Strong Growth Equals Strong Equipment Sales Nationwide - 2005 Regional Outlook
Construction Equipment Distribution magazine is published by the Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada. AED membership also includes equipment manufacturers and industry-service firms. CED magazine has been published continuously since 1920. Associated Equipment Distributors
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SECTION: 2005 Regional Outlook

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Strong Growth Equals Strong Equipment Sales Nationwide

CED Magazine, August 2005

Article Date: 08-01-2005
Copyright (C) 2005 Associated Equipment Distributors. All Rights Reserved.

Lead times for some types of equipment are long and getting longer.

Equipment distributors across the United States say the construction economy continues to rebound from previous down years, but dealers are voicing concerns about long lead times on equipment and even longer delays getting tires. Still, the current demand for equipment – fueled largely by a strong residential building market – is also raising hopes for continued prosperity. Northeast Region

Construction equipment sales appear to be strong again this year, even better than in 2004, according to dealers in the Northeast who cater to commercial and industrial contractors.

A leading factor in the trend is a spike upward in construction activity, says John Hession, president of Vantage Equipment, headquartered in Syracuse, N.Y.

“There’s been a lot of state work going on and a lot of housing construction,” says Hession. “Contractor backlogs are pretty solid, and their need to upgrade and replace older equipment is very strong.”

Similarly, contractor activity is on the upswing in eastern Pennsylvania and New Jersey, according to Tony Minnick, construction equipment sales representative for Messick’s, based in Elizabethtown, Pa.

“There are a whole lot of residential starts,” he says. “There’s also more commercial construction than there was last year.”

Overall, that’s translated into a strong Pennsylvania-New Jersey equipment market, says Minnick.

“It was really good in the spring,” he says, “but business slowed in June. It usually picks up again in the fall. Everyone has what they need now, but they make their money over the summer and then spend it at the end of the year.”

Robust equipment sales aren’t due to contractor backlogs alone, says Hession.

“Construction equipment has been booming,” he says. “It’s been evident in New York State. Last year, the total market for construction equipment increased 32 percent over 2003. So far this year, it’s up in the low double digits – 10 percent or 12 percent.”

Financial incentives, such as last year’s federal Depreciation Bonus, which helped businesses save on taxes; the slight rise in interest rates this year that led some contractors to try to beat higher rates; and a shortage of good used equipment have also sent contractors in search of new equipment.

Leading the way in sales at Messick’s are skid-steers and mini-excavators. “The mini-excavators are hottest right now,” says Minnick.

Mini-excavators are also hot in upstate New York.

“Mini-excavator sales have been growing at 30 percent or more for several years in a row,” says Hession. “We’ve also had big growth in articulated, off-road dump trucks.”

–Tom Stabile, editor-in-chief, New York Construction

South Atlantic Region
DE, FL, GA, MD, NC, SC, VA, D.C., WV

Dealers in the South Atlantic region are experiencing continued growth in 2005, on the heels of a strong 2004.

According to Dennis G. Romanson, president of Briggs Equipment in Tampa, Fla., the current combination of especially strong demand, pricing power and profitability “comes about once every two or three lifetimes.”

“We’re looking at annual growth in units going out of 20-plus percent in our whole territory, and Florida is generating more than 30-percent growth,” says Romanson.

Even so, 2005 started out with some hiccups for distributors in North Carolina, where reports of massive construction budget cuts at the North Carolina Department of Transportation caused some rental units to come racing back into equipment yards.

Dusty Zeigler, president and owner of Low Country Machinery in Pooler, Ga., says “quite a few residential construction projects and a handful of commercial projects” have been the main driving forces for his business in 2005. Excavators, lifting equipment and articulated dump trucks are some of the most popular products so far this year for Low Country.

Zeigler also sees the highway market improving in Georgia.

“Georgia is starting to see a lot of bridge work, and we might see some business out of that, with excavators and hammers,” he says.

Distributors from Virginia to Delaware are reporting similar activity. Residential building continues to be the main driver of business, particularly in northern Virginia, says Thomas Logan, president of McClung-Logan Equipment, serving Delaware, Maryland and Virginia. The company acquired four new locations in Virginia last year to help capitalize on the strong market.

