Downturn Took a Hard Toll on Dealers - Inside AED
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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Downturn Took a Hard Toll on Dealers

By Christian Klein

Article Date: 06-01-2010
Copyright(C) 2010 Associated Equipment Distributors. All Rights Reserved.


Survey illustrates impact of industry depression, members’ recovery priorities


AED’s 2010 Government Affairs Survey, conducted during the first two weeks of April, provides important insights about the impact of the equipment industry depression on AED members, the benefits of recent stimulus legislation, and distributor policy priorities.
 
Impact of the Equipment Industry Recession
The survey confirms the devastating toll the recent economic downturn has taken on equipment distributors. Since January 2007, AED members have taken difficult and painful steps to keep their companies in business:
  • 75 percent of AED members have laid off workers
  • 68 percent have eliminated positions through attrition
  • 64 percent have reduced salaries and wages
  • 64 percent have sold equipment from their rental fleets at a loss
  • 36 percent have reduced health insurance benefits
  • 32 percent have suspended participation in a workforce development program (e.g., training partnership with a local community college)
  • 21 percent have cancelled the opening of a new facility
  • 17 percent have closed one or more facilities
 
Impact of the Credit Crisis
Eighty percent of survey respondents report losing revenue over the past year because a qualified customer (or customers) was unable to get credit to finance equipment purchases. Forty percent report losing more than $1 million in revenues. By an extremely conservative estimate, survey respondents have together lost $75 million in revenues because of customer credit issues.
 
When the results are projected across AED’s entire U.S. distributor membership, equipment distributors have conservatively lost more than $475 million in revenues over the past year because equipment purchasers could not find financing. By combining the results of this survey and last year’s (which asked the same question), we estimate AED members have lost more than $1.2 billion over the past two years because of the tightening of credit.
 
The credit crunch has not just affected equipment markets; it has made it more difficult for distributors to run their companies. Fifty-nine percent of respondents have seen an increase in credit costs over the past year, and 40 percent have had difficulty securing credit.
 
Stimulus: What Worked and What Didn’t
The survey asked AED members a number of questions about the impact of the 2009 American Recovery and Reinvestment Act (ARRA or “the stimulus bill”). The results suggest that ARRA’s infrastructure spending had some impact on equipment sales, as well as on equipment rental and product support business. However, the most benefit came from the capital investment incentives (50 percent depreciation bonus and increased Sec. 179 expensing levels). Twice as many members report sales attributable to the capital investment incentives as to ARRA’s infrastructure spending.
 
Infrastructure, Credit Are Critical to Industry Recovery
Members were asked to rate the beneficial impact of the various policy solutions AED is advocating to help distributors recover from the industry depression. Based on average ratings on a five-point scale (1 being “no impact” and 5 being “very beneficial”), survey respondents prioritize our public policy objectives as follows:

1. Enacting a new, multiyear highway bill that increases investment in roads, bridges, and transit (average score of 4.18)
2. Improving access to credit for distributors, contractors, developers (4.00)
3. Enacting a new multiyear water infrastructure bill that increases investment in sewers and drinking water systems (3.99)
4. Reinstating the 50 percent depreciation bonus for new equipment purchases (3.85)
5. Resolving the uncertainty surrounding the estate tax (3.81)
6. Creating a new tax credit for the purchase of “clean diesel” equipment (3.39)
7. Increasing federal investment in broadband infrastructure (3.06)
 
Beneficial Impact of a Multiyear Highway Bill
Enacting a multiyear surface transportation bill that increases highway and bridge funding would create jobs in the equipment industry and increase demand for equipment (which would help ailing manufacturers). Specifically:
  • 69 percent of respondents said they would add equipment to their rental fleets if Congress enacts a new multiyear highway bill that increases road and bridge investment
  • 46 percent would rehire laid off workers
  • 37 percent would add new positions
  • 4 percent would open a new facility (or facilities)
  • 2 percent would reopen a closed facility
 
Distributors Are Highly Skeptical About New Health Care Law
Consistent with the surge in grassroots opposition from AED members prior to the enactment of the new health care reform law, AED members are very concerned about the law’s negative impact:
  • 85 percent believe the new health care law will undermine the quality of health care, increase costs and taxes for their companies, and make it harder for them to provide insurance to their employees
  • 11 percent think that the new law won’t have much impact, whether positive or negative
  • 4 percent think it will improve health care, reduce insurance costs, and make it easier to provide insurance to employees
 
Tax Issues Are Greatest Threat
Members were asked to assess the negative impact on their companies of pending tax, labor, and environmental policy proposals on a scale of one to five (1 meaning “no impact” and 5 meaning “very negative impact”). Respondents prioritized the threats as follows:

1.Increasing capital gains tax rates (average score of 4.44)
2.Allowing the new 3 percent tax on government contractors to go into effect as planned in 2012 (4.36)
3.Increasing marginal tax rates (4.34)
4.Unilaterally imposing limits on U.S. carbon emissions through climate change legislation or new EPA regulations (4.31)
5.Allowing the National Labor Relations Board to alter current policies to make it easier for unions to organize (4.25)
6.Eliminating right to secret ballots in union organizing elections (card check) (4.23)
7.Imposing binding arbitration on union contract negotiations (3.97)
8.Repealing LIFO (3.08)

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