Western Railroad Discussion > Locomotive Price Tags

I hear a lot about the difference in price between a new DC unit and a new AC unit, but haven't seen the actual prices of each. Average new prices would be sufficient. Anybody know what a new ES44DC and ED44AC go for on average? Same for a 70M-2 vs. an ACE.

Appreciate any info!

--Steve Schmollinger

schmo Wrote:
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> I hear a lot about the difference in price between
> a new DC unit and a new AC unit, but haven't seen
> the actual prices of each. Average new prices
> would be sufficient. Anybody know what a new
> ES44DC and ED44AC go for on average? Same for a
> 70M-2 vs. an ACE.
>
> Appreciate any info!
>
> --Steve Schmollinger


KCS disclosed price tags for ACs in its 2006 announcement of 2007 locomotive deliveries:

"On August 23, 2006, KCSR entered into an agreement with Electro-
Motive Diesel, Inc. to acquire 30 locomotives to be delivered to KCSR
from June 2007 through September 2007 at an aggregate cost of
approximately $61.4 million. On August 14, 2006, KCSM entered into an
agreement with General Electric Company to acquire 30 locomotives to
be delivered to KCSM in December 2006 and January 2007 at an
aggregate cost of approximately $63.7 million. We intend to finance
these locomotives through equipment lease financing consistent with
past practice."

So, ACs cost slightly more than $2 million apiece. From my sources in industry, DCs cost about $1.25-$1.4 million apiece.

BobE

Thanx Bob!

Depending on the type of lease the cost would not necessarily be the same as an outright purchase.

BobE Wrote:
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> So, ACs cost slightly more than $2 million apiece.
> From my sources in industry, DCs cost about
> $1.25-$1.4 million apiece.

The price for the DCs is too low. That was about the price range prior to Tier 2 emission requirements. The prices went up significantly with the added equipment to comply.

run8 Wrote:
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> BobE Wrote:
> --------------------------------------------------
> -----
>
> > So, ACs cost slightly more than $2 million
> apiece.
> > From my sources in industry, DCs cost about
> > $1.25-$1.4 million apiece.
>
> The price for the DCs is too low. That was about
> the price range prior to Tier 2 emission
> requirements. The prices went up significantly
> with the added equipment to comply.


So why didn't AC prices go up, too? They've been $2 million give or take a fraction for years. Just curious.

BobE

wabash2800 Wrote:
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> Depending on the type of lease the cost would not
> necessarily be the same as an outright purchase.

Would that be a "net" vs. a "full service" lease?

Steve, depends on the builder. The level of warranty support varies between GE and EMD with GE
essentially "owning" the locomotive during the initial warranty period.

schmo Wrote:
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> wabash2800 Wrote:
> --------------------------------------------------
> -----
> > Depending on the type of lease the cost would
> not
> > necessarily be the same as an outright
> purchase.
>
> Would that be a "net" vs. a "full service" lease?


The leasing company has to buy the locomotive from the manufacturer. The terms of the lease to the end-using railroad wouldn't affect that. Even if GE Capital is the lessor, they have to pay GETS something to acquire the lokie in the first place. Gotta make sure the right people get paid/earn bonuses for the right work.

BobE

BobE Wrote:
> The leasing company has to buy the locomotive from
> the manufacturer. The terms of the lease to the
> end-using railroad wouldn't affect that. Even if
> GE Capital is the lessor, they have to pay GETS
> something to acquire the lokie in the first place.
> Gotta make sure the right people get paid/earn
> bonuses for the right work.
>
> BobE

Understood. I was looking at it from the perspective of the leasing RR, with the "price" being the rental rate. But you're right, the initial purchase price wouldn't change no matter who buys it--at least in theory.

BobE Wrote:
-------------------------------------------------------
> run8 Wrote:
> -------------------------------------------------------
> > BobE Wrote:
> -------------------------------------------------------
> >
> > > So, ACs cost slightly more than $2 million apiece.
> > > From my sources in industry, DCs cost about
> > > $1.25-$1.4 million apiece.
> >
> > The price for the DCs is too low. That was about
> > the price range prior to Tier 2 emission
> > requirements. The prices went up significantly
> > with the added equipment to comply.
>
> So why didn't AC prices go up, too? They've been
> $2 million give or take a fraction for years.
> Just curious.

The prices for AC locomotives went up about the same amount as the DC locomotives with the compliance with Tier 2. The price gap between the two remained about the same. Prior to Tier 2, AC locomotives were significantly below $2 million.

run8 Wrote:
-------------------------------------------------------
> BobE Wrote:
> --------------------------------------------------
> -----
> > run8 Wrote:
> >
> --------------------------------------------------
> -----
> > > BobE Wrote:
> >
> --------------------------------------------------
> -----
> > >
> > > > So, ACs cost slightly more than $2 million
> apiece.
> > > > From my sources in industry, DCs cost
> about
> > > > $1.25-$1.4 million apiece.
> > >
> > > The price for the DCs is too low. That was
> about
> > > the price range prior to Tier 2 emission
> > > requirements. The prices went up
> significantly
> > > with the added equipment to comply.
> >
> > So why didn't AC prices go up, too? They've
> been
> > $2 million give or take a fraction for years.
> > Just curious.
>
> The prices for AC locomotives went up about the
> same amount as the DC locomotives with the
> compliance with Tier 2. The price gap between the
> two remained about the same. Prior to Tier 2, AC
> locomotives were significantly below $2 million.

