SIDEBAR: The Excess Inventory/Obsolete Equipment Equation
With new Energy Independence and Security Act of 2007 (EISA) efficiency standards, a new era of electric motor manufacturing will dawn in December. However, the curtain won’t necessarily fall immediately on the use of older, less efficient motors. The fact that motor users will still be able to use and acquire older motors is good news for companies that refurbish, repair, and resell used and surplus equipment. Yet such companies are likely to find that both supply and demand realities essential to their business models will indeed change.
Jay Romanoff, president of Romanoff Industries, Inc., Toledo, Ohio, says that over time, EISA will surely have the effect of ramping up production of costlier, higher efficiency motors and prompting many users to make the switch to brand new products that meet the new standards. But he mostly worries about the impact that a proposed federal rebate program on such purchases will have on distorting the market for used motors and, in turn, the viability of his used/remanufactured/reconditioned electric motor reselling business.
Senate legislation that would not only give purchasers of new higher efficiency motors a rebate, but also pay to have motors that they replace scrapped, could reduce the stock of motors that still have value.
“This idea of putting a bounty on older, less efficient motors is a direct threat to my business,” Romanoff says. “If the scrap value of older motors rises beyond the price that they can be sold for on the used market, fewer will be available for the reselling market.”
That’s a market that has stayed strong, even as previous rounds of efficiency mandates have taken root, Romanoff says. For many consumers, used motors, even if they’re comparatively inefficient, still make economic sense because they’re cheaper and easily swappable. If more used motors are taken out of service permanently, buyers will see less supply and higher prices of used equipment, he argues.
EISA, especially if it’s buttressed by purchase rebates and a “crush for credit” provision, will probably mean his business will be steadily more geared to sales of new motors in the future, Romanoff says. Nevertheless, another used motor company owner, Dave Rosenfield, sees the demand for older motors of varying efficiencies possibly staying strong, particularly in applications not covered by EISA.
“Many of the inquiries we get are for replacement applications that can’t be satisfied by what manufacturers are making today, products that are on obsolete frames, for instance,” says Rosenfield, the president of Romac Supply Co., Inc., Los Angeles. “We work to carefully match products to their individual needs, and, if higher efficiency product is available, we’ll get it.”
But Rosenfield does see a steady move to higher efficiency motors. As that definition changes, affecting licensed/inspected applications, the market for some aging used motors may well wither.
While it may be a positive development to ease aging, energy-hogging motors out, Romanoff questions the net effect of EISA, particularly the rebate scheme. By artificially inflating the market for new motors, policymakers could even be undercutting EISA’s intent by setting the stage for more energy usage and global warming. There’s no assurance new motors will actually replace older motors or that older ones will, in fact, be taken out of service.
“Many of these scrapped motors may well find their way back to countries where there are no motor standards,” he says. “And we also may be overlooking the fact that building new motors may require more energy than repairing and recycling older motors.”