2007 Regional OutlookWritten By Scott Judy, Eileen Scwartz, Sam Barnes, Craig Barner, Tom Stabile, Lucy Bodilly, Brad Fullmer, Bruce Buckley, Scott Blair, Joe Florkowski
Article Date: 08-01-2007
Copyright (C) 2007 Associated Equipment Distributors. All Rights Reserved.
Down But Not Out: Southeast Looks Ahead for Rebound
The soft housing market is impacting some equipment distributors more than others.
In Florida, new housing starts – from the development of large-scale, single-family subdivisions to high-rise multifamily projects – have slowed markedly. According to McGraw-Hill Construction’s latest estimates through the first five months of 2007, the value of new residential project starts in Florida is approximately 51 percent behind last year’s pace. As a result, distributors specializing in the equipment used in the development of residential projects are experiencing decreased business.
Chris Wilmot, president of Flagler Construction Equipment, Orlando, says his company is definitely feeling the impact.
“Contractors in the earthmoving side are reluctant to buy units right now because they’re in a wait-and-see posture,” he said. “Articulated trucks are really slow. And wheel loaders and excavators still have a diminished market number. It’s totally related to the housing industry.”
Meanwhile, Wilmot said highway work is a bright spot, with pavers, rollers and asphalt distributors still in demand. Sales to commercial construction and material handling and processing also remain robust.
Though the housing market in Florida is expected to be soft for a while, Wilmot says Flagler Construction Equipment – which covers most of Florida – is upbeat about the state’s long-term prospects.
For the rest of ’07, Wilmot says, “You just need to mind your Ps and Qs. I think the Florida market will stay flat. If you believe in the traditional strength of the Florida market, you’ve got to feel comfortable that it will rebound, probably in early to mid-2008.”
Equipment dealers that aren’t as dependent upon the housing market aren’t reporting a slowdown.
“There really hasn’t been a great increase, and we haven’t experienced much of a slowdown,” said Jeff Wearing, president of Ready Rent-All. “It’s mostly steady.”
Ready Rent-All, headquartered in Decatur, Ga., covers a 10-county area surrounding Atlanta. Wearing says his firm is still moving plenty of smaller loaders and mini-excavators, mostly to the commercial and industrial construction markets.
“We rent a lot of compressors and generators to the industrial market,” he said. The construction of hospitals and schools, plentiful in his territory, is also driving considerable business activity.
For the rest of the year, Wearing remains upbeat.
“I believe there will be a slight increase this year,” he said. “If we hold at 2 to 3 percent, I’d be happy.”
–Scott Judy is the editor of Southeast Construction.
South Central Dealers Report Demand Is Steady
While concerns remain about material costs and federal funding, equipment dealers in the South Central states are reporting a steady market for 2007.
“It’s hard to see beyond a year,” says G. Bennett Closner, president and CEO of Closner Equipment in San Antonio and senior vice president of AED. “But in Texas, and other areas of the South, we’re optimistic.”
AT CLM Equipment of Lafayette, La., Vicki Collins, director of human resources & marketing, says demand is still high, but supply is starting to catch up.
“Demand is probably consistent with the last year or two, but manufacturers have stepped up production,” Collins said.
Remembering a period three years ago, when contractors were often required to provide at least four months of lead time to equipment distributors, Collins said, “It was bad. We didn’t have iron on the ground and we didn’t know when we could get it.”
Today, she says, many manufacturers have machines sitting in their warehouses and can ship immediately. Lead times rarely exceed 60 days. With some manufacturers ramping up supply and the housing market slumping in parts of the country, Collins says prices are beginning to come down for some products.
Still, says Closner, if material costs continue to escalate worldwide, prices will have to go up.
“And if federal funding isn’t there,” he said, “fewer projects will be let. That’s already happening in Texas on governmental projects.”
Housing, however, is not a concern in Texas.
“People are coming to Texas,” said Closner, “and other parts of the South looking for places where the cost of living is less and there is job growth.”
