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Pent Up Demand + Infrastructure Funding Benefits Heavy Equipment

Posted by Tom Lombardo | Thu, Aug 21, 2014 @ 10:00 AM

How do I increase heavy equipment salesIt’s common knowledge in the heavy equipment and construction industries that the nation’s infrastructure desperately needs to be maintained and upgraded, but despite strong public demand and support for making that happen, governments have been unable to establish sustainable financing.

The federal government seems to be leading through inertia rather than goal-setting. Is it good news that Congress passed the Highway and Transportation Funding Act of 2014 earlier this month? Well, Congress didn’t act until the Congressional Budget Office reported that the Highway Transportation Fund would run out of money on September 30, and then they simply passed a stop-gap measure to maintain an inadequate status quo until the 2015 fiscal year ends – at which time Washington may be unable to do much other than obsess on the 2016 elections.

Does that mean Congress just kicked the can down the road a year while ignoring the need for a long-term, sustainable plan for infrastructure construction and maintenance?

Analysts think so. They go back to the 1990s for causes, but the bottom line is simple enough: the government isn’t collecting enough to cover its current spending, let alone enough to invest in the future, leaving some of your clients wondering if they’ll get paid for projects already underway. More than half of states have cut back on highway lettings and a third have canceled projects outright.

And because of this, two thirds of heavy equipment distributors say that customers have been delaying purchases.

Rather than take the obviously necessary step of finding stable revenue – the Associated General Contractors of America wants a gas tax – Congress has threatened to find “creative” financing. Other examples of Congress’ “creativity” include privatizing energy until Enron practically bankrupted Southern California Edison and allowing Goldman Sachs and others to bundle Fannie and Freddie mortgages into “Collateralized Debt Obligations” that, upon their collapse, cut housing starts by practically three quarters.

Relying upon similarly “creative” financing to provide the country with infrastructure strikes many analysts as a recipe for disaster.

Further complicating the near-term outlook for heavy equipment dealers, emissions requirements for diesel engines are placing pressure especially upon many smaller contractors to either buy new or to retrofit. No one questions the goal of reducing particulates and nitrogen oxides, but since many contractors bought used equipment that was compliant at the time they purchased it, the burden of a retrofit can often be a significant unforeseen expense. Fortunately, the EPA has tried a few pilot programs providing funds for environmental upgrades, and while they apparently worked extremely well, as of this writing there are no plans to expand them.

Which means your customer probably wants to buy, and will probably save until he can do so. Which seems to be what’s happening: nationwide heavy equipment new business volume grew 9.3% since last year. While it’s true that’s less than the 16.5% annual growth we saw in each of the previous two years, it’s important to recall that the recession dropped your business 30%. Those two years only brought you back to 94% of where you were before the recession.

This year’s 9% pushes you over 100% and brings you back to where you were five years ago. Given the pressures upon your market right now, this growth almost certainly implies that there is a massive demand just below the surface, ready to explode when some stability returns to the infrastructure construction market.

Thankfully, your manufacturers are priming the pump to meet it with machines that outperform. Tier 4 Final becomes a regulatory fact on the first day of 2015, and most OEMs say that their newest releases exceed Tier 4 requirements by a long shot, which means your smaller contractor can plan to own his new machine for the full thirty years he needs.

And it’s not just about reducing pollution and increasing fuel efficiency – advances in electronics and hydraulics make these significantly nicer machines. Many have auto-idling and auto-stop features designed to reduce fuel consumption. One backhoe manufacturer figured out how to reduce “rocking-horse oscillations” while lifting and carrying, reducing spillage and operator fatigue. Others have improved ventilation in the cab, or devised systems that can memorize different work modes.

The EPA hasn’t come up with a standardized way to measure “MPG” for your equipment, so most manufacturers compare their new models to their old ones, highlighting their advances but not really helping a buyer to compare. Nevertheless, we have to marvel at some of their improvements in “gallons per hour,” which range from 15% to an astronomical 30% better.

Interestingly, as though with that smaller contractor in mind, some manufacturers are offering lifetime warranties to buyers of these new machines – but the warranty can’t be transferred, indicating that they are designing these machines to establish long-term relationships.

Given the mix of threats, requirements, opportunities and needs impacting heavy equipment dealers today, the safest bet for your business development may be to assume that your buyer is salivating over your stock and just waiting until he has the funds to buy. Contractors who come in to “just look” are probably estimating down payment requirements and fuel savings compared to loan installments, and the very day those numbers click he’ll get out his checkbook to close the deal.

If you’ve been nurturing that sale for months – years perhaps, given all your industry has been through – you and your customer both want the experience of transferring ownership to be as pleasant and as positive as possible. Since contractors dealing with uneven cash flow and steady cash outlays may sometimes experience gaps in funding, the last thing you want to do is accept his check payment only to have it returned unpaid.

Make sure you complete the experience for your client and keep the business for yourself by working with a check guarantee company whose thirty years of proprietary data and industry-leading algorithms produce the highest check approval ratio in the market, and, the payments are guaranteed. Learn more here.

 

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Topics: Heavy Equipment

Written by Tom Lombardo