It’s finally coming to fruition: This year, off-road diesel fueled fleets in California must report their fleet data to the California Air Resources Board, as part of the In-Use Off-Road Diesel Vehicle Regulation. For those who fail to report, potential fines will range from anywhere up to $10,000 per day.
“If the board finds someone blatantly not complying, especially when their contractor competitors are, they will be fined heavily,” says Kim Heroy-Rogalski, manager, off-road implementation section, California ARB. Each occurrence will be dealt with on a case-by-case basis, and California ARB does not intend to publicly list its fines.
The regulation – approved by California ARB last July – requires California fleets and out-of-state fleets working in California with 25-horsepower engines or greater to either meet fleet average targets for specific emissions, apply exhaust retrofits and/or turnover a percentage of the fleets’ horsepower per year.
To indicate requirements are being met, fleets must begin reporting data on their off-road equipment to California ARB’s Diesel Off-road On-line Reporting System (DOORS). Once registered, the board will issue equipment identification numbers – or EINs – to be placed on each machine.
“Reporting early will allow more time for machine labeling,” Heroy-Rogalski notes. “This is especially important if you have a large fleet. If you wait until your deadline, you’ll have 30 days to put EINs on your equipment. But if you report early, you have from the day you report until 30 days after your fleet reporting deadline.”
Fleets still have time to obtain early credits to lessen the impact of retrofit costs, but California ARB urges contractors to act quickly.
AGC of California calls the imposed timeline and assumed costs unrealistic.
“We need to play a major role in improving the quality of air in California and we’re fully braced for that,” says Tom Holsman, chief executive officer, AGC of California. “But the compliance dates are unreasonable, not to mention the issue of retrofit availability. And there are no resources for contractors and state-funded construction projects are at a standstill.”
Holsman argues the state’s air quality has improved since the current lack of state projects means a large amount of equipment has been parked.
“We want California ARB to reconsider these obstacles from a timeline perspective and allow for additional comments or an extension of implementation,” Holsman says.
“Obviously, we know this regulation imposes costs,” Heroy-Rogalski says. “Trying to pass additional costs on to customers will be harder for contractors during this tough economic time, but it is up to the board whether or not to address these issues.”
Construction equipment manufacturers now have legal precedence for fighting gray market machines when the U.S. market rebounds. Hyundai Construction Equipment USA won a federal court judgment against Chris Johnson Equipment, Macomb, Michigan, arguing successfully that the dealer illegally imported 29 Hyundai-branded wheel loaders and excavators for U.S. sale.
Filed in June 2005, the suit accused Johnson of selling foreign-made equipment that had altered serial numbers, no warranty protection and failed to meet U.S. safety and emission standards. Although manufacturers and their dealers typically battle such machines in boom times, the Johnson case was particularly irksome to U.S.-based Hyundai dealers, says Kevin Maher, Hyundai controller. “He was using our good name and registered trademark and bringing in equipment clearly different from those sold in the United States,” he says. “This win sends a strong message that we now have venues we can use to stop this practice, to make sure our customers are only getting equipment destined for sale here and delivered through our authorized dealers.”
End users also have a stake in this issue, says Maher. “These machines may look the same, but they don’t carry our warranties and while our dealers do the best to service them, if a machine is made for China, there’s some significant differences between it and one made for this country. And when you have safety labels and decals written in a foreign language, it could be devastating.”
While the gray market is presently not a factor, it’s bound to resurface later on, says Kirk Gillette, Hyundai’s national sales and marketing manager. “The U.S. will lead the world out of the recession we’re in, and when the demand is here again and machines are sitting in other counties, this will be the first place it will go.”
Contractors will use their own equipment to meet 83 percent of their needs in 2009, an increase of two percentage points from 2008, according to the 2009 Wells Fargo Construction Industry Forecast. Seventy-two percent of contractors surveyed say their rental activity will remain the same as 2009, with only 9 percent saying they will rent equipment more often in 2009 than in 2008.
