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.