What Dealers Say About 2004Written By Pam Gruebnau
Article Date: 08-01-2004
Copyright (C) 2004 Associated Equipment Distributors. All Rights Reserved.
In some regions, business is exploding while others are recovering more slowly. Overall, the outlook is cautious optimism.
Nationwide, the job market is improving, GDP is up and interest rates continue low, but a region-by-region look reveals some regions recovering faster than others. The one bright spot for all regions is single-family housing, which continues to outpace other types of construction and in 2004 is expected to reach an unprecedented level of activity.
But as mortgage rates move higher, the sector will slow. However, offsetting that, commercial and industrial construction are expected to continue the turnaround that began in 2003.
Northeast – With economic conditions improving, dealers in the Northeast are seeing an upswing in business.
Tyler Brandt, president of Vermeer Northeast in Castleton, N.Y., says June was a “phenomenal” month for the company.
“The economy is definitely picking up,” he says. ”We see business remaining strong. We’re purchasing inventory to prepare for that.”
Anthony Groat, regional vice president of NES Rentals in Albany, N.Y., says the improvement in business has been modest.
“There were some areas that were slower getting out of the gate this year, but on a store-to-store basis across the region, we’re up a few points,” says Groat.
Robert Woods Jr., president of Garden State Bobcat in Freehold, N.J., says he is on target to see a 6 percent to 8 percent increase through the year. “The beginning of the year turned out better than last year, but last year was rough,” he says.
Dealers point to low interest rates and the strength in the residential sector as the main drivers of growth.
“Once you have people buying houses and living in an area, you need hospitals, schools and stores to service their needs,” says Groat.
Dealers in the Northeast expect improved economic conditions to continue the rest of the year.
“No one is forecasting robust growth,” says Groat, “but on the other hand, no one is predicting a drop either.” – Natalie Keith, editor, New York Construction News
Southeast – It’s hot in the Southeast, and dealers in the region are reporting some of the best business conditions in years.
Transaction activity is “very high,” says John Van Ruitenbeek, vice president of Charlotte, N.C.-based Briggs Construction Equipment Co. Briggs expects 2004 activity to increase by about 30 percent over 2003 – and only go up from there.
“I see the next 18 months as a feeding frenzy,” he says “If you can get your hands on it, you can sell it.”
For now, he credits overall strong business conditions, low interest rates and pent-up demand with fueling the current economic engine. A return to budget surpluses in North Carolina and a resulting ramp-up of state transportation work is another reason for long-term optimism.
Activity is also strong in Georgia, says Rich Dundon, mining and southern sales manager with Metrac, the Atlanta-based John Deere distributor for central and northern Georgia.
“We’re very busy,” he says. “And we believe business will continue at this pace for the next two quarters.”
Metrac’s dollar volume is up approximately 20 percent over last year. Dundon says site development and related utility construction are the strongest markets, a result of the region’s population growth. Backhoe-loaders, mid-sized excavators and dozers are among the most popular products for Metrac, Dundon says.
Further south, expectations are similarly upbeat. Mark Hollister, regional vice president for the southeast division of Nortrax Equipment in Tampa, Fla., expects 2004 to finish with a 40 percent increase in unit volume compared to 2003.
“We are prepared for the increase,” he says. “We’ve had a lot of major inventory come in during the last 90 days, and we’ve also had record months in the last 90 days.” Hollister expects 2005 revenue to increase 10 percent over 2004. – Scott Judy, editor, Southeast Construction
South Central – A reduction in equipment capacity has increased rental rates and improved distributors’ bottom lines. The improvement follows a decision by rental companies to age their equipment and reduce the size of rental fleets.
“Aerial access equipment has seen the most impressive turnaround,” says John Engquist, president and CEO of H&E Equipment Services of Baton Rouge, La. “The situation has improved dramatically and lead times are actually stretched a bit. We’re concentrating on areas where we think there’s potential for growth, such as earthmoving.”
Dennis Vander Molen, president of Vermeer MidSouth of Jackson, Miss., says he’s seeing improvement.
