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Equipment Forecast 2013: Rental Fleet Purchases May Contribute to 'Modest' Gains

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Photo By Tudor Van Hampton for ENR
The oil-and-gas sector has helped prop up demand for large equipment, such as truck cranes. Next year, sales are expected to rise slightly as rental companies and dealers continue to 'fleet up.'
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Although analysts are expecting U.S. construction to rise next year, many believe contractors will continue to turn to rental and leasing companies rather than buy large quantities of new equipment for their projects.

"Most people think that the rental companies will continue adding to fleet this coming year. But instead of buying earthmoving equipment, they are going to be buying lifting equipment, including telescopic handlers and aerial platforms," says Frank Manfredi, president of market research firm Manfredi & Associates. Manfredi estimates that, in 2012, rental companies purchased between 45% and 50% of all the new units sold in the U.S.

Next year may prove pivotal for the equipment market. Manfredi, who forecasts new sales in the U.S. to rise 11% this year followed by softer, 4% growth in 2013, says the industry looks to be exiting a strong replacement cycle. For equipment sales to continue rising, new construction also must rise.

"We've seen housing reach the bottom, and it has kind of been clawing its way back," Manfredi says. Homebuilders, he adds, are flirting with reaching the "critical" one-million new-unit mark in 2013. "When we reach that, it will be good news for everybody," he notes.

Ken Simonson, chief economist for Associated General Contractors of America, sees homebuilding next year as a "big unknown" but says it has the potential to gain momentum in the latter half of 2013. Oil-and-gas drilling, transportation, manufacturing and other work should help support a "modest increase" in equipment spending, says Simonson, who sees rental companies buying the lion's share.

Chuck Yengst, president of market research firm Yengst Associates, is less optimistic and wonders if Congress will be able to legislate a business-friendly solution to the so-called fiscal cliff. "Sales have been dropping off pretty fast in the third and fourth quarters, and I see a lot of people tightening their belts," he says. Yengst predicts equipment sales will fall 5% to 10% after this year's annual increase of about 10% to 15%.

The oil-and-gas sector, driven in part by the fracking boom, has kept demand particularly high for cranes, pipelayers and other large rigs. "That industry has just been blowing and going," says Chuck Martz, chairman and president of Link-Belt Construction Equipment Co. "While the rest of the economy has been down, that industry has not." Crane sales are up 20% to 30% this year, he adds.

A wild card in the forecast is the devastation of Superstorm Sandy along the East Coast. The cleanup and rebuilding work likely will require a broad spectrum of equipment, such as woodchippers, forklifts, cranes and loaders, which would help keep utilization rates high next spring just as new orders may soften.

"We expect a significant decline in shipments into the spring of 2013," says J.P. Morgan in a recent investor note. "At that point, we may see a re-acceleration on the back of a reconstruction cycle in the mid-Atlantic and Northeast."

Businesses are expected to buy more pickup trucks next year, says IHS. What's more, freight demand likely will outpace gross domestic product, driving "a small increase" for even bigger trucks, according to Steve Tam, vice president of ACT Research. He sees heavy-duty truck sales rising just under 3% next year, with the vocational-truck subset up nearly 10%.

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