David Folcomer, president of Folcomer Equipment in Aberdeen, Md., says he’s seeing demand from residential, as well as roads and bridges work, in Maryland and Delaware.

“Delaware is really hot right now,” says Falcomer.

While residential building keeps revenue flowing in Virginia, roadwork is less of a factor, according to Richard Dudley, president and CEO of J.W. Burress, with locations in Virginia and Maryland.

“We hope the road business will build up in Virginia,” he says. “It hasn’t been as strong as it needs to be.”

Excavators and articulated trucks are the big movers throughout the South Atlantic region.

“The whole gamut from excavators to skid-steers has been moving,” says Romanson.

With the continuing strong demand, rental rates have risen, too.

“Sometimes manufacturer’s price increases have to be absorbed by the distribution system,” says Romanson. “But we’ve been able to pass some of them along. And rental rates are starting to become a little more rational.”

Looking down the road, Zeigler says: “Our buyers have a healthy appetite. They want some predictability about the future, but they have a healthy appetite right now.”

–Bruce Buckley, editor-in-chief, Mid-Atlantic Construction and Scott Judy, editor, Southeast Construction

South Central Region

South Central equipment dealers are urging customers to allow for longer lead times when ordering equipment, as a shrinking steel supply and heightened demand limit the availability of new construction equipment.

“Equipment availability has been limited, especially for the larger models, but we’ve been able to fill orders through our formal and informal networks,” says Jerry Edwards, general sales manager for Louisiana Machinery in Reserve, La.

Distributors that previously suffered from a surplus of equipment are now seeking a remedy for a supply crunch.

“It’s affecting all distributors equally,” says Edwards. “The economy’s upswing was unexpected, and the China factor came at us from left field.”

Solutions are needed in a hurry, since continued economic growth is expected.

“Going into this year, the forecast was about a 5 percent increase over a very good 2004,” says R. Dale Vaughn, president & CEO of Oklahoma City-based OCT equipment and Immediate Past Chairman of AED. “I have visited with several in the business and it seems to be hitting at about 10 percent. There is no question that deliveries are still tight and late-model used equipment is difficult to find.”

Vaughn says that while shortages during 2004 were frustrating, they lead to higher margins.

“For us, parts and service is active due to our customers’ work loads,” he says. “Demand for equipment, from crawler dozers to backhoe-loaders, is strong, but it’s being tempered by short supplies. In our area, the oil fields are very active along with non-residential construction. Housing has yet to show signs of slowing, and the only thing holding the highway sector back is waiting for Congress to pass the transportation reauthorization bill.”

“All sectors are showing moderate to strong demand,” says G. Bennett Closner, president of San Antonio-based Closner Equipment Co.

Closner sees the brightest sectors in highway, housing and military bases, and says economic conditions have improved compared to 2004.

According to Dennis Vander Molen, president, Vermeer MidSouth of Jackson, Miss., equipment prices have jumped anywhere from 5 percent to 10 percent in the last year as a direct result of limited supply. “But purchasing is still more popular than renting,” he says,“because contractors’ profit margins are improving.”

Vander Molen says the shortage of raw materials has also affected specialty steel products such as tungsten and chromium, usually needed for replacement tooling.

“Somebody that’s cutting concrete or rock will have to pay more for some of the higher-wear chromiums,” he says.

”The steel shortage could also affect the availability of tires for equipment,” says Edwards. “Most people don’t think about the steel that goes into the manufacture of tires, but it’s an important component.”

–Eileen Schwartz, editor, Texas Construction and Sam Barnes, editor, Louisiana Contractor & South Central Construction

North Central Region

A steady economy and a healthy building market appear to be increasing billings for Midwest construction equipment dealers.

In mid-June, some dealers in the region were reporting double-digit increases due to equipment sales, rental and repair compared with the same period in 2004.

“I’d say we’re up 10 percent in sales vs. the previous year,” says Dale Leppo, chairman of Tallmadge, Ohio-based Leppo Rents/Bobcat of Akron. The strong market allowed the company to open a store in Cleveland, its sixth overall in the northeast part of the state.

A concern dealers have is that gains will be offset by losses at the end of the year. Billings are expected to be lower at year-end than in 2004, when sales spiked due to the expiration on Bonus Depreciation.