“Our equipment sales are outpacing last year’s by a good margin,” says Vander Molen. “And I attribute that to comebacks in the telecommunications market and the lumber and wood waste industry. It’s not like the boom of the late 90s, but there seems to be a steady increase. This affects the sale of plows and boring machines.”
A continuing surge in home building has led to heightened lumber demand and contributed to an optimistic forecast for forestry equipment sales.
Vander Molen and Engquist agree that bonus depreciation signed by President Bush has affected sales. Vander Molen says the law’s impact was felt most in late 2003.
Heavy rainfall across the South Central region has had a negative impact on equipment rentals and sales. – Sam Barnes, editor, Louisiana Contractor and South Central Construction
Mid-Atlantic – “It’s very strong, considerably better than last year,” says Richard Dudley, president and CEO of J.W. Burress, headquartered in Roanoke, Va. “It’s both rental and purchase across the board.”
Dudley credits a strong economy with creating the uptick in business activity.
“Residential and commercial development are very strong,” he says. “There is also work in the quarries. Road construction is still weak.”
Sales of excavators are strong, and cranes are more in demand this year than in 2003.
“We represent 20 different manufacturers, and all are significantly up this year,” says Dudley. “We anticipate more of the same, but it’s an election year. That can have a positive or negative effect, regardless of which way it goes.” – Deb Woods,
contributing writer, McGraw-Hill Construction Publications
Midwest – However, those serving residential and non-residential contractors are seeing the start of something very good – double digit increases in volume.
Transportation budgets have devastated business in Illinois, according to Lawrence Glynn, president of Cummings, McGowan & West in St. Louis, Mo. “I know contractors who are shutting down in September through the end of the year because there is no work, and others who are doing driveways just to get by.”
Missouri transportation spending is on hold until after the gubernatorial elections, and federal money is still pending, adding to the woes of state highway dealers.
“Contractors have to believe work is coming to make major capital equipment purchases,” says Glynn. “Maybe in 2005, things will look better.”
On a more upbeat note, dealers serving the vertical construction markets are seeing double-digit improvement over 2003.
“Residential construction remains strong, and there’s a resurgence in non-residential construction,” says Dennis E. Kruepke, president and CEO of McCann Industries in Addison, Ill.
The increase in sales has created manufacturer shortages on many types of equipment, particularly excavators, loaders, dozers and skid-steers, says Kruepke.
While manufacturers are ramping up, dealers in the Midwest anticipate equipment shortages for some time to come.
Rising interest rates will have a double-edge impact on the economy, says Kruepke. On one hand, the increases are small enough that they are not impacting homebuyers. On the other hand, the increases are signaling investors in non-residential markets to dust projects off the shelf and invest in capital spending before rates get too high, and that has been good for business.
Earl K. Harbaugh, president of Ditch Witch Midwest in Carol Stream, Ill., is also optimistic about the future.
“A strong leading indicator for us is the demand for demonstrations and quotations, and both are on the rise,” he says. “We are very optimistic about the future.”
Kruepke and Harbaugh both see the November elections as critical to whether the momentum continues. “If there is a new administration, some of the business and tax incentives that have been put in place to stimulate employment and the economy will be taken away, and that will have a negative impact,” says Harbaugh.
In the long term, Kruepke sees the aging infrastructure as a critical issue that needs to be resolved. Otherwise, failures like the recent water-main break in Kankakee County, Ill. – which left more than 70,000 customers without water – are destined to become more prevalent. – Heather Hatfield, regional publisher, Midwest Construction
Great Lakes – According to Dale Leppo, chairman of Leppo Rents/Bobcat in Tallmadge, Ohio, business has improved. “The first quarter was pretty soft, but the second quarter was decent, so if you average them out, it’s pretty good,” he says.
W. Scott Hunt, president of Hunt Tractor in Louisville, Ky., is more upbeat when it comes to the recovery.
“Our business is up substantially,” he says . “We’re probably 70 percent to 75 percent ahead of last year as far as total revenue.”
Hunt says margins are still not as high as they should be, but higher revenues this year have helped offset low margins.
Both companies report rental is stronger than sales. Leppo says most of his rentals are contract equipment, primarily because residential construction is strong.