Jim Anderson, president of Corpus Christi-based Anderson Machinery agrees and says his first-half profit margin this year was better than the second half of 2006.
–Eileen Schwartz is editor of Texas Construction. Sam Barnes is editor of Southcentral Construction.
Midwest's Mega Projects Offset Housing Slowdown
The market for construction equipment in the Midwest is flat.
“Rental sales are up, but new-equipment sales are flat to down slightly,” said Chris MacAllister, president of Indianapolis-based MacAllister Machinery.
He attributes the upswing in rentals to mega-projects in Central Indiana, including the $1 billion- Indianapolis International Airport expansion, the $675-million Lucas Oil Stadium, the $275-million expansion of the Indiana Convention Center, and ethanol facilities.
Aerial lifts, says MacAllister, are particularly in demand because of these major projects. Skid-steer loader and scraper sales are also good.
Still, some dealers are reporting softening sales.
“The market in our area is down,” says Mike Soley Jr., president and CEO of Sussex, Wis.-based Miller-Bradford & Risberg. “Depending on the product, you’re looking at 7 to 14 percent declines.”
McGraw-Hill Construction reports starts in first-quarter 2007 were down compared to 2006 throughout the region: Milwaukee was down 77 percent; St. Louis was down 23 percent; Chicago was down 13 percent; and Indianapolis was down 4 percent.
“Residential is continuing to work through inventory,” said Soley.
The climate in first-quarter and early second-quarter 2007, when the buying season kicks off, also impacted the market, says Dennis Kruepke, president and CEO of Addison, Ill.-based McCann Industries. It was cooler and wetter this year compared with 2006.
“Contractors didn’t get going as soon this year as last,” he said. “Plus, the decline in housing affected some of our rental products.”
On the upside, commercial construction is strong in the region and is expected to stay that way as long as interest rates are stable. Public works projects also continue steady.
Even in a slower market, some dealers are finding a way to stay competitive.
“For our company, equipment sales are tracking higher than a year ago,” said McCann’s Kruepke. He attributes the increase to extensive training of salespeople, better alignment of inventory with demand, and a recent open house.
Similarly, MacAllister has aggressively grown its business, opening two stores in 2006 and two this year.
“I suspect we’ve taken a bit of share from our competitors,” says MacAllister.
–Craig Barner is editor of Midwest Construction magazine.
Federal Emission Rules and Soft Markets Slow Northeast's Sales, Rentals
New federal emissions rules and a slower residential market are influencing construction equipment sales in the Northeast, but business may rebound this year, say regional dealers.
In upstate New York, heavy equipment sales were off in the first half of 2007, says Scott Collins, vice president of sales and marketing for Tracey Road Equipment of East Syracuse, N.Y., which sells highway, municipal, utility, transportation, and excavation units and has other locations in Binghamton, Rochester, Albany and Watertown.
"Our market right now is flat,” said Collins. “Last year was a record year for us. This year we’re off 40 percent.”
Collins says last year’s strong finish stemmed from new federal emissions rules for on- and off-road equipment. The rules – which mandate use of ultra low sulfur diesel fuels (ULSD) and cut emissions of nitrogen oxides and particulate matter – went into effect this year for non-road equipment, spurring customers to buy up older inventory.
“ULSD rules have driven up the cost of some equipment by $8,000 to $12,000,” says Jerry Tracey, president of Tracey Road Equipment. Higher fuel prices have also hurt sales, according to Tracey.
Although Pine Bush Equipment of Pine Bush, N.Y., also saw customers buy up last year’s equipment, says Holly Bodnar, the firm’s president, revenue is steady.
“This year, our sales in units are lower but the types of units that are selling are larger, so the dollar volume is similar,” she said. “Buyers who use larger equipment are busy now, especially in commercial work.”
The slowest sector in upstate New York this year is residential, Collins says: “Housing is deplorable right now.”
Residential is also slow around the Hudson Valley area and in Connecticut, where Pine Bush is active.
Still, mini-excavators, which have been sales leaders in recent years, remain strong sellers, according to Bodnar. She also says wheel loaders are strong.
