Plan Now for Future Fleet Needs

Now may be time to consider replacing older construction equipment before acquisition costs start to sharply increase.

With CONEXPO-CON/AGG 2011 — one the world’s largest construction trade shows — being held this month, my thoughts naturally turned to the equipment selection and purchasing process. Although the construction market remains depressed, there are glimmers of hope that signal it may be time to start evaluating your fleet’s ability to meet your company’s long-term needs.

Given the severe reduction in construction activity, and a lack of available financing, many contractors have been forced to extend equipment replacement cycles, resulting in an aging fleet with increasing service needs. This works in the short term, but can be self-defeating over time.

Let’s face it — older machines cost more to operate and maintain, and generally under-perform newer models on the jobsite. Add to this the expanding environmental restrictions being placed on late-model equipment across the country, and you may find holding onto older units is more expensive than replacing them with new, or newer, models.

There are other factors to consider, as well. Low interest rates won’t last forever. And the price of equipment today is about as low as you’re likely to see for the foreseeable future.

According to Manfredi & Associates, U.S. construction machinery retail sales climbed 21% in 2010 vs. 2009, and expectations are for a further 14% increase in sales for 2011. The Association of Equipment Manufacturers’ (AEM) Annual Construction Equipment Manufacturing Outlook predicts similar increases for 2012 and 2013.

Global demand is further driving up sales volumes. According to the AEM, construction machinery exports leapt 28% in 2010. Exports are likely to gain further strength as the global economy accelerates its rebound.

Admittedly, the hike in construction equipment unit sales comes on the heel of a more than 38% decline in 2009. Even so, the sales trend is upward, along with the trend in equipment pricing.

Given the extensive draw down of dealers’ equipment inventories over the past 24 months, plus the time required to ramp up production, it’s likely you will begin to see:

• price increases and/or extended lead times for new equipment;

• a rise in used equipment prices;

• and an increase in rental rates due to increased demand for machines.

All of this adds up to higher acquisition costs for equipment in the coming months. That’s why the timing of CONEXPO-CON/AGG is more important than ever. Whether you plan to attend the show or not, some very exciting new product launches are planned, and it’s worth paying attention to what’s available. Given the tax incentives offered for equipment purchases, continued low interest rates and loosening credit constraints, ask yourself, “Is now the time to upgrade my equipment fleet?” You might just be surprised by your answer.