I was just wondering how the depreciation in value on a locomotive compares with the depreciaition on an automobile.
No comparison…
LC
if you can find a bluebook on locomotives…let me know… i do know that they do drop in value the older they get…
csx engineer
The used locomotive market is volitile and a great example of supply and demand.
You could have 6 GP-38s you just bought at $100,000 a unit and torrmorrow they are worth $38,000 a unit and 6 weeks from now they are at $120,000 a unit.[xx(]
The depreciation is more linear than an auto. There is a “new” premium in the value of an auto - it’s value drops a couple thousand as soon as you drive it off the lot. This doesn’t exist for locos.
The railroads carry a residual value based upon depreciation on their books. It is a mathematical value which has little relation to the market value of the locomotive at that time. Think of it sort of like leasing an automobile. When the lease is up there is a contractual buy out price. It may be higher or lower than what the market value for the vehicle is. The railroads use the number on the books to determine what happens if the locomotive is damaged on another road. If the cost of repairs exceeds the book value of the locomotive the road that damaged it can just buy it from the other road. The BN did that to a UP SD40-2 at one time and then rebuilt it for use as a BN unit. Given the used locomotive market at the time it was a bargain for them.
that might apply for tax reasons on the actual railroads…but the price of used locomotives is as someone said already… is driven by supply and demand…and thier are companys out thier that will buy and sell surpluse locomotives…and parts… such as LTE…then the railroads fell that the locomotives have outlived thier usefullness …it could be that the costs to keep them running isnt worth it (maintinance costs)…or they bought brand new/or rebuild used power to replace older units…the older units are sold off to who ever wants them…and a asking price…
check out this websight…
http://www.railroadtrader.com/locomotive.html
and as you can see…the used locomotive market is just like the used car market
csx engineer
csxengr98:
The question was depreciation of the locomotive value, not the resale value. I believe he was talking the accounting value of the locomotives not the scrap or parts value. I do not believe the RRs will ‘adjust’ the book value of their locomotive inventory based on recent used locomotive sales. That is probably not allowed by AAR accounting practices nor Generally Accepted Accouting Practices.
what do you think resale value is…depreciation… your not going to get what you pay for it when you deside to get ride of it… what might have cost the railroad 2 million dollors 30 years ago to buy a unit new,may only cost 50k today on the used market… regardless of what accounting or mathamatical system they use for the books in acounting for net worth of accets… the price of the used locomotive market will help in detreming what the unit is worth today …
csx engineer
Resale value and book value are not necessarily the same thing. The depreciated value the railroad carries on it’s books is an estimate of the remaining value of the unit but probably will not equal the value received upon sale due to a number of factors. The depreciated value carried on the books is based upon accounting principles and past history, the market value of the unit is based upon market conditions and is not carried on the books of the railroad. It will not be known until the actual sale while the book value of the asset is always known based upon the accounting method used to peg it. Two different concepts related but not dependent upon one another.
If your depreciation schedule is flawless then the two values will be equal. That is extremely rare.
For accounting and tax purposes, the economic life of a locomotive is pegged at 15 years. A lcoomotive is considered fully depreciated at that point. For anybody who has taken an introductory accounting course, you will know that there are three different methods of calculating depreciation, which are used to determine the book value of a locomotive anytime from delivery date to Year 15.
I know 2 methods of depreciation. One is by life utility (linear method), and another one per hours or kilometers on service. Sincerely I do not remember a third. do They know companies railway that depreciate their locomotives per hours or kilometers on service?
They could give the names me of these companies?
Then I should be able to pick up that little SD40/2 for a song…
At the end of the first fifteen years of diesels,many Baldwin and Fairbanks Morse units had been kept in dead storage for 5 to 10 years because they were quickly deemed unsuitable for furthur service.Many EMD Es,Fs,GP and SD units were still in service,some for many more years.Some ALCOs continued in service,but most,especially those with 244 prime movers were retired at that time.
I remember back in the mid-90’s or so, TRAINS did a story about how railroads buy used locomotives. Gave a good explanation to what you posted - how today a loco could be $100,000 but come tomrrow the price could be greatly higher or lower. Was a good article.
Good thread!
One thing I remember back in the late 80s was that either Amtrak or NJDot were selling off GG1s. Some units were going for as little as $5000! But that was understandable as these girls were leaking PCP from their transformers, frames were cracking, and rebuilding costs were high. Just transporting the units would have been very costly for the average joe.
Though, I would have loved to park one in the backyard of my first house!
Unfortunately the only people allowed to buy G’s were museums. they were not sold to the general public. I suspect that the bulk of today’s mainline locos will be scrapped when the fifteen years are up. They have too much horsepower and compexity for shortline usage. If not rebuilt by the class ones they will wind up in a scrapyard somewhere being cut up just like the DD-40’s and U50B’s.