One issue affecting both companies is the availability of equipment – a new challenge in 2004. “The biggest problem we – and I suspect most dealers – are facing is having the right inventory,” says Hunt. “Manufacturers are being more cautious about the inventory they’re producing.”
While the outlook in both Ohio and Kentucky is mostly optimistic, some of last year’s caution lingers.
“We’re hoping the level of activity continues,” says Hunt. “We’ve had some multi-unit transactions that are not likely to be repeated. The pace will probably slow somewhat.”
But even as the Great Lakes region emerges from the economic slump, some concerns remain in Kentucky.
“We at times find ourselves wondering where potential orders are coming from,” says Hunt. “We’re having to be a lot more diligent.” – Courtney Allison, editorial assistant, Colorado Construction
Mountain States – After last year’s economic slump, equipment companies in the Mountain States are beginning to see a slight upturn. According to Todd Poulson, president of Faris Machinery Co. in Commerce City, Colo., the outlook for the area’s equipment business isn’t as bleak as it was last year.
“Optimism is higher this year than last,” he says. “Most people have work and the fear that was prevalent last year doesn’t exist any more.”
Walter Berry, president of Berry Companies in Wichita shares that optimism: “Business is picking up. We felt in the Midwest – particularly in Wichita – we were behind everybody else, but we are experiencing good growth. We think the recovery has finally come to the Midwest.”
While both Faris Machinery and Berry Companies are doing better this year, the marketplace for their major equipment lines differs widely.
In the first six months of 2004, both companies noted an increase in revenue from last year. However, the next six months are harder to predict.
Still, Poulson is remaining cautiously optimistic: “I think business will remain steady, but we’ll still take every deal we can get.”
Berry believes the long-awaited recovery has finally come to the region.
“We were late coming into the down cycle,” he says, “and we think we’ll come out of it late too.” – Courtney Allison, editorial assistant, Colorado Construction
Southwest – Driven by record residential, retail and public works construction, dealers say contractors are finally returning to the marketplace in a major way.
Many dealerships report 50 percent increases in sales and rentals from last year.
“Our sales are way up. It’s just been a phenomenal year company-wide,” says marketing manager Lisa Raffignone of Nevada’s Cashman Equipment. “Las Vegas and Reno have been experiencing huge residential growth, and with the combination of factors in the economy, we are starting to feel better and recover from September 11, 2001.”
Companies across the Southwest are responding to higher copper and gold prices by opening old mines and increasing production at existing ones.
“With gold prices up, we have definitely seen growth in parts and equipment sales,” says Shane Hunter, a manager with Elko, Nev.-based Cates Equipment. “People are getting their confidence back and buying equipment.”
Still, some dealers are cautious.
“There’s a lot of talk about shortages of steel and cement and other building supplies that could slow things down,” says Larry Cox, director of sales for Sunstate Equipment in Phoenix. “I don’t think it will stop things, but it could slow them down.”
Dealers say the historically low interest rates and the accelerated depreciation schedule are factors in the increase of sales. After holding off on equipment purchases for the past three years, contractors need to replace worn-out machinery.
A lack of used equipment is driving prices higher.
“We are seeing prices on used equipment bouncing back after a couple of years of just ridiculous pricing,” says Mike Bahrmann, vice president of operations for Albuquerque-based Golden Equipment. “We built up rental fleets during the past two years based on used equipment, but in the last year, pricing has substantially increased.”
Still, in some equipment lines, the market has yet to clear out a surplus of machinery. Horizontal and directional drilling machines were in hot demand as the telecommunications industry rushed to install fiber optic cable around the country, but with the collapse of telecom, drilling machines can be purchased cheaply.
“They really need to clean out that market,” says Bill Boothe, president of Ditch Witch of New Mexico. “There’s just a glut of fiber optics out there.”
Overall, dealers are optimistic about market conditions, with many saying that barring any major surprises, 2005 should be as good as 2004. – K. Robert Wendel, editor, Southwest Contractor
Texas & Oklahoma – “New equipment is hard to get, and used equipment has filtered through the system,” says R. Dale Vaughn, president and CEO of Oklahoma City-based OCT Equipment and AED’s 2004 Chairman. “The consequence is an increase in used equipment prices, with deliveries of new equipment pushed back to fall.” However, the Oklahoma City market is stronger than Tulsa, where purchasing has been soft.
