A transport operator had a fleet of around 40 trucks that had been well maintained and continued to perform reliably.
Many of the trucks had travelled more than one million kilometres, but the age and kilometres didn’t tell the whole story. The bodies, chassis, boxes and differentials were all in good condition. The main issue was the engines, which were reaching the point where they needed to be rebuilt.
Replacing the trucks altogether would have been a very different proposition. A new prime mover was approaching $500,000, meaning replacing seven trucks would have cost around $3.5 million. Repowering the existing trucks would cost around $90,000 each, or approximately $630,000 for all seven.
The numbers made sense. The challenge was finding a way to fund the repowers without replacing the fleet.
The traditional approach in transport has often been to replace a truck once it reaches a certain mileage. For this operator, that approach didn’t necessarily make financial sense anymore.
The fleet was well maintained and, despite the kilometres on the clock, the trucks themselves remained sound. The problem was primarily the engines.
A new prime mover was approaching $500,000. Replacing seven trucks would therefore require around $3.5 million of capital. The alternative was to rebuild the existing engines at around $90,000 per truck, bringing the total cost for seven repowers to approximately $630,000.
The saving was significant, but there was another issue. Funding a new truck is relatively straightforward because the truck itself provides the security for the finance. A repower is different. The money is being spent on rebuilding an existing asset rather than purchasing a new one, and many lenders aren’t set up to finance a repair bill in the same way they finance a new truck.
The challenge was therefore not simply deciding whether repowering made sense. It was finding a funding structure that could make it work.
Rather than trying to finance the engine rebuilds as a traditional repair expense, we looked at the equity already sitting in the fleet. The trucks had been well maintained and retained significant value as assets.
The approach was to fund the truck rather than the repair, releasing equity from each individual truck as its repower was completed. This meant the funding could be aligned with the asset itself rather than treating the engine rebuild as a standalone repair bill.
The work was also deliberately staged rather than repowering all seven trucks at once.
One truck would be repowered, the work completed and the funding released before moving on to the next.
This allowed the fleet to keep working throughout the process and meant funding could move in line with invoices as the work was completed.
Importantly, each rebuilt truck also represented a stronger security position once the repower was complete. The structure therefore worked with the way the fleet actually operated rather than requiring a large upfront funding commitment.
The operator was able to repower seven existing trucks for approximately $630,000 rather than replacing them for around $3.5 million.
The fleet continued operating while the work was completed progressively, reducing disruption to the business.
The funding was structured around the equity in the existing trucks, rather than trying to finance the engine rebuilds as a standalone repair expense.
The result was a fleet that could continue working with rebuilt engines, without the business taking on the significantly higher capital commitment that replacing seven trucks would have required.
The economics of repowering can look very different from the traditional approach of replacing a truck once it reaches a certain mileage. Truck prices have changed significantly, while some of the old rules around when to replace a vehicle haven’t necessarily changed with them.
But the important point is this: repowering is only a saving if replacing the trucks was genuinely the alternative.
If a business wasn’t going to spend $3.5 million on seven new trucks in the first place, then comparing a $630,000 repower with a $3.5 million replacement can be misleading.
The real question is whether the existing trucks are still good assets, whether the rebuild makes commercial sense and whether the funding can be structured around the equity already sitting in the fleet.
For transport and civil operators with ageing but well-maintained equipment, it can be worth looking at the numbers before automatically assuming the next step is replacement.
Replacing an ageing truck isn’t always the only option. If the chassis, body and other major components remain sound, repowering may be worth considering, particularly when the cost of a new truck has increased significantly.
The challenge is often finding the right way to fund the work.
At Ironbark Group, we can look at the equity already sitting in your fleet and explore whether there are ways to structure funding around the assets you already own. With access to a wide network of lenders and more than 200 years of combined experience across our team, we can help you work through the numbers and understand what options may be available.
Thinking about repowering rather than replacing? Talk to Ironbark Group about your options today.
It can be more difficult to finance an engine rebuild than the purchase of a new truck because the rebuild is effectively a repair to an existing asset. However, depending on the value and equity in the truck, there may be ways to structure finance around the underlying asset rather than treating the rebuild as a standalone repair expense.
Potentially. If you own trucks that have available equity, that equity may be able to support additional finance, depending on the value of the vehicles, their condition, existing finance and the lender’s requirements. The structure will vary depending on the assets and the purpose of the funding.
It depends on the individual truck and the cost of the rebuild compared with the cost of replacement. A repower can be significantly less expensive than buying a new truck where the existing chassis, body and other major components remain in good condition. However, the comparison should consider the full cost, expected remaining life and suitability of the existing truck.
There isn’t a single mileage or age at which every truck should be replaced. The condition of the entire vehicle, not just the engine, is important. If the chassis, body, drivetrain and other major components remain sound, rebuilding the engine may be worth considering. If multiple major components are approaching the end of their useful life, replacement may make more sense.
Potentially, but the funding structure and cash flow implications need to be considered. In some circumstances, staging the work one truck at a time can allow the fleet to keep operating and the funding to be released progressively as each repower is completed. The appropriate approach will depend on the business, the fleet and the available funding.
It can be, but the comparison needs to be realistic. If the alternative is genuinely purchasing a new truck, a repower may cost substantially less. However, if the business wasn’t going to replace the truck anyway, comparing the repower cost with the price of a new truck can give a misleading impression of the saving. The right comparison is between the realistic options available to the business.
