Posted by Tom Lombardo on Wed, May 13, 2015 @ 08:36 AM
We have proof! The heavy equipment industry’s recovery must be solid because, over the course of last year, recreation and amusement park construction shot up 24%.
For eight tough years we’ve been listening to that slow, laborious clicking sound dragging us up to the first crest, and now we might finally get to enjoy swooping through the ride for a while.
But what’s selling, why it’s selling, and what your contractors are doing to defray their costs might significantly impact your business development for this year and next.
Private Industry’s On the Ride….
In the near term, lodging and office construction, along with the sewage infrastructure they require, leaped by a fifth. That’s good news in several ways, with perhaps the most important being that strong demand for buildings where business takes place indicates that more business will take place in the near future.
The housing industry seems to be relying upon this trend. Residential construction dipped a couple points, but thankfully housing starts have ticked up a bit, and analysts expect the trend to continue.
Still, by far the biggest standout in the recovery category is manufacturing. The “buy local” and “buy American” trends, along with rising wages in China and other outsourcing hubs, have brought manufacturing back to the United States in a big way. Construction in the manufacturing space ballooned more than 50% in the last year alone.
If you’re thinking those amusement parks are going to sell a lot more tickets this summer, you’re probably right. More jobs in office buildings, more jobs in hospitality and more jobs in manufacturing add up to what the Wall Street Journal called “job nirvana.” That’s an unemployment rate at 5%, which economists consider full employment, and which we might have already attained.
It’s not all rainbows and kittens, of course, as the recovery left behind some geographical areas altogether, and average Americans earn less now than they did in 1996.
But from a heavy equipment dealer’s point of view, the missing piece in this recovery is not the consumer – its infrastructure.
…Although the Government Didn’t Get On
Publicly funded construction basically flattened, which in a tax-adverse environment might be acceptable, except when it comes to infrastructure that the public really needs.
We might be happy to forego yet another federal office building full of bureaucrats, but the twelve point drop in public safety spending – falling from an already anemic level – might be cause for alarm to a lot more people than just those selling equipment to the firms who could have built it.
Same goes for the fourteen point drop in power facility construction. And the six point drop in highway construction will probably get even worse, since Congress just resolved to cut transportation spending another 22%.
Public infrastructure contracts have been hard to come by for a long time now, and with no relief on the horizon, President Obama has asked communities to find creative ways to fund more with his Build America initiative.
Contractors Get Creative
In this environment, contractors have begun looking at their equipment in new light.
We all knew there was tremendous pent up demand for Tier 4 machines, and that’s finally starting to manifest. In response to the increased demand for their services, at least in the private sector, over the course of the last year even mid-sized and large road builders have been buying more new equipment than used:
Not surprisingly, smaller contractors have been buying up the used equipment those purchases sometimes make available. Heavy equipment dealers can pursue opportunities in both markets, and can help their contractors get the most out of their purchases – especially if they can close the deal and suggest ways to recoup some of the cost.
First, thanks to technology, the new equipment itself can have a lower cost of ownership. Radical advances in diesel engines have produced some pretty amazing vehicles, including a fleet truck that can get incredible mileage even when hauling a full load.
The long-term future of diesel seems to be a safe bet as well, especially now that Audi has figured out how to make it from air and water. When their process is powered by renewable resources, the fuel has a net-zero impact upon the atmosphere, boding well for its viability even as environmental concerns become more and more relevant to the heavy equipment and construction industries.
This year and next, watch for another trend to grow in importance: adopting an established method in the auto market, manufacturers like Navistar have begun to offer “certified pre-owned” equipment with a warranty, greatly reducing the risk a small contractor needs to take when he buys it. Now that that idea has entered the heavy equipment market, it may begin to gather force the same way it did in the auto market.
Helping your contractors mitigate risk can be an excellent component of your business development. So, for those mid-sized and large customers who automatically get warranties with their new machines, dealers might take a cue from Caterpillar.
They just made a significant investment in Yard Club, a web-based application that enables contractors to rent idle equipment to each other.
Why let that crane sit there doing nothing when it could be generating revenue – maybe by building a roller coaster? Helping your contractor recoup some of his investment in a relatively passive way might put him in a position to buy more equipment sooner.
Many contractors find the idea compelling, and while the concept is new to your industry it seems likely that Caterpillar is on the right track. Airbnb, which does the same thing for empty rooms, started out in 2008 as a way to help attendees coming to a single conference in San Francisco. It’s now worth $20 billion.
If you set out to help your contractors in any of these ways, you might want to have a partner protecting you from risk as well. A lot of our heavy equipment dealers accept up to 70% of their revenue in the form of checks. Why risk it when you can have it guaranteed? Make sure you can enjoy the ride. Find out how here.