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Equipment Forecast 2012: Dealers Are Buying Machines, But Will Anyone Need Them?

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PHOTO BY TUDOR VAN HAMPTON / ENR
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While fleet managers are replacing aging machines, the rate of purchases is slowing down. This dip is mainly due to a lack of confidence in construction starts, which are expected to remain flat next year. While mining, oil and gas projects could be bright spots for big equipment next year, general construction, well, not so much.

Even so, most fleets are still in need of fresh iron. During the recession, contractors, rental companies and truckers have stretched their machines far beyond their typical useful lives. At some point, fleets need to be upgraded to be profitable.

U.S. new-equipment sales growth is expanding but at a depressed rate; housing, the traditional economic engine, is still out of gas. "We do not know what else is going to replace the housing market," Eugenio Alemán, senior economist for Wells Fargo, told a construction writers' conference last month in San Antonio. "The housing market provided so much for the U.S. economy for so long that we are having trouble trying to fill the gaps."

New-equipment sales are expected to grow at an annual rate of 32.6% this year, to 114,000 units, then slip to 9.1% next year, to nearly 125,000 units. In 2009, the market bottomed out, coming in at just under 70,000 units.

The problem is that fleets are replacing, but they aren't expanding. Inventory replenishment—when equipment dealers buy machines to display on their lots—has been driving most purchases since the market hit its low point in 2009.

At that time, dealers had "just dropped out of sight," explains Frank Manfredi, a heavy-equipment analyst in Mundelein, Ill. "They were literally bone-dry, and they have been building up inventory ever since the bottom was reached."

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