2007 Business Outlook: Still Good For MostWRITTEN BY PAM GRUEBNAU
Article Date: 01-01-2007
Copyright (C) 2007 Associated Equipment Distributors. All Rights Reserved.
Following three years of exceptional growth, 61 percent of dealers are again forecasting growth in 2007.
At the beginning of 2004 coming off a difficult and for some dealers – desperate – three years, 88 percent of dealers were forecasting growth and thankfully, they got it.
The following year, 85 percent of dealers forecast growth – in spite of 2004’s equipment and component shortages that had manufacturers behind the 8 ball – and again they got it.
In 2006, a whopping 80 percent of dealers thought they’d again see revenues continue to increase in the coming year, and for most, the forecast was dead on.
As one dealer put it, “It’s never been this good!”
And now in 2007, following three record-breaking years, an impressive 61 percent of dealers still expect revenue to increase in the year ahead. Granted, for most, the rate of increase has slowed – more than half of dealers are reporting increases of 1 percent to 5 percent – but it is an increase, nevertheless.
And 18 percent are forecasting revenue to increase 10 percent or more.
Still 22 percent see revenues declining this year.
“After 3 years of strong growth, we’re expecting no growth in 2007,” says R. Christopher Gaylor, president of Power Equipment Co. in Knoxville, Tenn. “We’re expecting a soft landing in this downturn.” The dealership represents Komatsu, Ingersoll Rand, Broce, Kobelco and Tramac, to name a few.
Asked specifically about new and used equipment sales, rental revenue, and parts and service sales, dealers have the brightest hopes for parts and service.
In 2007, 62 percent of dealers are forecasting parts sales to increase with just 4 percent forecasting a decrease in parts sales this year. Also in 2007, 57 percent of dealers are predicting increases in service sales; only 6 percent expect a decline in service sales.
Most dealers (70 percent) expect no change in gross margins on parts sales in 2007, although one-fourth (25 percent) are forecasting margins on parts will increase next year. Very few dealers (5 percent) expect margins on parts sales to fall.
In 2007, 67 percent of dealers think they’ll see gross margin on service sales hold at 2006 levels, while 29 percent think margins will actually climb. Just 4 percent are forecasting a decrease in margins on service.
Even with dealers reporting a glut of rental equipment in the market, 51 percent expect rental revenue to increase in 2007. Just 10 percent are predicting a decrease. And 23 percent of dealers have hopes that rental prices will stay up, netting increased gross margins this year; 61 percent of dealers are counting on rental margins holding at 2006’s respectable levels.
For three years, used equipment sales and prices have benefited from the collision of strong demand and widespread equipment shortages, and 44 percent of dealers expect used equipment sales to continue to increase in 2007. Only 14 percent think used equipment sales will decline. Margins, on the other hand, are expected to slip: 20 percent of dealers are predicting used equipment margins will fall this year.
New equipment sales are expected to soften in 2007; 42 percent of dealers are predicting increased revenue from new equipment but that is largely offset by the 30 percent that are forecasting declining new equipment sales. Gross margins, too, will be off on new equipment. Only 14 percent of dealers think new equipment margins will trend upward, while 33 percent expect margins to fall.
“Dealers have a lot of inventory and margins will suffer as a result,” says Larry Miller, president & CEO of Kelbe Bros. Equipment Co. Headquartered in Butler, Wis., the company represents Beuthling, Dynapac, Link-Belt, Multiquip, New Holland, Redi-Haul Trailers, Stanley , Takeuchi, and Terex.
With 46 percent of dealers carrying more inventory than a year ago, more dealers are planning to invest less in new equipment inventory in 2007 (42 percent), than plan to invest more (26 percent). Still, 32 percent expect to keep inventory investment at the same level as 2006, and with manufacturers reporting record sales last year, that may be better than it sounds.
Rental fleets will do better in 2007; 44 percent of dealers will increase their rental fleets next year and 31 percent will keep fleets at their current size. Only 25 percent of dealers expect to decrease their investments in rental fleets this year.
Staff Shortages Could Subside
Shortages in qualified sales representatives and technicians have plagued dealers throughout the year, not surprising given that 79 percent of dealers added staff in 2005 and 62 percent added staff in 2006.
Some of those shortages should diminish in 2007, as only 40 percent of dealers are planning to hire additional staff this year.
The Down Side
While the outlook for 2007 is positive overall, dealers across the country are concerned about the slowing housing market and the other markets that could follow it down.
Bejac Corp. in Placentia, Calif., represents Kawasaki, Atlas Copco, Doosan, Dynapac, Wacker, Indeco and Link-Belt.
"There is definitely a weakness in new housing starts," says Ron Barlet, president of "but with the recent passage of several infrastructure bills, we believe we will see a strengthening in the public sector by mid to late 2007."
On the East Coast, dealers report housing and road-building are softening.
"Overall we expect 2007 to be good, but we're seeing some weakness in areas related to housing and road-building." says Richard S. Dudley, President & CEO of J. W. Burress, headquartered in Roanoke, Va. The dealership represents Doosan/Daewoo, Dynapac, Euclid/ Hitachi, Finn, Gomaco, Grove, Hitachi, Kawasaki, Manitowoc, National Crane and Terex among others.
The Midwest is also feeling the slowdown in housing.
"The slow down in residential construction has had a negative impact on equipment sales to contractors who focus on housing," says Dale Leppo, chairman of Leppo Rents/Bobcat of Akron headquartered in Tallmadge, Ohio and 2006 Chairman of AED. "This trend has been most obvious for compact equipment sales in many markets. "Contractors who are focused on commercial; industrial and institutional building are busy and expect to be busy in 2007."
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