Last month I discussed the state of the equipment markets and received emails in return questioning my sanity. Most of those comments were from equipment dealers who can’t give anything away. Other dealers agreed that equipment availability was tight and even non-existent. Contractors and rental companies were also on both sides of the fence, with a trend toward a lack of good used equipment.
So the question seems to be, “Who’s buying and where are they?” Since I spend the bulk of my time in the equipment business, I started talking to equipment reps, bankers, finance companies, rental companies and contractors to get their input on this question.
Interesting industry perspectives
The manufacturers were scheduled to sell whatever they produced this year. They shortened up their U.S. production with an opportunity to ship equipment around the world. From what I can tell, that plan is falling into place, at least until Europe blows up and they wind up with curtailed global demand.
I spoke to one dealer who received a crane order (in August) and was told to expect delivery in January (maybe). I have heard similar stories about other manufacturers, as well. I suppose if you only produce for delivery in the U.S., you cut back your production because you expected lower demand for the product in 2011.
Bankers indicate that contractors are only buying what they really, really need, with some in hot areas getting back to a more normal equipment replacement cycle. The banks and finance companies are looking for retail deals financing contractor purchases, and it is a buyers’ market as far as financing is concerned.
I have even come across various banks that are actually chasing contractor business. In case you missed that — they want to finance your contracting operation. I could barely believe my ears when they said this. They are beating up the dealers and rental companies, and at the same time are interested in loaning to the construction industry. Admittedly, they are looking at the larger companies that have demonstrated they know how to run their business through a recession, but hey, it’s a start in the right direction for the industry.
Rental companies are still very busy working out of their 2009-2010 blues, and may find themselves short of equipment because they had to sell off their fleets to generate cash to meet debt service requirements. They sold off units and have to buy them back 12 months later — sometimes, you just can’t win. As a result of equipment shortages, rental rates are up and are not expected to come down anytime soon. And don’t expect to get used units from rental companies. In most cases, they have none to spare unless it is the under-utilized units associated with residential construction.
What lies ahead
The contractors I come in contact with are busy until the end of the year. When I ask about 2012, I get a shrug without any definitive explanation. In short, they are not sure about 2012 as of today, and hope they will fill their time like they did this year. On the other hand, there are areas where people are very busy and expect to be next year, as well. Energy seems to be the key — where there is work on energy projects, the contractors and dealers are busy buying and selling equipment.
What it all boils down to is there are hot spots where it is business as usual, and there are depressed regions where not much is going on. And if I had to guess, there are less of the former and more of the latter.
As far as the U.S. economy is concerned, I don’t see much changing in the near future. As a result (and I confess my position will help keep things slow), I would proceed with extreme caution before taking on any financing commitments unless it is for equipment you really need. If you happen to be in a hot spot, my position is not much different. Prepare a plan and stick to it; by plan, I mean a budget and cash flow that is achievable.
In a nutshell:
• If you need the 100% Bonus Depreciation Benefit, better get that order in now. It has to be in the dirt by December 31, 2011.
• There are more soft spots than hot spots. If you find yourself in a soft spot, “caution” is the word of the day. Do what you have to do to survive.
• Start planning for 2012.
Since the question of who is buying and when keeps coming up, I would like contractors to take a second to send me an email that addresses if you plan to buy equipment yet in 2011, and if you plan to buy equipment in 2012. (It can be a simple yes or no for each.) Include what state you are in and the type of construction you perform. I know it’s not very scientific, but it may shed some light on the question if enough of you reply. Send it to firstname.lastname@example.org.