Construction equipment trends positive for 2005

Optimism appears to describe the 2005 economic forecast for the construction equipment business, according to financial companies involved in that industry’s spending. Fewer repossessions, rising equipment values and strong manufacturing trends could spell out a banner year for construction contractors and equipment distributors alike.

The most recent indicator of economic confidence in the construction equipment industry is a 53-percent decrease in repossessions of construction equipment during 2004, according to Nassau Asset Management’s NasTrac Quarterly Index. This index is based on Nassau’s internal records on liquidations.

Ed Castagna, senior executive vice president of Nassau, said his company’s index shows construction companies were more able to honor lease and loan commitments in 2004. Nassau handles fleet and plant liquidations, asset recovery and remarketing services for many equipment industries.

“This trend provides yet another economic indicator that construction spending has strengthened considerably in the past year and should continue to do so in 2005,” Castagna said.

Many construction contractors are also replacing aging machines with younger models either through buying, renting or leasing, according to the CIT Group’s Construction Industry Forecast for 2005. CIT’s survey of more than 900 contractors and equipment distributors revealed that, on average, contractors who plan new-equipment purchases expect to invest $79,223 this year – double what they planned to spend in 2004.

The CIT survey also found contractors expect to be slightly more active in leasing or renting construction equipment. As a result, rental and lease rates are expected to increase, according to the survey.

The CIT Group, a commercial and consumer finance service company, has produced its construction industry survey for 29 years.

The construction industry represents one of the largest markets for lease financing in the country, according to the Equipment Leasing Association, a non-profit organization representing companies involved in the leasing and finance industry.

The ELA predicts construction equipment lease financing to reach $13.5 billion in 2005, compared to an estimated $12.5 billion spent in 2004. These figures are based on results of the marketing research firm R.S. Carmichael & Co.’s in-depth study of equipment leasing and finance for the construction industry.

“The study’s findings show that lease financing has proven to be an important sales aid to manufacturers and dealers,” said Richard Carmichael, managing director of R.S. Carmichael & Co., Inc.

The R.S. Carmichael & Co. study also determined that 50 percent of construction equipment sales are financed in some fashion. It found lease financing to be most prevalent in the categories of earth moving, road building and forestry equipment.

This increase in construction equipment purchases could also affect the price of such machines. The U.S. Department of Labor indicates that overall construction equipment prices rose 2.6 percent between January and August of 2004. Those rates typically rise only 1 percent each year, according to the department. Rising raw material prices also played a role in last year’s construction equipment cost increases.

Patrick Beeson can be contacted at pbeeson@randallpub.com.