"I had always hoped that the acquisition costs for CEREC hardware and software could come down, so that CEREC would become a more easily affordable standard equipment for every young dentist. So far, this has not happened, much to my disappointment."
- Dr. Werner Mörmann (inventor of CEREC)
Welcome
I'm happy you found your way to the CAD/CAM HERO blog and my inaugural post! My name is Jhuri Lamica, I'll be your CAD/CAM HERO- hopefully until 2052 or so. I look forward to sharing this journey with you as we navigate the past, present and future of the used CEREC marketplace. I anticipate filling these virtual pages with advice, guidelines, how-tos and market analysis in my quest to create the world's premier used CEREC resource. Before this current endeavor, I served as Vice President of what was heretofore the world's only used CEREC specialty dealer. For more on my background, I invite you to visit my website www.cadcamhero.com and read my About Me page. Without further ado, let's get to the feature presentation.
The Numbers
Out of more than 40,000 CEREC systems sold throughout the world, 14,000 are in the hands of American dentists. These individuals are part of an elite group that make up less than 7% of the active U.S. dentist population. With a current retail price that would rival the average mortgage debt in America, it is not difficult to understand why so few dentists employ new CERECs in their practices- they can't afford it! What's curious is that 14,000 dentists allegedly can...or can they?
Dr. Martin Abel wrote that the average annual revenue generated by a general practice is $525,000 with $350,000 in overhead (not including the dentist's salary). These figures corroborate data reported by U.S. News & World Report stating that an American dentist earned an average annual income of $164,570- almost precisely the total of all payments on a financed CEREC. One must also consider that the average dental student graduates with $241,097 in student loan debt and can expect to spend around $500,000 to start their own practice. Dr. Michael Schuster opined in a piece titled, "Tied to the chair," that today's dentist will be saddled with student loan and start-up debt until age 45 or older. So after spending 8-12 years going to school to obtain the necessary degrees and licensure, young dentists can expect to spend the next 15-20 years working to pay their creditors instead of building wealth. It is no surprise then that Dr. Schuster concludes his article by stating 90 percent of all dentists will still be "tied to the chair" by age 50-60 after having generated little wealth relative to their annual incomes.
After reading this, it's hard to imagine any dentist jumping at the opportunity to take on more debt in the name of CEREC, let alone 14,000; yet they do in droves and some will even re-up with the latest releases in the technology before they've had a chance to pay off their current system. I suspect the condition of "Doctoritis" has infected some within the CEREC ranks; this is known as the "inflammation of a doctor's ego which leads to overspending, poor financial decisions, and ultimately, wealth destruction." I've personally heard dentists refer to the Omnicam as a fun new "toy", themselves as a "techie" and act like ordering their new CEREC is the equivalent of Christmas coming early. Well, you know what they say about Christmas: "'Tis the season when you buy this year's gifts with next year's money".
An investment in CEREC should be viewed for what it is: a significant capital expenditure on a strategic business asset in which return on investment and benefit to the patient, not emotion, are the motivating factors. CEREC has clearly demonstrated its benefit to the patient through the convenience of a single visit and aesthetically pleasing, yet durable restorations. But can the cost be justified? Is there a happy medium? How can millennial dentists mired in debt and established dentists who refused to bet the farm provide the benefit of CEREC technology without going broke? The answer to these questions is simple- buy used.
Benefits of Buying Used
Have you ever heard the statistic that your car loses at least 10% of its value the moment you drive it off the lot? It doesn't stop there- your vehicle is only worth about 37% of its original price tag after five years. How is this relevant? Both cars and CERECs share the unfortunate distinction of being depreciating assets; in fact, CERECs tend to lose their resale value faster and more dramatically than cars. That 2010 Bluecam and MC XL duo that sold for more than $120,000 (pre-tax) five years ago is worth about $40,000 on the used market if it was used less than 10 times per month. Does it have a factory warranty? No. Can you get service and/or join the service club? If it's a US model unit that didn't leak out into the market from a trade-in program and you have a Change in Ownership form, yes. Will it have scuff marks, scratches or other minor cosmetic imperfections? Probably. Is it riskier than buying a new unit from Patterson? Well, if you do your due diligence by calling Sirona with the serial number to find out where it came from and its serviceability, vet the seller to make sure it's not some Turkish Internet scam and ask all the right questions to eliminate any surprises, I'd say it's less risky than personally guaranteeing a $145,000 loan.
