Watch Used Equipment as a Recovery IndicatorBy Kim Phelan
Article Date: 10-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.
A few highlights from one market analyst’s meetings with executives from Deere, CNH, Caterpillar and Komatsu
While I was busy taking in the wealth of knowledge being dispersed throughout the loaded Executive Forum program on Thursday, Sept. 10, my friend Mark Koznarek was busy gathering his own collection of deep industry insight.
Mark is a founding partner of Cleveland Research Co., who specializes in heavy machinery market analysis – on this particular day, he and his colleague Joe Calvello, embarked on their annual Big Iron Day, a full agenda of face-to-face meetings with four of the world’s top construction equipment manufacturers. I thought it would have been great to be a fly on the wall to hear these dialogs, but as flies aren’t well equipped for notetaking, Mark thankfully provided me with a much better alternative: He generously offered to share the highlights of those visits – and he gave me permission to share them with you. I’ve selected just a handful of key excerpts I found especially noteworthy.
Deere Meeting
Executives told Mark that on the credit scene, the "worst is behind us." For Construction & Forestry, inventory level is two to three months; half that of their competitors. Stimulus demand for equipment will be small in 2010 as the erosion in state budgets offsets much of the federal stimulus spending. Overall, government spending is forecast up 3 percent, below prior expectations. DE is forecasting a sizable pickup in housing starts to 870k units in 2010, but sees nonres. construction down (14 percent). In NA, the CE demand is down about 70 percent from the ‘06 peak, far below normal cycle troughs.
CNH Global Meeting
For construction equipment, one executive said, "I think we are close to the bottom." The company’s CE Strategic Evaluation is still developing. The goal is to simplify the overlapping excavator joint ventures (JVs) with both Sumitomo and Kobelco...CNH desires 100 percent control rather than JV arrangements. Parting thoughts: "We are seeing some recovery in the capital markets. The used equipment market will be an important indication [of recovery] and should be watched carefully." CE production is down (70 percent) 2H from ’08 levels.
Caterpillar Meeting
A tour of the Aurora, Ill., wheel loader and excavator plant revealed about 50 percent implementation of the CAT Production System there – automation was much more evident than in past visits, which is expected to impact both quality and costs. Other key points: Dealer inventory reduction of $3 billion is underway to get to three months level. This drawdown is a major part of the production cut – about 20 percentage points of the 70 percent manufacturing reduction. Market comment: U.S. market is the big disappointment, down 75 percent from prior peak in 2006-07.
Komatsu Meeting (N. America Construction)
"Watch used equipment pricing" as an indicator for future demand recovery. Machine monthly unit sales have been down roughly 50 percent yr/yr since April; but the August decline may have moderated a bit. Parts sales have picked up over the last two to three months in N. America. Thoughts on cycle recovery: Housing may not be a driver for new equipment sales until housing starts exceed 1.0mm units. The 2010 highway bill reauthorization could have a positive impact if the budget is expanded from recent trend. Regarding NA Stimulus – executives initially thought the $787 billion program would create demand for 4k-5k new machines; they now have revised that to 2k units.
Thanks for reading. If you’d like to talk to Mark, he can be reached at 216-649-7206, or mkoznarek@cleveland-research.com
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