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Reviewing New EPA Rules for Heavy Equipment

by: Smith and Howard

November 4, 2014

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If you are in the market of heavy construction equipment, get ready for big changes come January 1, 2015. The Environmental Protection Agency (EPA) is rolling out their latest set of rules in an effort to reduce greenhouse gases. The new rules revolve around how much pollution can be emitted from large diesel engines used in varying types of construction-site equipment.

Heavy equipment makers will have to develop new fuel-saving and low-emission engines. These new engines may require different maintenance, new parts and reformulated lubricants and fluids. With all of the new changes, resale value in secondary markets may be affected. 

Under the hood

Prompted by new federal clean air laws, the EPA began its phased approach to reducing greenhouse gases in the late 1990s. Its first set of new requirements, Tier 1, put in place new small engine emissions standards in 1998. For the next decade, the EPA gradually rolled out the mandate — Tiers 2 and 3 — to include larger and larger nonpassenger vehicle engines.

Tier 4 is the last stage of the EPA’s attempt to limit the amount of particulate matter and nitrogen oxide from vehicle emissions. Overall, advances by manufacturers were achieved through substantial engine redesign, the use of innovative materials, and new engine filters and catalytic conversion technology.

These cleaner-burning, more efficient engines are often larger than the models they’re replacing. New Tier 4–compliant equipment also is expected to be roughly 8% more expensive than current models, according to Caterpillar. The heavy equipment maker also estimates that the new motors increase fuel efficiency by 5%.

Aftermarket sales

It’s too soon to know for sure, but an unintended consequence of the EPA’s gradual introduction of more energy-efficient nonroad engines may be that you’ll get less than you expect on a trade-in for Tier 4–compliant equipment. Used construction-site generators, earth movers, backhoes and other large diesel-powered heavy equipment are traditionally bought and sold on a global market, which may now be threatened by the new, mandated technology in the United States.

Here’s why: Used heavy equipment from the United States is frequently sold overseas in less regulated markets where construction companies can’t pay the full price for the latest models. But, in addition to new oil formulations and servicing requirements, Tier 4 equipment also requires a special-blend diesel fuel that may not be readily available in other countries.

For construction owners looking to bypass the uncertainty of Tier 4–related aftermarket pricing, buying older, rebuilt and retrofitted heavy equipment is one possibility. Frequently sold by qualified dealers and independent third parties, such investments may make sense until global prices stabilize in the coming decade for the new generation of heavy equipment. 

Wise investments

If you’ll soon be in the market for heavy equipment, be advised that the look, feel and “resellability” of those assets may not be what you’re expecting. Contact Debbie Torrance, Marvin Willis or Paul Atkinson with your concerns about these latest EPA rules and the wisest ways to invest in new construction equipment at 404-874-6244.

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If you have any questions and would like to connect with a team member please call 404-874-6244 or contact an advisor below.

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