As is the case with taking on debt to purchase any depreciating asset, you run the risk of losing the benefit of the item, but keeping the debt. New cars get totaled, new CERECs sometimes go unused and then abandoned in the storage closet. Don't believe me? Just thumb through the dentaltown classifieds or look on eBay. Those same dentists who expected to perform 35-50 restorations a month often did less than that on an annual basis. I'll list just a few of the reasons I've heard a dentist say they want to sell their lightly used CEREC:
1. I'm too busy.
2. My assistant who knew how to use it left (for more money elsewhere).
3. My associate who used it left.
4. I couldn't find a place for it in my practice.
5. I couldn't get the results I wanted.
6. I can't keep up with the changes.
7. The practice I purchased came with a CEREC and I have no use for it (read: I want to pay down my mountain of debt!).
Just like when you buy that cute (and expensive) Teacup Poodle at the pet shop and promise to love and care for it forever and ever. Someday when the cuteness effects wear off, the frustration from its refusal to potty train, constant barking and tearing up your expensive furniture and favorite shoes gets to you; then the next thing you know you find yourself at the SPCA giving it up for adoption because you've finally decided it wasn't worth keeping anymore. It's sad, but it happens. If you haven't noticed, all 7 of those examples represent a lack of personal commitment to being a CEREC user. That's okay. It's not for everybody; but until you are 110% sure that you will own and use the heck out of that CEREC for at least 10 years, do yourself (and your wallet) a favor and buy a used system instead. That way, if it doesn't work out after a few months, a year or even a few years, you can resell the system and recoup most of your money back once it's past its peak depreciating years.
To Trade or Not to Trade?
If you think the effects of depreciation are offset by trading up to a new system at every upgrade opportunity utilizing Sirona's ludicrous trade-up programs- think again. For the uninitiated, these trade-up programs offer three to four times market value in trade-up credit for your old equipment as part of their effort to push new CEREC sales. First of all, you probably paid $54,000 for your Bluecam acquisition system and now Sirona says they only want another $40,000 from you to upgrade to an Omnicam. You are not saving $25,000 on an Omnicam, you lost $29,000 in depreciation on your Bluecam and rather than licking your wounds you are coming back for more! If you want to save $25,000 on an Omnicam, go on eBay and buy a 2013 Omnicam for $40,000, then sell your Bluecam for $10,000. Five minutes of research on Sirona and Patterson's investor relations pages will reveal just how important these trade-up programs are to their financial success; translation: they make more money when you trade, not less.
If you've ever wondered why there aren't more used CERECs for sale, it's because Sirona acquires thousands of 5-10 year old systems every year (many of them still working) through these trade-in programs and ship them to companies to be scrapped. Wait...what!? You read that right, rather than sell these old units that were sold for $100,000-$130,000 once upon a time to the remaining 98% of the world whom can't afford new CERECs, Sirona throws them in the recycling heap never to be seen again. You see, keeping used CERECs off the street is critical to Sirona and Patterson's business model: to make sure you're using the latest and most expensive CEREC system possible and forever making payments to Patterson Financial Services, all the while promoting the elitist culture of CEREC and hiding their product's horrendous depreciation rates. Despite those efforts, there are still many quality used CEREC systems available from dentists jumping ship and moving on from CEREC entirely- most in good working condition; many with less than 500 mills; and even some with warranty remaining.
What about the tax benefits of buying new?
In previous years, the maximum Section 179 expense deduction was $500,000. As of this writing, the 2015 limit is only $25,000 and there's no guarantee the previous limit will be restored by Congress. Also, there is no 50% bonus appreciation on new equipment in 2015 either. Since the Section 179 deduction applies to both new and used equipment and there is no bonus favoring new, you would benefit more from writing off a larger percentage of a less expensive used CEREC. It doesn't make sense to spend $145,000 (+ $20,000 in interest) to save $25,000. If using the regular depreciation method, you can deduct 1/5 the cost of both used and new CERECs every year until fully depreciated. If you purchased a new CEREC for $145,000 and realized $29,000 in tax savings year 1, your net worth would still have dropped $36,000 because the street value of that CEREC after a year is no more than $80,000. In the end, I just don't see a justifiable tax motive for buying a new CEREC vs. used. Even if there were, trading 5 years of indebtedness for 1 year of tax relief seems a bit short-sighted to me.
Conclusion
Throughout parts of this blog it may seem like I am anti-Sirona or anti-CEREC, but really I am pro-CEREC, anti-debt and support sound financial decisions. I've read the economic debate regarding CEREC vs. the Lab and I believe that the solution of buying a used CEREC is the nuclear bomb to end all arguments (at least from a financial standpoint). If you commit to this technology it will reward you over and over again and to the nth degree if you buy used. That is not to say that all used CERECs out there are created equal; you will have to sort the gems from the junk, but the reward is entirely worth the effort. When it comes down to it, you can choose whether you want to be on the paying (new) or saving (used) end of the equation. Some people must have everything new- new cars every 5 years, new phones every 8 months and new debt to go along with it. If you are reading this article, I am willing to bet that you are not one of those people. If you are one of those people, perhaps I have persuaded you to reconsider that mentality...at least when it comes to a product with this many zeroes on the price tag.
What questions do you have? Visit CADCAMHERO.com or call (844) DTL-HERO. Be sure to look out for my next blog, in which I show you how to evaluate a used CEREC system.
Thanks for reading,
Jhuri Lamica
CADCAMHERO.com