So what would you say is the average premium of AC over DC locomotives? About $600k to $800k?

schmo Wrote:
>
> So what would you say is the average premium of AC
> over DC locomotives? About $600k to $800k?

No, much less. In the range of $300 to $500K.

run8 Wrote:
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> schmo Wrote:
> >
> > So what would you say is the average premium of
> AC
> > over DC locomotives? About $600k to $800k?
>
> No, much less. In the range of $300 to $500K.

Wow, that seems a bit skimpy of a difference to cause RRs like NS and CN to shy away from them. One would think that over the loco's life cycle, the savings in maintenance and repair costs of an AC vs. a DC loco would at least make up the difference in initial purchase price. Am I off-base?

schmo Wrote:
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> Wow, that seems a bit skimpy of a difference to
> cause RRs like NS and CN to shy away from them.
> One would think that over the loco's life cycle,
> the savings in maintenance and repair costs of an
> AC vs. a DC loco would at least make up the
> difference in initial purchase price. Am I
> off-base?

In the first place, the difference in maintenance cost is a minor part of the overall savings.

The biggest benefit comes from being able to use fewer AC locomotives on trains than their DC counterparts. BN, as an example, went from 5 SD-40s on coal trains to only three AC locomotives on those same trains. It would take 4 newer DC locomotives to pull the trains, if AC weren't being used. That means fewer locomotives to purchase, fewer locomotives to maintain, and where trains are constrained to a certain length, like because of the length of a loadout loop, you can put additional cars on the train in place of the locomotives. All of that taken together is where the real economics comes from.

A railroad like CN is so flat that they can pull pretty well any train up the ruling grades with only two locomotives. With that kind of operation, they would therefore essentially have to buy the same number of locomotives of either type, so with AC, they would spend more money on the initial price of the locomotives with little savings to recover that investment.

One other thing to keep in mind is how a discounted cash flow works when doing the evaluation economics. The investment is taken at full value, but any savings that come about in future years are discounted based on an assumed interest rate for borrowing money. Thus, if you might save say $50,000 in fuel each year with a new locomotive, then you would only credit about $48,000 in the first year, at a 10 percent interest rate, and less and less each year until you only credit about $20,000 in year 10 and $12,000 in year 15. The savings that come about in the future are not worth as much to you as the money you have to put down at the start.

What all that means is that savings that pay back over time have far less influence on a purchase decision than the amount of money you have to put down at the start to make the initial purchase. That is why the difference in initial price is more important than a small amount of long term savings.

run8 Wrote:
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> One other thing to keep in mind is how a
> discounted cash flow works when doing the
> evaluation economics. The investment is taken at
> full value, but any savings that come about in
> future years are discounted based on an assumed
> interest rate for borrowing money. Thus, if you
> might save say $50,000 in fuel each year with a
> new locomotive, then you would only credit about
> $48,000 in the first year, at a 10 percent
> interest rate, and less and less each year until
> you only credit about $20,000 in year 10 and
> $12,000 in year 15. The savings that come about
> in the future are not worth as much to you as the
> money you have to put down at the start.
>
Just a nit-pick. The discount rate right now isn't very high, so the npv stream wouldn't lose much size relatively speaking over time. Yes, it would diminish somewhat over time whereas the initial purchase price would not, but nowhere as near as much as in the era following the OPEC oil shocks when we had double-digit interest rates.

schmo Wrote:
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> Just a nit-pick. The discount rate right now isn't
> very high, so the npv stream wouldn't lose much
> size relatively speaking over time. Yes, it would
> diminish somewhat over time whereas the initial
> purchase price would not, but nowhere as near as
> much as in the era following the OPEC oil shocks
> when we had double-digit interest rates.

Certainly in the time of high inflation of the early 1980s interest rates were quite high, driving investments toward things that gave fast returns. However, even today, the railroads' cost of capital is in the range of 10 or 11 percent, according to the STB, which will mean significant discounts over the life of the locomotive.

Different railroads also use different discount rates depending on capital availability. Some consider locomotive replacement as a basic part of doing business, and use the straight cost of capital. Others consider locomotive replacement as elective, and consider the investment along with other types of projects. They might also use a higher discount rate to give advantage to projects that give a faster return on elective investment. That works to the disadvantage of locomotive fleets, which tend to be longer term investments.

It's been said that AC traction adds about 1 Million$ to the price of a new locomotive. But that figure may be outdated now since AC traction is so popular. Since more railroads are buying AC traction gear, and less DC. The cost of the electrical systems may be much closer these days.

Ted Curphey
Ontario, OR

run8 Wrote:
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> Others consider locomotive replacement as
> elective, and consider the investment along with
> other types of projects.

Just out of curiosity, who does this?

Waybiller Wrote:
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> run8 Wrote:
> --------------------------------------------------
> -----
> > Others consider locomotive replacement as
> > elective, and consider the investment along
> with
> > other types of projects.
>
> Just out of curiosity, who does this?


Hmmm....if I had to guess...