Too much inventory is just one part of the story for sluggish new equipment sales. An article in the Wall Street Journal suggests that direct leasing heavy equipment from OEMs is creating competition for those same manufacturers.
Trends toward leases and rentals are creating larger fleets of used equipment that trickle down the value chain into a crowded secondhand market, the article suggests.
While leasing a new construction crane or compact skid-steer loader is as good for a manufacturer’s production volume as selling it outright, a leasing splurge can create unwanted competition for new models by flooding the used market with machines.
The article cited Barclays Research data that reported almost 40 percent of construction-equipment sales financed by Deere’s credit unit are for leases, up from about 30 percent two years ago and double a decade ago. Half of Volvo’s financed construction-equipment sales are for leases, up from a quarter 10 years ago, according to Barclays. Volvo declined to comment on its strategy for used equipment and leases. Deere said it has recently lengthened lease terms and raised payments to drive down residual values at the end to of the leases to reflect lower prices for used equipment.
“A guy can lease a machine for a year or two and pay as little as one-third of what he could get it for as a rental,” said Frank Fowler, senior vice president of used equipment at Ring Power, a Caterpillar dealer in St. Augustine, Florida.
Read the article, Heavy-Equipment Glut Weighs on Machine Makers.
Source: Wall Street Journal