CrossCheck Blog

When trying to polish their crystal ball to divine how the Federal Reserve's meeting next week might affect the heavy equipment industry, most pundits focus on the capitalization rate in real estate. Since it's a basic ratio measuring the yield on a real estate investment, it changes constantly with market forces.

The heavy equipment industry seems to be working feverishly to overcome an economic recovery that keeps hitting snags: China devalued the yuan to pump up demand for her exports, hoping the move would arrest a stock market slide that’s hammering regular workers and international investors alike. In July, OPEC increased its oil production to the highest level in three years, driving the price down to a six-year low. The dollar just keeps getting stronger (too much of a good thing), shrinking our Federal deficit to what it was before the taxpayers bailed out Wall Street but also making global sales harder.

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%.

Now that the construction industry has finally regained its footing, heavy equipment dealership owners and managers face the difficult task of trying to foresee what their contractors will need and how they’ll want to pay to for it. We’re polishing our crystal ball as furiously as you are, and while it’s still not giving us clear answers there’s certainly a happy glimmer coming into focus.

When the people of Seattle, Washington, decided that the Federal Minimum Wage of $7.25 an hour, which adds up to an annual gross of $15,080 for a full-time job, was unjust and that they would increase it to $15 over three years, critics went into an uproar. Wall Street economists confidently predicted disaster, asserting that a higher minimum would force employers to eliminate jobs, defeating the proponents’ objective to relieve poverty.

Given the challenges facing your industry right now, this counts as spectacular news: Over the course of the last twelve months 53% of heavy equipment dealers saw their gross margin improve and another 25% remained flat. Only about 1 in five declined.

It’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.

According to Wells Fargo’s 2014 Construction Industry Forecast, contractors across the country still see “economic uncertainty” as the greatest risk to your industry – but they’re also three times more optimistic now than they were in 2009. With good reason: housing starts are way up, especially multi-family projects, and the American Road & Transportation Builders Association expects to see a five percent increase in infrastructure construction this year.

If a piece of poorly maintained heavy equipment breaks down on the job then most often everything grinds to a halt. This wastes money and time while creating frustration and, perhaps most crippling of all, it lowers the goodwill of your client. That is the last thing you want compromised now since, according to Equipment World, construction spending is finally “up 8.6 percent year-over-year to the highest rate since March 2009.”

As cities are built to reach higher, the air gets hazier with a layer of smog. It’s harder to see, harder to breathe, harder for plants and animals to thrive. Fuel emissions from cars, trucks, bulldozers, tractors and other heavy equipment add to these unhealthy conditions daily.