Big names in construction equipment are going global. South Korea's Doosan Infracore, owner of the Daewoo brand, bought Ingersoll-Rand's Bobcat division in July.
Everyone from private homeowners to construction materials suppliers is feeling the ripple effects of slower residential construction in 2007. Even with public and commercial construction activity steady, equipment manufacturers have experienced slowing new sales.
Frank Manfredi, president of Manfredi & Associates and publisher of the Machinery Outlook monthly newsletter, is in a good spot to forecast new equipment sales. He recently provided his subscribers a snapshot of the construction equipment market in his “Heard in the Dirt” editorial.
Manfredi looks at four main equipment markets: housing, non-residential, heavy construction, and mining. While he cautions that forecasting is generally a touchy subject, he admits, “this time around, the signals are not mixed.”
He suggests new equipment sales in the residential construction market drive demand for other construction segments. Strong residential building leads to additional infrastructure, commercial, and institutional construction to support new communities.
However, these markets soften when activity declines. Manfredi estimates sales of housing construction equipment, such as tractor loader backhoes and skid steer loaders, are down 20% to 35% this year. He does not expect the housing market to turn around for at least another nine to 12 months.
Despite robust growth in the past year, many experts believe that non-residential construction has also begun to slow. This is why Manfredi expects demand for medium-sized machines and other nonresidential products, such as earthmovers, to remain “relatively flat during 2008.” He predicts the same for heavy construction equipment, including all types of cranes and personnel lifts.
Mining is the one exception to the cautious forecast. “Mining is wonderful,” he reports. “Most manufacturers of the really big [equipment] are sold out for several years.”It's the economy...
His outlook also corresponds with the Portland Cement Association's forecast: Economic growth will be slow this year and next, with “more downside risk than upside potential in construction equipment markets.” In fact, Manfredi has seen the equipment market decline even further since his forecast was published. He has a warning for equipment manufacturers: Watch your inventories.
While equipment sales may be flat in the U.S., Manfredi says the global picture is far different. Equipment manufacturers continue to expand in other parts of the world while continuing to invest in technology. Developments within just the last six months include Cummins building a fuel systems plant in China, Volvo expanding into Russia, and Caterpillar acquiring Euronov, a European remanufacturing company.
Manufacturers are now enjoying strong sales in Europe and in developing markets like Russia and India. Depending on inventories, they may not have to cut prices here. In fact, if sales are down in North America and the U.S. dollar remains weak, U.S. equipment manufacturers would profit more from exporting.
But not all equipment manufacturers adopt this strategy. Manfredi believes North America still appears to have more excess new equipment inventory than the rest of the world. With this in mind, producers may find their dollars stretching further, especially with North American-based equipment manufacturers.
This could mean producers should start buying. Even though many may trim capital expenditures until the construction outlook improves, it might pay to watch for lower end-of-the year equipment prices. Investing in discounted equipment now could translate to extra money in the 2008 budget.
Visitwww.machineryoutlook.comor telephone Manfredi & Associates at 847-949-9080.