Breaking It Open

Sept. 28, 2010


Last year's "blue" map is gone, as all regions reported "good" or better business years in 2004. In stark contrast to the five "poor" regions in 2003, five regions reported "excellent" years. The Great Lakes region is the only region to report less than "very good."
Last year may be the best of the two, as 2005 expectations slip just a bit. Only three regions forecast "excellent" business for 2005, although all the other regions—including the Great Lakes—are calling for "very good" years. New England, Northern Plains and Southern Plains expect two straight "excellent" years.
New-equipment sales and parts sales led the resurgence in volume growth for equipment distributors last year. Service and service-contract business also grew.
Tight margins continue to plague distributors, as competition remains intense. Rising interest rates and machine shortages are putting on additional pressures as volume growth expectations continue strong.
In three years, distributor business ratings have moved from the lowest (1) to near the highest (15). Expectations remain high for 2005.
Although margins continue to be a concern, recent erosion has slowed. For 30 percent of distributors, margin increases were evident in 2004.

Equipment distributors burst through business barriers last year, and there is no sign of slowing. After three years of horrendous business reports ("off" and "poor," distributors blew by their conservative forecast for 2004 of "good" to report a "very good" year. Expectations are for more of the same this year.

Members of the Associated Equipment Distributors reported overwhelmingly that volume increases ruled the year last year. Almost half of distributors reported unchanged volume in 2003, so the two-thirds who reported volume growth in 2004 experienced the turnaround. Only 5 percent reported volume decreases, for a net of 62 percent. For this year, 41 percent expect continued growth, with 1 percent citing decreasing volume, for a net of 40 percent.

Volume growth last year was significant across most business areas about which we ask: 64 percent reported increases in new-equipment sales; 55 percent in parts sales; 51 percent in service business; 42 percent in used-equipment sales; and 41 percent in rent-to-rent business.

With such positive activity in new-equipment sales, 30 percent of distributors reported increased margins in 2004 compared with 2003. Although fewer reported decreasing margins, the fact that one in four did raises some concern that volume increases may not be translating into profitable growth.

In fact, poor margins on machine sales was the No. 1 business concern in 2004, followed closely by increasing competition and rising interest rates. Even with machine shortages (which 43 percent cited as a concern), the margin pressure remains high.