Are You Ready?

Rod Sutton, Editor in Chief | September 28, 2010

Rod Sutton, Editor in Chief
Rod Sutton, Editor in Chief

Equipment manufacturers are starting to believe. For months, they've hesitated as backlog levels crept up, not wanting to over-commit to production ramp-ups. But equipment demand continues to rise. Many manufacturers we interviewed say they're adding capacity as backlogs reach "meaningful" levels.

They'll need it. Nearly half of the managers of the nation's largest fleets (estimated replacement value of $25 million and more) plan to buy new equipment this year, according to Construction Equipment's annual Giants report (see page 22). More staggering, 88 percent of the nation's largest rental firms have similar plans.

Add to this the demand for equipment as Federal highway money starts flowing, and equipment managers need to consider just where they're going to obtain the machines they'll need.

We've already seen substantial purchasing by the rental managers as they refresh their aging fleets. Not only is this putting pressure on the new-equipment pipeline, but it's also enabling rental firms to start raising their rates on these younger fleets. Additional motivation for rate increases will come as equipment owners turn to rental when they can't find new equipment.

Equipment managers can't afford to be unprepared over the next six months or so. Obviously, the best strategy is to plan purchases. If a manager waits too long, expecting a quick turnaround on a new-machine order, he'll be disappointed. But the manager who tracks machine average age and knows the trend lines on his owning-and-operating cost will be able to put a good estimate on when a new machine will be required. That kind of information allows him to place the order well in advance of need.

But managers must consider their rental strategies, too. Nurture excellent relationships with distributors and rental dealers, and don't take too hard of a stance on rate increases. Availability and dependability will far outweigh rates in coming months. And evaluate rental-purchase agreements. New machines offer new technologies that promise productivity. Take advantage of these opportunities to operate machines with an option to buy.

The construction-equipment market isn't going to cool down soon. Keep an eye on fleet data in order to place the order in time to acquire the machine. Fleet planning and the maintenance of healthy supplier relationships will ensure the most productive machines will be available.