In a recently released Associated General Contractors of America (AGC) survey, 81 percent of respondents said they are optimistic and expect the construction market to grow through the end of 2016. Yet 60 percent said they will utilize lean construction principles on their projects and operations.
“The construction industry is on an uptick, but equipment buyers are still waiting for their contracts to be signed before they place orders for machines,” says Rich Mullins, asset management and supply chain director for North America and Caribbean region with AMECO.
More on Used Equipment
The recession’s effects shrank fleets and lightened many contractor’s wallets. Those looking to build up their fleets may not have the immediate financial reserves (or stomachs) to plunk down Big Bucks for brand new equipment yet. Others may be exercising healthy skepticism and caution on this newly minted upturn and instead are looking to add equipment without making weighty financial commitments. Post-recession, contractors want a bridge that will connect their fleet’s capabilities with the new projects at a manageable cost.
Used equipment trends emerging this season point to availability, smarter purchases, verifiable proof of condition, and an appreciation for 2013.
Availability of used equipment
Paul Hendrix, IronPlanet’s equipment pricing analyst, says there is a flat spot in the used equipment market right now.
“It’s an odd conundrum,” he says. “In 2007 and 2008, everybody was blowin’ and goin’, then in the fall of 2008 we had the crash. So, in 2009 and 2010, manufacturers built fewer machines. Now that we are a few years out, we should be selling those ’09 and ’10 units, but there aren’t as many to sell. At the same time, as the OEMs built to the emissions-tiers specs, each tier level had a price increase up through the Interim Tier 4 models. The combination of the poor economy, contractors pulling in their horns, and fewer machines being made was sort of a perfect storm that is affecting newer used equipment coming into the market today.”
In some cases, buyers decided to defer new purchases until Tier 4 equipment became available. Now, four years into the average life cycle time an owner would turn his fleet, the number of available low-hour, good-condition young machines is down. Contractors who kept their equipment running during the recession are now turning over older, higher-hour vehicles.
Smarter machines = smarter buyers
Judging the condition of used equipment is easier, and Jason Ruggles, Evansville shop manager with Traylor Bros., says contractors are increasingly asking for a machine’s internal records before buying.
“Until about five years ago, buyers would check the vehicle’s track condition, do an oil analysis, and give it a visual once over,” he says. “Telematics now give you a cradle-to-grave record of how the machine was used, how it performed, and how it was maintained. Telematic reports give you access to past usage conditions, like engine hours, idle time, and gallons of fuel that have gone through the system. The unit’s data is a ‘visual’ history that can be used to determine its future performance. And, it’s objective information, not a subjective assessment from an owner who simply wants to sell.”
Ruggles suggests that vehicles with telematics capabilities should get a second look even if the machine looks a little rough on the outside. “Sometimes buyers are drawn to shiny equipment but don’t realize that the machine with the smooth finish may have had its guts ,ripped out, whereas the rough unit may have a great internal telematics report showing it has barely been used. Clean it up, give it a paint job, and you’ve got an almost new machine.”
IronPlanet permanently raised the bar and improved purchasing used equipment, online and off, with their pre-sale equipment inspections. The online auction market continues to grow and gain customer confidence, in part due to what are now expected inspection reports.
“We created the independent detailed inspection report when IronPlanet started and made it standard for our buyers,” Hendrix says. “We’re proud that the practice has carried over to much of the used equipment business. At one time, sellers and auction houses resisted advertising how many hours a machine had, but now inspection reports are an expected part of the buying process.”
The demand for independent assessments of vehicle health has spilled over even to sales sources who don’t do inspections. Many for-sale descriptions now add an “unverified” notation near the total operating hours portion of the equipment’s description.
Tier 3 and 2013
2013 was a very good year. Heath Watton is regional manager with Southeastern Equipment and is seeing strong demand for Tier 3 equipment. Watton covers Ohio, Pennsylvania, New York and West Virginia and says the Marcellus oil shale development is creating a particular customer demographic in that area.
“The Marcellus Formation is predicted to produce a huge amount of oil and natural gas, and that potential has contractors racing to find their niche,” Watton says. “But there are several problems. Like the Dakota oil fields, the declining price of oil right now is causing some drilling operations to slow and they are laying off people. The oil isn’t going away and it will eventually be pumped out, but the $50 a barrel oil prices right now make it expensive to produce. Our area also doesn’t have a good ‘underground highway’ necessary to transport massive amounts of oil, so low oil prices affect the build-out of that infrastructure.” Watton’s customers are looking at both the long and short term. They want to have adequate capability but are uneasy about how the oil market will affect their projects and cash flow.
“We are seeing buyers comparing the costs of used equipment to new units beyond just the regular new-versus-used price difference, especially when comparing Tier 3 vehicles with brand new,” he says. “Our customers will buy a decent 2013 Tier 3 unit with maybe 4,000 hours for a couple of reasons. With the 2013 Tier 3s they know what they’ve got, their technicians and operators are familiar with the Tier 3 technology, so they don’t have to invest in training and new procedures. Their parts and supplies inventories are already in place, so that eases their investment. And some buyers are scared of the Tier 4 emission service replacement costs on things like filters. Those costs are figuring into their buying decisions.” Watton says that his buyers will put a little money into a less-expensive used unit and keep it running economically for a few more years.
Similarly, some contractors aren’t yet ready to make a commitment to Tier 4 machines. At the shallow end of this economic recovery, some shops are keeping things lean by continuing service procedures and products already in place. Tier 4 machines require investment in supporting components, maintenance systems, and training. So until their cash flow strengthens, these contractors are searching out good-condition pre-Tier 4 equipment that is amenable to their current in-place maintenance and repair operations. The competition is heating up.