Equipment Type

Equipment Price Wars

The sizeable United States market is forcing manufacturers into dual strategies as government regulation adds cost to the manufacturing process.
September 26, 2013

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.

I grew up in small towns near Kewanee, Ill., the current home of Bomag. I can empathize as the town deals with the announcement that this long-time employer will be gone by the end of next year. Much of Kewanee’s production will move to or be absorbed by Oklahoma, Germany and China.

In a global marketplace, construction equipment manufacturers have myriad options for locating manufacturing plants. Bomag isn’t alone, of course, but it indicates a phenomenon brought about partially by U.S. market verities. The sizeable United States market—and Europe’s to a degree—is forcing manufacturers into dual strategies as government regulation adds cost to the manufacturing process.

U.S. and European emissions mandates have given us cleaner engines, but at the incredible expense of accelerated research and development and machine re-engineering. The cost of American human capital, measured by labor costs, will likely increase next year as implementation of the Patient Protection and Affordable Care Act commences. Manufacturers serving this great market see costs increasing for its plants here.

We know Tier 4 equipment will cost more; we know manufacturers worry about health care costs. We know that publically traded firms are accountable to shareholders who expect income growth, and we know right-to-work states see opportunities to lure manufacturing.

We know equipment buyers will be considering price as they begin revamping aging fleets.

Manufacturers must consider cost-saving moves such as the Kewanee closure. Global firms sell not only to the United States and Europe, but also to countries without emissions regulations or health care and safety requirements.

Global companies have developed U.S.-marketing strategies for decades, and those strategies continue today. Many set up shop in this country, hire U.S. personnel, and attempt to build local distribution. Overseas companies assemble and import product sold in North America. Some have built factories on these shores that supply world markets.

Manufacturers are playing in a split global market. So-called developed countries require different machine attributes than those moving up the “developmental” ladder. Some countries mandate Tier 4 engines; others do not. Some countries have no supply of low-sulfur diesel.

Price will play a more important role in the United States. Asset managers oversee budgets that must go further than they did 10 years ago, so manufacturers will not be able to fully pass along the R&D and labor costs being added to their operations.

Volvo may have something with its relationship with SDLG, enabling it to offer a “premium” brand and a “value” brand. Perhaps other global partnerships are in the making, too.

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