenance or repairs than regularly used equipment. For example, seals and gaskets may dry out and crack, engines may seize, or the hydraulic system may lose its efficiency. These additional repair costs further reduce the machine’s resale value.
   
3. Buyer Perception
   Potential buyers may be hesitant to purchase idle equipment because of concerns about its condition. Machines that have been idle for a long time may be perceived as less reliable, leading to further depreciation when it comes time to sell.
   

How to Mitigate Depreciation of Idle Equipment
There are several strategies you can employ to minimize depreciation and preserve the value of your equipment while it is not in use:

1. Proper Maintenance
   Regular maintenance is essential, even if the equipment is not being actively used. This includes starting the engine periodically, lubricating parts, checking fluid levels, and ensuring all components are functioning. Keeping a maintenance log helps keep track of any work done.
   
2. Storage in Controlled Environments
   Whenever possible, store equipment indoors in a dry, temperature-controlled environment. This will prevent damage from weather conditions such as rust, corrosion, and UV degradation. If outdoor storage is unavoidable, invest in high-quality covers to protect the equipment from the elements.
   
3. Regularly Run Equipment
   Operating the equipment at least once a month can help maintain its functionality. Running the machine for short periods keeps the engine and other parts lubricated and functioning properly, which helps prevent components from seizing up or deteriorating.
   
4. Keep the Equipment Clean
   Cleaning equipment regularly, especially after storing it for long periods, ensures that dirt, debris, and moisture don't cause long-term damage. Clean machines are more likely to retain their value compared to dirty ones.
   
5. Document Condition and Usage History
   When it comes time to sell or rent out the equipment, having a detailed record of its maintenance and condition can make it more appealing to potential buyers. A well-maintained, idle machine with a clear history of care is more likely to retain value than one that has been neglected.
   

Conclusion: The Cost of Not Using Equipment
In conclusion, equipment depreciation is a natural process that accelerates when the machinery is not being used. Factors such as age, maintenance, storage conditions, and market demand contribute to the loss in value. Although idle equipment may not depreciate as rapidly as used equipment, it still suffers from gradual wear and tear, ultimately reducing its resale value. Proper maintenance, storage, and occasional use are crucial strategies to slow down the depreciation process and preserve the equipment's value for as long as possible.