There is talk on the dealer side that a new era of equipment distribution will result from current market conditions. Expectations are that we will lose at least 20% of dealers serving the construction industry - maybe more. It is also probable that many who survive will be forced to sell out because they're unable to obtain the capital required to compete on a reasonable level. Add in the result of dealer consolidation in the auto industry - which is sure to carry over to construction equipment dealers - and you wind up with additional dealers leaving the market.
The remaining dealers will offer up state-of-the-art services to their customers and, in turn, cut their costs as part of the process, which is exciting. But for now, contractors needing equipment should be proactive while the equipment situation takes it course.
Opportunities in used equipment
From the contractors' viewpoint, there will be some real deals on new equipment, and maybe even some reasonable financing to go with it. The real deals, however, will be in the used equipment market, since there seems to be an abundance of equipment out there selling at substantial discounts from where they were 18 months ago.
Used equipment deals, which were usually comprised of 5-year-old units, now contain more late-model machines. Dealers are discounting to get rid of old inventory, and there are many attractive units available through the auction process. Since many of the units showing up on the auction block are being placed there by rental companies, now is the time to assess that market by going direct to the rental companies when you need equipment.
Rental companies offer many advantages when it comes to used equipment. They enable you to rent the equipment and try it out before making an offer on the unit. They offer rent-to-sell contracts to those interested in that type of program. They can supply full maintenance records on the units you're interested in purchasing. And, most importantly, they are the most motivated sellers in the market at this time.
Rental companies have massive fixed commitments to banks. They need all the cash flow they can generate by selling equipment that is "in the money" - usually units that are more than three years old.
Rental companies will also have financing sources for potential buyers. Since this financing is not captive in nature, in most cases it will be true retail financing, meaning the buyer will have to qualify for a loan. But when the unit being purchased is highly discounted, it can help with the financing process.
Take advantage of long-term rental
Those not able to secure a standard retail loan to buy equipment should consider a long-term rental contract, with some type of arrangement to service the unit. A long-term rental should come with attractive rental rates that should be close to the cost of financing the unit. The older the unit, the more attractive this type of transaction will be to the rental company.
For the contractor, this is a win-win situation. You get a well-maintained unit and have the ability to try it out - all while avoiding today's financing headaches.
These are unusual times and we all have to be creative when it comes to making a dollar. Everybody is looking for ways to make a deal. Put on your thinking cap and see if you get any takers.
Garry Bartecki is the managing member of GB Financial Services LLP and VP Finance for the Associated Equipment Distributors. He can be reached at (708) 347-9109 or firstname.lastname@example.org.