“In December 2004, we surpassed the previous December by 20 percent,” says David Johnson, vice president of sales and marketing of Savage, Minn.-based Road Machinery & Supplies. “I’m 51 years old, and I have no doubt that, unless there’s another tax incentive program, we’ve seen the best December in my career.”

But the economy is impacting Midwest markets differently.

Data shows the Chicago area saw first-quarter 2005 construction starts rise a robust 40 percent, to $4.4 billion, in part because of the $750 million Trump International Hotel & Tower project and several major road and mass transit reconstruction projects.

But St. Louis was down 17.5 percent, Indianapolis fell 17.8 percent, and Milwaukee dropped 29 percent.

Another variable affecting the equipment market is weather, which has seen disparities across the Midwest.

In mid-June, Illinois was nearly in a drought, a plus for equipment sales because construction activity can be completed. But Indiana, Wisconsin and Minnesota have been plagued by rain. In Ohio, it was dry until mid-April, rained until mid-May and was dry again until mid-June.

“We were flying the first two weeks of April, but slowed down when it rained for a month,” Leppo says. “Now we’re moving pretty fast again.”

Residential construction is having the strongest impact on equipment dealers.

“We’re predicated a lot on housing starts,” says Earl Harbaugh, president of Carol Stream, Ill.-based Ditch Witch Midwest. “Housing starts drive telecommunications, electrical and other upgrades.”

Other dealers cite the transportation, retail, warehouse and mining markets as offering good opportunities.

Equipment repair and parts orders are mirroring sales with steady increases, sources say. Both ordinary maintenance and major rebuild projects are under way.

“There is as much work as we want to handle in service,” says Jim Swiderski, president of Mosinee, Wis.-based Swiderski Equipment. Excavators, dozers and skid-steer loaders are all seeing brisk sales.

–Craig Barner, Editor, Midwest Construction

Western Region

Equipment dealers across the Western Region are reporting solid sales and rentals with increases over last year’s numbers. Equipment sales in the Pacific Northwest are even with or slightly ahead of 2004, according to equipment dealers in Montana, Idaho, Oregon, Alaska, Washington and California.

In 2004, sales picked up after a few lackluster years, due to a federal tax break. This year, sales are being spurred by low interest rates and pent up demand for new machinery and new construction, says Virgil Green, sales manager with Roward Machinery in Spokane.

“In our area, spec home building has really picked up,” he says. “There is also a lot of Department of Transportation work.”

According to Bob Harbin, vice president of Western Power and Equipment, headquartered in Vancouver, Wash., 2005 sales have been about even with 2004.

“New housing starts drive our business and those have been up in Oregon, Alaska, Washington and Northern California,” he says.

The downturn in the construction industry in 2001 and 2002 forced some contractors to delay purchases, and Harden says, “The trade-ins we’re getting are a little bit older than they used to be.”

Both Green and Harbin expect sales to remain steady through 2005.

“Next year, we’ll keep a close eye on housing starts and interest rates,” says Harbin.

In Southern California, sales for the first six months of this year are on pace with last year, says Steve Clark, sales manager of Fullerton-based Cook Equipment of Orange. “And considering we had two months of rain,” he says, “that’s pretty darn good.”

Clark says the service side of the business is up about 10 percent and parts are up 5 percent. Skid-steers and mini-excavators are very strong and backhoes are about level, he says.

“By the time we end the year, we’ll be about 5 percent overall better than last year,” says Clark.

The market is also firm in Arizona, Nevada and New Mexico.

Driven by record levels of residential, retail and public works construction, equipment dealers across the Southwest say contractors are returning to the dealerships ready to buy or rent.

In 2004, many dealerships reported 50 percent increases in equipment sales compared to 2003 and the breakneck pace appears to be carrying through 2005.

“Everybody needs everything now,” says Jeff D. Beaudoin, president and CFO of Phoenix-based Falcon Power Inc. “I don’t see any reason for it to slow in the short term.”

Improved commodity prices, especially copper and gold, are injecting new hope into the mining industry – and the equipment business. Mining companies across the Southwest are responding to higher copper and gold prices by opening old mines and increasing production at existing mines.

