Steady sales carry manufacturers, dealers into 2020
Coming into 2019, expectations for heavy equipment purchasing were high and lead times were long, largely due to a substantial volumes of demand to end 2018.
While lead times are shortening, actual equipment purchases have not necessarily met rising expectations.
Still, the year hasn’t been anything to frown upon, either.
“The market has been steady and on par with 2018,” says Mark Strader, general manager of Bramco-MPS, the crushing and screening division of Bramco. “Nothing to get overly excited about and nothing to get depressed about.”
Dave Stewart, director of marketing at Columbus, Ohio-based Screen Machine, has a similar assessment of this year’s equipment market.
“[2019] hasn’t quite lived up to our expectations,” Stewart says. “It’s not like business has taken a nose dive, it’s just not where everybody hoped it would be.”
2019 headwinds
While 2019 equipment sales have been relatively on pace with last year, there isn’t one direct reason for the market plateau. Instead, there are a number of factors that have adversely impacted equipment sales this year.
“I think buyers – both dealers and end users – are being cautious with their purchases,” Stewart says. “They’ve seen prices go up, largely due to tariffs, and we’re all still waiting for an infrastructure bill to be passed.”
President Trump met with House Speaker Nancy Pelosi (D-California) and Senate Minority Leader Chuck Schumer (D-New York) in April to discuss a possible federal infrastructure bill. While the two sides collectively agreed to pursue a $2 trillion federal infrastructure deal, talks stalled when negotiating how exactly to pay for a package.
“I think if there was a bill in place, it would give people the confidence to purchase more equipment,” Strader says.
Michael Johnson, president and CEO of the National Stone, Sand & Gravel Association, wrote Trump in May, encouraging him to take the next steps to fund a meaningful federal infrastructure investment package. But there has been seemingly no progress on an infrastructure package in the months since.
“[Regarding] the infrastructure bill, the sources we’ve talked to [say] that probably is not going to happen until after the [2020 presidential] election,” Stewart says. “It’s sorely needed and would be a great boon for the heavy equipment business, but I think we’re still going to be waiting.”
Dampened weather has also had an adverse affect on the market this year. According to The Weather Channel, a climate report released in July by the National Oceanic & Atmospheric Administration says the Lower 48 states, as a whole, recorded their wettest first six months of a year dating to 1895.
“In our area, the weather has played a huge role in what’s going on,” says Strader, whose company covers a large geographic footprint in Indiana, Kentucky and Tennessee. “We have seen a lot of rain, which has put producers and contractors behind.”
In addition, 19 states saw a top 10 wettest January to June, further illustrating the challenges presented by weather this year.
“You hate to blame the weather, but this spring has been so wet,” Stewart says. “It’s been devastated by flooding and what not, and that has an impact on heavy equipment purchases and usage.”
Silver lining
As is the case in most situations, there are pluses and minuses to a slowed purchasing market. One benefit is it allows time for manufacturers to catch up on backlogs and shorten lead times.
According to Strader, lead times across the industry were pushed out to 18 to 20 weeks at certain points in 2018, compared to a typical 12- to 14-week wait period.
Fortunately for dealers and producers, that waiting period has shrunk throughout the course of the year.
“Lead times have improved over the last few months,” Strader says. “No one enjoys having to wait for something they need. That said, having manufacturers that meet their lead times is ultra-critical in today’s business world.”
Stewart concurs on the trend of improved lead times.
“Lead times are improving as the year progresses,” Stewart says. “Across the industry, inventory was low as the year began, mostly due to strong 2018 sales. The slow pace of 2019 has allowed manufacturers to build inventory and catch up with demand. Across the board, there will be plenty of machines available if the need arises.”
Rewards of renting
While overall equipment purchases this year are in line with 2018, equipment rentals have been and continue to be a growing trend in the marketplace.
“The rental market has been evolving over the last decade and I think that’s going to be a growing trend in the coming years,” Stewart says. “As long as you have a strong dealer network, rentals are actually a positive thing for those in the heavy equipment industry. By working through the dealer network, to us, we’re selling a machine either to a dealer or end user.”
The benefits of renting are plentiful and appeal to both dealers and producers.
“We have seen the rental side of the business as a popular choice with our customer base,” Strader says. “Renting is affordable and easy. I’m not saying there are no capital purchases, it’s just sometimes easier, quicker and more affordable to rent.”
Mike Tormey, owner of Liverpool, New York-based Emerald Equipment, has also seen an uptick in rentals this year.
“We find our rentals are probably as busy, if not busier, than normal,” Tormey says. “The rentals are ahead but the sales are on par with last year.”
Not all equipment rentals are made equal, though. Rentals tend to be segmented by market, Strader says.
“On the construction side of the business, we’re seeing mainly rent to rent with some RPO (rental with purchase options),” Strader says. “With aggregate producers, we see a bit more direct purchase.”
Looking ahead
As manufacturers forecast the remainder of 2019 and even look ahead to 2020, it’s clear there’s still a lot of dust yet to settle, making the future appear hazy.
“I think it’s a little uncertain, especially with the presidential election,” says Jeff High, sales manager at Cedarapids, looking ahead to 2020. “I’m not sure what to expect next year. We’re still hopeful and we think [sales are] going to be good.”
One positive sign on the horizon is the return of ConExpo-Con/Agg, the largest construction industry trade show in North America. The event, which takes place every three years, returns to Las Vegas in 2020, providing further reason for optimism.
“ConExpo almost always gives a pretty good lift to the industry,” Stewart says. “Hopefully that will counteract the typical result of an election year, the two will balance each other out and we’ll see the business on a steady rise.”
While Strader also sees encouraging signs for the months ahead, he admits he is cautiously optimistic for the remainder of this year and 2020.
“The economy remains strong,” Strader says. “Interest rates remain low. There appears to be adequate business out there to go around. The economy will continue to be steady for maybe the next year to year and a half, but history tells us the market is going to correct.