Despite the early blip this year, Tracey says sales should pick up in the fourth quarter.
“I think ’08 will be another strong year,” he said
–Tom Stabile is editor of New York Construction magazine.
Fuel Efficiency is at Top of Northwest Customers' Minds
Business is up about 20 percent over last year at Clyde West in Portland, Ore., says Patrick McDonnell, company president. The Volvo dealer credits the reputation of its machinery for fuel efficiency and the busy construction market for the upturn in sales.
“There are a lot of things contractors can’t control, but they can control the amount of fuel they use,” said McDonnell. “Some loaders use 10 to 12 gallons of fuel per hour and ours use three to four gallons less than that. It adds up to a huge savings.”
According to McDonnell, the dealership’s top sellers are excavators and wheel loaders. The city of Portland recently passed legislation that requires retail gas users to supplement their blends with 10 percent biofuel, but as of yet, it doesn’t apply to off-road construction vehicles.
“It would be great news for us, because biofuels are even more expensive than diesel, and people would have an even greater incentive to buy our products,” says McDonnell said.
Kristine Gittins, president of Triad Machinery in Portland says, “Our business has doubled since 2003, but our economist predicts 2008 and 2009 will see a drop of 8 to 12 percent. After that we’ll climb again.”
The company rents and sells equipment, but reports fewer people are using rent-to-purchase options these days, preferring to buy the equipment outright while interest rates are low, says Gittins. Cranes are the dealership’s biggest sellers right now, with all inventory sold through the first quarter of 2008.
“We have a lot of bridge work, which is increasing demand,” said Gittins.
Fuel efficiency, she says, is one of their customers’ top priorities these days, ranking behind price, but above customer support. PACO sells and rents heavy equipment: crawler cranes to 230 tons, drill rigs and pile drivers.
“Business is down a little bit from last year,” said Theodore Obertmeit, company president. “But we expect that to break loose pretty quick.”
New projects in Bellevue and Seattle, Wash., are expected to start soon, which will require drill rigs for foundation work. Obertmeit says the company’s 12 cranes are all rented.
“And that’s a pretty good indication of how busy contractors are now,” he says.
–Lucy Bodilly is editor of Northwest Construction magazine.
Strong Economy Couples with Sizzling Intermountain Construction Market
Dealers in this region agree that the equipment industry, for the most part, is about as hot as it’s ever been, and all signs are pointing to continued good times over the next two or three years, if not longer.
“2006 was our best year ever, and we’re expecting another strong year in 2007,” says Jeff Scott, vice president of Scott Machinery in Salt Lake City. “All of the industries that we service are very busy, including heavy/highway, mining, site and excavating, and landscaping. Everything is booming.”
Strong economic times in Utah and Idaho, coupled with a sizzling construction market, have led to record sales for many equipment dealers in the region.
“The market is obviously really good,” said Mike Thurman, branch manager for CATE Equipment’s Salt Lake City store. “2005 was our biggest year in rentals and sales, and in 2006, we topped that by 20 percent. It was a banner year.”
Elsewhere in Salt Lake City the reports are just as good.
“2006 was a record year for us in new machine deliveries,” says Bruce Jackson, sales manager of heavy construction for Wheeler Machinery in Salt Lake City.
And Mark Oviatt, president of Kimball Equipment of Salt Lake City, which sells and rents crushing and screening equipment, agrees.
“Sales in 2007 are slightly higher than last year,“ he said. “Most of our markets are as strong as last year.”
Oviatt says manufacturers are doing a pretty good job of meeting demand and lead times are no longer a factor.
“With a few product lines, delivery is out three to four months,” he says, “but most of it’s within a reasonable timeframe of six to eight weeks.”
Scott says long lead times and shortages are no longer the problem they were a couple of years ago as manufacturers have ramped up production of popular equipment, including compact equipment items like mini-excavators, skid-steer loaders and crawler loaders. Equipment dealers region-wide are looking for skilled mechanics and welders.