The majority of contractors, 57 percent, say they rent when they have a limited need for certain equipment. Just 6 percent of respondents indicate they rent for cost reasons, down from 21 percent in last year’s forecast.
Twenty-seven percent of contractors planning to rent equipment in 2009 will rent excavating equipment, up from 20 percent in the 2008 forecast and 11 percent in the 2007 survey. Most contractors (57 percent) say they will rent from large rental companies, but the national rental chains’ share of respondents’ business has declined, from 68 percent in the 2008 forecast and 72 percent in 2007.
Wells Fargo also queried distributors about rental plans. Half of dealer respondents said they expect rental income to remain the same, while another 29 percent said it will rise this year. This is a sharp drop from distributor rental expectations in the 2008 forecast, when 50 percent of distributors expected to grow their rental income. In addition, only 26 percent of distributors expect an increase in rental rates this year, down from 28 percent in the 2008 forecast and 55 percent in the 2007 survey.
Rental fleet buys will also be down, with 27 percent of distributors saying they will grow their fleet this year, compared to 36 percent in 2008 and 41 percent in 2007.
Volvo Rents will focus on customers who use rental for the majority of their fleet. “We recently did an analysis of one association’s contractor members and found they rented at least three times more than they owned,” says Nick Mavrick, global marketing executive. “With tightened credit, we think these folks will accelerate their conversion to rental, as opposed to buying and financing.” Volvo Rents will spend $80 million in 2009 cap ex (down from $106 million in 2008) and expects to buy compact excavators, wheel loaders and backhoes, in addition to pavers and niche machines.
NES is concentrating on customer loyalty, with Mike Disser, vice president, marketing, citing NES’s customer loyalty metric, measured at each branch. “Our Net Promoter Score – or the percentage of customers who responded positively in surveys – was an industry leading 75.7 percent for fourth quarter 2008,” he says. In addition, NES is focusing on customers who will most likely benefit from the pending economic stimulus program. While the firm is keeping a close eye on cap ex, and has 48 to 50 month average fleet age, if needed, it can make quick fleet buys, Disser says.
And a few companies are using this time to grow. Lifting Gear Hire, Chicago, which supplies a variety of hoists and other lifting supplies to mechanical, industrial and road contractors, will add a distribution center this year in Philadelphia. In addition, AmQuip Crane Rental, Philadelphia, has acquired Powell Equipment, Atlanta.
How to navigate the current economic storm.
This is a good time to challenge your old business assumptions. Here are some tips to keep help keep your business on course.
· Map out a three-part contingency plan for the next 6 to 12 months. Put together a worst case, best case and expected case scenario. Each plan should include your economic trigger points and the steps you will follow if/when you reach one of your triggers. As you work with your creditors, bank and companies who support you, share applicable parts of your forecast with them so they can work with you and be assured you are prepared for whatever this building season brings. Knowing what your next steps will be will help you concentrate on the job at hand.
· Review contracts for risk-shifting provisions so you don’t incur losses. Subcontractors should reevaluate payment provisions in subcontracts. Are you assuming risk you can control and tolerate if money gets tight in the owner’s or general contractor’s office? Even reliable funding sources are showing signs of stress, so reevaluate payment terms in the contract.
· Consider the new risks this economy is uncovering, such as the financial institution failures seen last fall. Question what provisions are in place should the project be delayed due to credit and funding issues.
· Practice good reporting, such as providing written notice of change-order work before you do the work. This practice helps maximize the chances you will be paid for work you have done and will alert you to a customer who is developing cash flow problems.
· Build into your relationship with your suppliers an agreement to give you notice of price changes and possible shortages as soon as possible.
· Double check bids to ensure the scope of the work and price is accurate, and that you have provided all the necessary information requested.
· Protect your working capital and develop a zero-tolerance policy to stop work immediately if your client does not live up to your contract.
· Keep front and centered. Continue your marketing programs. Take advantage of industry association networking. Invest your time in industry sponsored educational opportunities. Many jobs come from referrals from existing clients. Staying visible says you are ready for business.