Back to the Middle

By Staff | September 28, 2010

Distributors said 2007 was an "average" year, down from their expectation for a "good" year. Two regions, New England and South Atlantic, were "off." On the other hand, Southern Plains and Mountain regions had better years, at "very good."

Five regions forecast this year to be worse than 2007 and three see it being better, making 2008 another "average" year overall.

In light of the falloff in business rating, smaller percentages of distributors reported "significant" growth last year in various areas of their businesses. Parts sales led all categories of growth, with 36 percent of distributors responding.

Slipping margins on machine sales is the key concern for distributors heading into 2008. Others noted by more than 60 percent of respondents were possible recession and declining machine sales.

Business year ratings dropped from "very good" to "average" in 2007, which is less than the "good" year forecast. Next year is expected to be "average," too.

Margins dropped for 38 percent of distributors last year, the most since 2003. Similarly, 16 percent said margins were higher in 2007 compared to 2006.

After strongly rebounding from the post-9/11 valley, distributors are starting to cycle down. Although forecasting a drop in 2007 business when asked late in 2006, actual business ratings for last year were worse than expected. Distributors forecast a “good” year for 2007, but instead registered “average.”

For 2008, distributors expect another “average” business year.

Members of the Associated Equipment Distributors, who partnered with Construction Equipment for this report, said 2007 sales volume was similar to that reported in 2006. About 45 percent reported volume increased in 2007 and 44 reported a decrease, for a net of 1 versus a forecast of 31. At the extremes, 23 percent said sales volume increased more than 5 percent in 2007, compared to 2006. On the other hand, 29 percent said volume decreased more then 5 percent for the year. For 2008, 52 percent expect sales to grow and 29 expect it to decline for a net forecast of 23.

Distributors reported “significant” increases in sales in several business areas, although the percentages were smaller than in previous years. Some 36 percent reported growth in parts sales, 32 percent said service volume grew, 31 percent each saw new-equipment sales and rent-to-rent volume increase.

Margins reflected a similar tightening, with 39 percent of distributors reporting lower margins on new-equipment sales in 2007 than in 2006. Some 16 percent, on the other hand, said margins grew last year. The net, though, is -23. Poor margins is the key concern for 2008, distributors report, as 65 percent identified this aspect of their business as a concern.

Rising interest rates, which last year concerned 71 percent of distributors, has fallen down the list for 2008; only 34 percent foresee it being an issue. Other concerns for 2008 include recession, declining machine sales, and increasing competition.

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