“With gold prices up, we have definitely seen growth in parts and equipment sales,” says Shane Hunter, a manager with Elko, Nev.-based Cate Equipment. “People are getting their confidence back and buying equipment.”

But dealers are also keeping an eye on commodities, such as steel and cement, which are both at historically high prices.

High commodity prices aren’t appearing to make much of a dent in construction in the Southwest, with markets from Reno to Tucson reporting solid activity as residential construction continues its strong pace.

“Business in the surrounding area has been really good,” says Jay Shafer of Reno-based Shafer Equipment. “Normally, when outsiders see Reno booming, contractors come in from all over the place, but Sacramento and the Bay are busy too, so it’s nice not to be inundated with competition.”

Dealers say the historically low interest rates and an accelerated depreciation schedule are major factors in the increase in sales. After holding off on equipment purchases for the past three years, contractors need to replace worn-out machinery and trade-ins are in high demand.

“We don’t take as many trade-ins as we used to,” says Bruce Higgins, general manager at Albuquerque’s Tom Growney Equipment. “I don’t know if contractors are selling them or keeping them, but we hate to see that because we always made good money on trade-ins.”

Rental companies are purchasing lots of equipment and a shortage of used equipment is driving prices higher.

“We’re 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 the past two years with used equipment, but in the last year, pricing has substantially increased.”

Overall though, dealers are optimistic about market conditions.

“I think 2005 is going to be about the same as 2004,” says Jim Bleil, president of W.W. Williams Co. in Tucson. “I think it’s going to clip along pretty well unless something crazy happens.”

Power Equipment has been serving Western Colorado for 70 years and Mark Johnson, vice president of sales, says sales and rental volumes are both strong now.

“We’re ahead of last year and I think it reflects a strong construction economy along the front range of Colorado,” he says. “We’ve had strong sales in all kinds of equipment from wheel loaders to excavators. The economy here seems to be stronger than I anticipated but fortunately we had the items we need on order. So far we’ve been able to work out availability issues with our manufacturers.

“I think the remainder of the year looks good except for factors that are out of our control like rising oil prices or a dramatic change in interest rates. You can’t predict too far ahead, but I’d say, in Colorado – on the front range in general – there are a lot of good things happening that should give us positive growth for the next few years.”

Dick Rasmussen, president of Rasmussen Equipment with locations in Salt Lake City and St. George, Utah, has been in the equipment business 50 years and says the company has had its strongest first and second quarters in some time.

“Everything is selling, and it seems like everyone has work and the work they have has some profit in it,” he says. “The last two years have been better for us. We’re up about 35 percent over where we were this time last year.”

According to Rasmussen, lead times for new equipment are out about six months. And he voiced a common concern among all dealers contacted in the region about the shortage of tires for large equipment.

“We’ve had people buying old equipment just so they can get the tires,” he says. Rasmussen believes the continued population growth in Utah and the need to replace infrastructure will sustain the market in the future.

Dave Scott, president and general manager of Scott Machinery, also in Salt Lake City says sales are up significantly. “Our totals are up about 30 percent over last year, and we had a similar increase last year,” says Scott. “It’s been hard to keep up with demand. We’re selling a lot of mini-excavators and loaders.”

Scott Machinery serves Eastern Idaho and Western Wyoming, in addition to Utah, and Scott says demand in all of the markets has been strong. He also says he’s having difficulty getting tires for off-road trucks and loaders.

“We’re having to take machines with factory tires, and then swap them out using a local supplier,” he says.

Scott believes the market will remain strong and he expects to sell off some rental equipment at the end of the year.

Western States Equipment has locations throughout Idaho, in Western Montana and Eastern Washington, and in Oregon. Speaking from the company’s Boise office, vice president of sales Eddie Davis says he’s seeing strong demand for equipment in Idaho with steady growth in Washington, but declines in Oregon.

“The forestry and construction markets in Idaho and Western Montana are really strong,” he says. “The availability of machines and tires continues to be an issue. We’re having long lead times – sometimes more than a year out. We’re losing business due to lack of availability every week.” And, says Davis, most of the rental fleet has been sold.

–Lucy Bodily, editor, Northwest Construction; Brian Fryer, editor, Intermountian Contractor; Paul Napolitano, editor, California Construction and Kelly Wendel, editor, Southwest Contractor

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