Opinion: Consider leasing/renting.

Introduction

Test benches, like most custom-built machines, are pieces of capital equipment that are usually purchased and amortized over a long period. As automotive programs traditionally have spanned 5-8 years, these machines would be built to last over one or two product cycles, with some modifications as required. With these factors in mind, the idea of renting a test machine is not one that has typically crossed the minds of engineering or test lab managers.

 
ever consider renting or leasing your test equipment. This may be a better solution during  the design stage of oil pumps, water pumps, coolant valves, heat exchangers, etc.
 

Times are changing

Mechanical Water Pump Test System.   Learn More   …

Mechanical Water Pump Test System. Learn More

As we’ve discussed many times before, program lengths are shortening. Consumers are demanding product updates sooner, in-line with the expectations they now have towards electronic devices. Amortizing a purpose-built piece of equipment over 10-20 years is now more difficult to justify, especially if it requires significant modification between programs.

That said, for component suppliers the basic principles of these machines haven’t changed much. They have to condition a fluid and test a part through a measurement circuit sized for the component. The fluid conditioning doesn’t change much, but the measurement circuit might, especially if the supplier wants to offer components optimized for each individual application. In some cases, that strategy is key to sales growth.

Modularity enables reuse

“Specialization of resources, standards for interchangeable parts, and streamlined assembly tools have been used in other industries for hundreds of years to speed the development of highly complex products.“    - Bill Gates

“Specialization of resources, standards for interchangeable parts, and streamlined assembly tools have been used in other industries for hundreds of years to speed the development of highly complex products.“

- Bill Gates

Designing test machines to be modular has an interesting side-effect: it allows the machine to be reused. That could mean the machine has a residual value, especially if it was only used for a five-year program. The measurement circuit could be exchanged, making the system valuable to someone else.

The same can be said for other modules. For example, chiller systems operating below freezing usually come with a significant initial investment, but may only be used during thermal cycling durability testing of new R&D projects. Purchasing a large system like this could tie up a capital budget that could be used for other investments to help win more business.

Leasing versus renting

One could write a book on the different types of leases and rent structures. For the sake of simplicity, there are two types of leases: capital/finance and operating. The former is similar to a traditional financing arrangement, whereby the depreciating asset is on the balance sheet with a corresponding liability representing the lease cost. The benefit over a traditional loan is that leases typically do not require a downpayment or collateral and will not use any existing bank loans or credit facilities. Publicly-traded or large private companies following US-GAAP or IFRS will treat most leasing arrangements over 12 months as a capital lease.

Operating expense

Other private companies (i.e. observing private-entity GAAP; ASPE in Canada) can continue to use operating leases for any term length. Since ownership title does not pass to the lessee, the lease payment is considered an operating expense on the income statement, rather than a depreciating asset. In these situations, your capital budget remains unaffected. Furthermore, at the end of the term you can return the asset to the lessor, or there may be a “bargain purchase” option at the end.

For most cases, the above is true for customized test systems. For equipment that can be easily substituted (i.e. standardized chillers, sensors, etc.), a rental agreement structured similarly to an operating lease can be used. A major benefit of this structure is that the use, maintenance and support of the equipment can often be included in the agreement as a single payment. In that case, there would be no need to budget for unexpected repairs.

Next steps

Depending on the manufacturer and the nature of the equipment (standard product versus heavily customized), a leasing or renting option may be available. Usually, manufacturers utilize an affiliated leasing company or financial services provider to offer these options.

If you’re considering an ATA product, talk to our application engineers about leasing or renting. ATA Ensure™ test systems, ATA Horai™ fluid conditioning modules and ATA Aerify™ sensors are all eligible for lease or rental, depending on your situation. It may be a quick and affordable way to add testing capability to your organization, helping you grow your business without tying up valuable capital.

Don’t allow a budget to hand-cuff your scope. Try renting and/or leasing your next piece of test equipment.

Don’t allow a budget to hand-cuff your scope. Try renting and/or leasing your next piece of test equipment.

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