2006 Regional OutlookCED Magazine, August 2006
Article Date: 08-01-2006
Copyright (C) 2006 Associated Equipment Distributors. All Rights Reserved.
The 2006 Regional Outlook
Economic Update: North Central Region
Last year, dealers in the region were elated about single- and double-digit increases in new equipment sales. Through mid-July 2006, however, new equipment sales are ranging from single digits to zero.
"Our market has been OK," says Dale Leppo, 2006 AED Chairman and chairman of Tallmadge, Ohio-based Leppo Rents/Bobcat of Akron. "New equipment sales are up about 5 percent this year."
The changing market is partly attributed to the moderating residential construction sector.
"Interest rate increases are having an effect," says Earl Harbaugh, president and owner of Carol Stream, Ill.-based Ditch Witch Midwest. "It affects sales if there is no work out there."
Data from the Dodge Analytics division of New York-based McGraw-Hill Construction confirm a mixed residential picture in the Midwest.
In first-quarter 2006, Chicago and Milwaukee experienced decreases in residential construction starts, of 10 percent and 7 percent, respectively, vs. the same period in 2005. But Indianapolis was up 8 percent, and St. Louis had a 3 percent increase.
Equipment experiencing brisk sales include excavators, crawler dozers, loaders, drill rigs and trenchers. Meantime, the rental, repair and parts segments are experiencing strong growth.
"Our parts business is up 15 percent over a year ago, and service sales are up 10 percent," says Doug Clark, vice president of operations for Indianapolis-based MacAllister Machinery.
Commercial construction activity in the Midwest is relatively strong.
Through the first five months of 2006, non-residential construction starts doubled in two metropolitan areas in the region, Detroit and Minneapolis, compared to the same period in 2005. Four other areas had more modest increases: Chicago, Kansas City, Milwaukee and St. Louis. There were drops in Cincinnati, Indianapolis and Louisville.
Looking ahead, some dealers are anxious about 2007 and beyond in part because of rising fuel costs.
"I think people will not be spending money," says Harbaugh.
–Craig Barner, Midwest Construction
Economic Update: South Atlantic Region
Construction equipment dealers in the South Atlantic region are experiencing some economic ups and downs in 2006, with activity remaining most robust in the sunny South, while conditions further north are dampening compared to 2005.
Tampa-based Briggs Equipment, a distributor of Case and other lines that serves Florida, Georgia, North Carolina, South Carolina and a segment of Alabama, is actually experiencing improvement over a record 2005.
"Activity in the first half of 2006 is exceeding 2005," says Roger Jetton, COO with Briggs. "Overall, the first quarter was exceptionally strong. We have started to see some tightening in the second quarter in the residential section. But we see commercial, industrial and highway construction improving throughout the Southeast."
The story’s about the same at Flagler Construction Equipment, the Orlando-based Volvo distributor for Florida.
"For the first six months, our business is up about 20 percent," says Chris Wilmot, president and owner. "It’s come from all areas of the business – product support, parts, service, rentals, and sales."
Wilmot adds excavators, loaders and other traditional earthmoving products moved well for the first four months of 2006, but have begun to slow.
"I’ve seen the market flattening the last couple of months, because I see our backlog shortening," he says. "As availabilities loosen up from our manufacturers, the panic buying has slowed as well.
"I think rental rates are going to feel some pressure in the second half of the year and I think manufacturers are going to feel pricing pressure."
Further north, Jim Price, president of Bobcat Mid-Atlantic, which includes Bobcat of Lancaster, Bobcat of Baltimore and Delaware Valley Bobcat, reports business activity is down about 12 percent compared to 2005."
"Residential is definitely declining," he says. A market Price says is improving is the military/government sector.
"Buyers are becoming more cautious," says Jetton. "The easy pickings have been had, and we’re going to have to be really good at our business. Good service and good customer support will remain the keys to success. That won’t change, good times or bad."
–Scott Judy, Southeast Construction
Economic Update: South Central Region
While equipment dealers in the South Central states report strong economic conditions, they expect the market to begin to level out.
Walter Berry, president and CEO of Wichita, Kan.-based Berry Companies and immediate past chairman of AED, says that while Texas and Oklahoma have been consistently strong for two years, the second half of 2006 probably won’t be as strong as the first half.
"I just think we’re on that curve," he says. Berry Companies has 21 locations in five states.
As the Bobcat dealer in Houston, Berry says housing starts are his firm’s key economic indicator in the region.
"Houston grew substantially last year from the influx of people and businesses after Hurricane Katrina," says Berry. "It’s a huge market."
Though he believes activity has almost peaked, he doesn’t foresee any significantly weak markets in the areas Berry Companies covers.