“We’re seeing two different markets about 100 miles apart,” says Vaughn.
Abnormally high rainfall in June and July have had an impact on sales in both Oklahoma and Texas.
Shane Walsh, division VP of Andress-Walsh Co. in Houston, and AED’s South Central regional director, says, “We specialize in rental and sales of Gorman-Rupp pumps, so we couldn’t be happier about all the rain. We’ve had a really good first half. The contractors aren’t getting a lot done, and they’re paying slowly as a result. But the rainfall has been a shot in the arm to our business.”
Jim Anderson, president of Anderson Machinery in Corpus Christi, Texas, and a member of AED’s board of directors, says retail is stronger than leasing.
“People are buying what they need, and with the bonus depreciation running out,” he says, “they’re going to make their purchases now.” However, says Anderson,
“Delivery is a major issue. My business would be much stronger if I could get product.”
Anderson and Walsh are confident about the future.
“Customers are optimistic about the next 18 months,” says Walsh. “Our outlook follows suit.” – Eileen Schwartz, editor, Texas Construction
Intermountain – “Starting in the last quarter of last year, business took off and it has kept going,” says Tom Harris, president of Western States Equipment in Boise.”If you’re in the equipment business and you’re not having fun this year, you’re doing something wrong.” Western States distributes both construction and agricultural equipment, two markets that have been down in past years. But the sale of construction equipment is driving the current surge.
“We are moving backhoes, skid-steers and some bigger iron too,” says Harris.
Harris and other dealers attribute the turnaround in sales to the bonus depreciation law and more overall confidence in the marketplace.
“We had been doing more rental, but this year, I think the contractors have enough confidence that they are buying outright,” he says.
Mike Matz, president of Western Plains Machinery Co. in Billings, Mont., says he has seen a similar trend.
“People started buying in December last year, and it has just kept going,” says Matz. “We dropped in May, but things came back heavy in June.” Matz says that along with construction sales, demand for equipment by the gas and oil industry has been increasing.
Paul Ross, owner of Ross Equipment of Salt Lake City – which specializes in light construction tools and drilling equipment – says sales have been strong since the beginning of the year and, like Matz, he saw a drop in May and a rebound in June.
“Sales were really strong the first few months of the year,” says Ross. “Then in May we took a nose dive, but it has turned around and we’re getting more inventory for the second part of the year.”
Dave Scott, president of Scott Machinery Co. in Salt Lake City, says the company is having a “boom year.” The company was expecting an 8 percent to 10 percent increase in sales this year, but “we’ve been up 30 percent,” he says. “Things started taking off at the end of December and in January.”
Scott says his company has seen
an increase in sales of backhoes, excavators, loaders and smaller equipment and that there seems to be more confidence in the marketplace.
“There has been a real pent-up demand, and people finally have more jobs lined up, so they’re not worried where the next one is coming from,” he says.
The region’s dealers say rental is also up and maintaining sufficient inventory is becoming a challenge, with long-lead times expected on many items. – Brian Fryer, editor, Intermountain Contractor
Northwest – “Our market is fabulous,” says Patrick McConnell, president of Portland, Ore.-based Clyde-West.
The bonus depreciation, which expires in 2004, is encouraging sales. In the Northwest, many buyers postponed purchases to take advantage of it – waiting to see if there would be enough buying to warrant buying more equipment.
In Canada, sales are improving but not as briskly, says James Burns, senior VP of mobile equipment at Wajax Industries Ltd. of Mississauga, Ontario.
Most of the increase comes from increased mining opportunities in Canada’s western provinces and other natural resource work, spurred by a need for minerals such as iron ore and coal in China. Construction to support the Olympics has not yet made an impact.
In Canada, interest rates are still expected to drop, in a continued effort to bolster the economy, which may be causing slower sales. Another factor is the strengthening Canadian dollar, making imports to the United States more expensive. – Lucy Bodilly, editor, Northwest Construction
Excerpted from August 2004 Construction Equipment Distribution.
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