“There is a definite shortage of people,” says Jackson. “A good mechanic or good welder can write his own ticket. We’re offering scholarships and tool allowances. They can work part-time for us, go to school part-time, and when they graduate they’ve got a guaranteed job.”
–Brad Fullmer is editor of Intermountain Contractor magazine.
Mid-Atlantic Customers Are More Fuel Conscious
Despite slowdowns in residential construction, some Mid-Atlantic equipment dealers remain optimistic, with a bright commercial market spurring demand for cranes, light earthmoving equipment and aerial lifts.
“As long as the economy keeps strong, the equipment business should be good,” said Richard Dudley, president of J.W. Burress of Roanoke, Va.
Dudley says revenues are up this year, with sales of cranes particularly strong.
“There are a number of commercial and industrial projects that demand cranes—some of them very large cranes,” he said. “And although residential has slowed considerably, there is still a fair amount of work going on there, too.”
On the other hand, James Price, president of Bobcat of Baltimore, Md., reports residential construction, which comprises 80 percent of his business, has dried up. His sales of compact equipment to commercial contractors have increased, but forklift sales are slow.
“When residential turns around, and it will, we’ll have two sets of customers,” says Price. “We’re doing OK. I’ve been through this before. If you react fast, and keep inventory levels down and cash flowing, you win.”
“It’s very important these days because of the labor it takes to get in and out of the job to refill and because of the cost of fuel,” he says.
Dudley in Virginia also says his customers are starting to take a closer look at fuel efficiency. And electronic options, such as controls, he says are a deciding factor for many crane buyers.
Price says his customers are, for the most part, unconcerned about fuel efficiency, although he thinks it may be delaying some purchases. Overall, equipment dealers remain upbeat.
–Bruce Buckley is editor of Mid-Atlantic Construction magazine.
Even in the Southwest, Housing Slowdown is Hurting Sales
Equipment dealers in Nevada are experiencing a drop-off in activity compared to last year. North Las Vegas-based Apco Equipment President Dallas H. Moyer says one of their main products, Kawasaki wheel loaders, are
off 50 percent at his dealership and more than 66 percent in Clark County.
“It is directly related to the housing market,” he said. “We had so many investors coming into the market a couple of years ago when homes were hitting 50 percent appreciation.”
Now, thousands of homes are sitting on the market with up to a third empty, causing a sharp slowdown in new home construction.
“Until we can liquidate some of the homes that are sitting vacant, we’re in for a rough spot,” said Moyer. “It’s not as much fun as it used to be.”
However, commercial construction in Las Vegas and the entire Southwest is still extremely strong, and the highway and mining sectors in the region are also going strong. New Mexico’s Governor Richardson is continuing his aggressive highway rebuilding plan while Arizona’s DOT has many projects on the board. Moyer remains optimistic.
–Scott Blair is editor of Southwest Construction magazine.
Housing Slup Hits West Coast; Clean Air Rules Raise Optimism
California’s housing market slump is dramatically affecting some dealers and rental companies. Roseville-based Cones Equipment Rental in Northern California says work has dried up.
“It’s so dead in Northern California,” says owner Ron Cones. “We have absolutely nothing working.”
A majority of Cones’ work comes from renting large construction equipment to home builders. But the slowdown in the housing market is forcing Cones to look elsewhere for work, including out of state. Cones has dropped his rental rates to meet the fierce competition, and pay the bills and remain in business.
Things in Southern California are a little better for Temecula-based Rebel Rents. Housing has slowed, observes Doug Fleury, fleet manager for Rebel, “but we’re getting a lot of business from people who are remodeling,” he said.
Plus, rentals in commercial work continue to grow in Southern California, catching up to the wave of residential building that has occurred in the region, says Fleury.
Rebel Rents is also monitoring the status of proposed rules by California state air quality officials that, if adopted, would force construction companies to replace large portions of their construction fleets with machines that have more modern, cleaner-burning engines.
“It will force people to rent more to be compliant,” Fleury said.
–Joe Florkowski is assistant editor of California Construction magazine.
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