"Some are flat," he says, "but we’re not pessimistic about anything — yet. We’ve had such great growth over the past three or four years."
For example, he says, that while Houston revenue is flat compared to last year, 2005 was up 45 percent.
Mike Brennan, executive vice president and CFO of Bramco in Louisville, Ky., says the cost of equipment continues to increase because of rising steel prices, leaving most distributors with reduced profit margins. Bramco services several Southern states.
"Retail pricing has gone up, but it hasn’t kept pace with manufacturers’ prices," says Brennan. "But we’re starting to see some changes in the market. The manufacturers are catching up with availability, and customer demand has started to level off."
Brennan says market demand was growing at a 30-percent to 40-percent pace until the second quarter.
"The growth has begun to slow," he says, "and we expect the third quarter to stay at a strong level, although not at the rapid growth rate we’ve been experiencing."
Brennan says rental rates are becoming more competitive, as competition increases.
"Right now," he says, "contractors are buying more and replenishing their fleets – but with rising interest rates and rising prices, I expect it to trend back to more renting."
–Sam Barnes, South Central Construction and Eileen Schwartz, Texas Construction
Economic Update: Western Region
In the West, a sizzling construction market in virtually every market has left local AED dealers as busy as they’ve ever been.
"We’re seeing historical highs in every market – construction, mining, and oil and gas exploration," says Paul Campbell, vice president of Wheeler Machinery, Salt Lake City.
"The entire region is hot due to one, the economy, and two, resort areas like Jackson Hole, Coeur d’Alene and Sun Valley," says Greg Carlson, vice president of product support for Western States Equipment in Boise. "And Boise is booming. The market is the hottest it’s ever been, at least in the 20 years I’ve been in business."
Concerns include long lead times for equipment and labor shortages.
"It’s been a real challenge finding qualified technicians," says Campbell. "For our customers, the challenge is finding qualified operators. We go into local high schools and trade schools and put on job fairs. We let students know we’ll provide tuition if they’re interested."
Campbell say lead times for some equipment are a problem. For example, large mining trucks are backlogged up to two years. Availability of tires, particularly for large mining equipment, is critical.
"It’s all about supply and demand," he says. "China and India are consuming huge amounts of equipment and resources. A lot of our customers are on allocations from tire manufacturers. Until supply catches up, we don’t see things changing."
In California, Gale Plummer, VP and general manager of San Leandro-based Shanahan Equipment Co., says his company is in the midst of the most aggressive market he’s seen in 30 years.
"The demand has been strong for 20 months," says Plummer. "And it’s across the board – highway, residential, nonresidential and infrastructure."
With any high-demand scenario, product shortages can be a problem, but Plummer says "Komatsu has been good at keeping us competitive and allocating product where it’s needed."
Plummer expects 2006 to continue strong, because plenty of work is on the boards.
–Robert Carlsen, California Construction and Brad Fullmer, Intermountain Contractor
Economic Update: Northeast Region
While the market for new housing and condominium development have softened in the Northeast, the commercial market is doing well and a fair amount of infrastructure work is on the boards, says Carl Beauregard, president of Beauregard Equipment in Colchester, Vt.
Upstate New York also has a steady market, though that generally means little growth other than a regular menu of school and road construction, says Rich DiMarco, vice president of operations for Admar Supply of Rochester, N.Y.
Contractors in the region are seeking work further south, he says.
"Our contractors are going to Virginia and the Carolinas – there’s a lot of work there," says DiMarco.
Interest rate increases loom as a hurdle in equipment sales, largely because manufacturers are pulling back on financing promotions.
"It is having an impact," says Beauregard. "It does seem as the season has worn on that it’s slowing some purchase decisions. The manufacturer-subsidized programs have raised their rates and folks are becoming a little more concerned about the weight of borrowing."
Despite the financing hurdles, DiMarco says mini-excavators are still popular in his market, which includes upstate New York and parts of Pennsylvania, Massachusetts, and Connecticut. Another growing sector is GPS technology for machinery.
"GPS machine control is more popular," he says. "People are using it with dozers and graders."
DiMarco says as a new technology for many contractors, GPS offers a growth market. Dozers and skid-steers are also strong.
"We’re experiencing growth in those this year," he says. "On the crawler dozers, it’s probably 8 percent to 9 percent and for skidsteers are double-digit."
One other growth market for Admar is used equipment sales, particularly forklifts, says DiMarco. This year, the firm began marketing its used machines, along with some new equipment, on the Internet through websites for equipment dealers and E-Bay. According to DiMarco, they have been pleased with the response.
"It’s definitely helped us in sales of some used equipment and parts," he says.
–Tom Stabile, New York Construction
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