Equipment Type

Construction Equipment Dealers Bulking Up

March 11, 2011

Rod Sutton is editorial director of Construction Equipment magazine. He is in charge of editorial strategy and writes a monthly column for the magazine, The Sutton Report. He has more than 30 years in construction journalism, and has been with Construction Equipment since 2001.

OEM sales figures seem to indicate that construction equipment distributors are stocking up. What remains unclear are the drivers behind the inventory buildup. End-users are not purchasing all this iron, so either it is going into dealer inventories or into rental fleets.

Are dealers and OEMs preparing for a Tier 3 pre-buy? On-highway truck sales spiked with substantial pre-buys prior to the engine changes in 2007. Price increases and fear of the new technology drove those sales.

There’s little fear of Tier 4 technology in off-road vehicles, but there is concern about pricing. We know it’s costing manufacturers; we just don’t know what they’ll be able to pass along to end-users. Some are suggesting up to 10 percent premiums for Tier 4 machines.

If dealers can afford to carry an inventory of Tier 3 machines, there will be a market. The danger with this strategy is, obviously, capital investment. Perhaps OEMs are financing floor plans in an effort to move machines. Another danger, exacerbated by the Tier turnovers beginning this past January, is that current fleets have hours of unused life due to the lack of work during the recession.

There is a huge used-equipment market, and fleets of under-utilized machines. Average machine age will have to grow substantially before demand for new equipment is unleashed.

The other driver relates to the expectations for that eventual demand. Manufacturers know that when demand breaks, it will break hard. They are looking at their supply channels and manufacturing capabilities and wondering how quickly they will be able to ramp it up.

This all adds another layer of uncertainty to the construction equipment market. Buyers, prepare.

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