The Buzz & Brass at CONEXPO
Caterpillar yellows, Ditch Witch oranges, Takeuchi grays and nearly all the colors of the construction world painted the showroom floor at this year’s ultimate equipment exhibition. For five days at the Las Vegas Convention Center (March 11-15), a planetoid of construction and aggregate machinery formed at North America’s biggest equipment trade show, CONEXPO-CON/AGG.
Expansive indoor halls, sun-drenched outdoor lots and small conferences rooms sardined with attendees, dealers and press attracted more than 144,600 industry professionals from around the world. CONEXPO covered more than 2.28 million net sq ft of exhibit space, taken by 2,182 exhibitors (21 percent bigger than the last show held in 2005), attracting the iron giants of construction and aggregate equipment, their OEM systems and a wealth of industry services, trade associations and publishing companies.
Journalists were treated to the rare assemblage of the biggest minds in the machine-making business at CONEXPO — a think tank of CEOs, presidents, industry analysts and expert product mangers all gathered to discuss and promote the construction and aggregates industries. From Caterpillar CEO Jim Owens discussing world market strategies to Terex president of construction Bob Isaman dissecting the new ASV acquisition, the top brass behind the construction equipment business created a buzz that rivaled the mechanical hum of machines on the floor.
Every day of the show Compact Equipment was there to document the biggest rumbles in the small machine market. For the latest and greatest equipment and services released at CONEXPO, turn to page 28 and enjoy “Take Me Out to the Equipment Yard.” If you’re interested in probing the VIP minds of the biggest construction companies in the world, continue to follow “The Buzz & Brass at CONEXPO.”
Keith Gribbins is managing editor of Compact Equipment, based in Peninsula, Ohio.
They Were the Best of Times
Volvo Dissects the Evolving Construction Finance Industry
By Martin Weissburg
At CONEXPO, Volvo took the opportunity to reflect on the past few years — these were good times for businesses involved with construction equipment. Customers, manufacturers, dealers and finance companies enjoyed strong business results and growth. New product deliveries were strong due to firm demand for utility, infrastructure and commercial construction. A strong supply of loan and lease dollars created an environment of pricing and approval structures favorable to the customer. Construction equipment loan portfolios were performing well, with industry delinquencies at low levels and a robust demand for used equipment. These were very good times indeed. The question now is, what changes will we see?
Weathering the Cycles
As in all segments of financial services, industry expertise and planning is required to weather the cycles. Lenders and lessors to the construction equipment industry should be students of various cycles, not all of which show the same pattern historically. The primary cycles include:
1. Economic Cycle: A common construction related metric is housing starts and much of the past industry expansion can be linked to this measure. This much is certain: The decrease in housing starts negatively affects construction equipment companies, new equipment sales, used equipment values, portfolio delinquencies, dealer parts and service revenue and the list goes on. It is well publicized that housing starts and home prices have softened. Many parts of the United State are experiencing residential real estate recessions. Infrastructure projects (shopping centers, schools, etc.) are also showing signs of softening.
2. Replacement Cycle and Equipment Values: The base level of the replacement cycle for equipment is a function of utilization, repairs and cost of capital. Between 2005 and 2006, record demand and high utilization led to shorter replacement cycles for both contractors and rental fleets. This too has contributed to the high level of equipment deliveries over the past few years. A consensus view on 2008 construction equipment sales is that the peak of the delivery cycle is well behind us. This should translate into increased availability of equipment. However, a weak U.S. dollar makes used equipment a good bargain for buyers outside of North America. This has resulted in a situation where, even though the market is slowing, used equipment values have been partially supported by some supply being absorbed in international markets. As a captive finance company, Volvo Financial Services works closely with Volvo Construction Equipment to track equipment supply and demand to allow for better forecasting of changes in fleet age, growth vs. replacement dynamics and the resultant effect on used equipment values over the next few years. This type of analysis assists in our efforts to gauge future collateral loss assumptions and structure current credit approvals accordingly. This process is often more art than science, but every piece of information helps. Knowledge of regional and equipment segment differences is essential.
3. Liquidity Cycle: Liquidity (the supply of funds available to finance equipment) remains robust but some lenders have tightened credit requirements. This is in contrast to the previous two years when the supply of funds greatly exceeded demand as many lenders gained share through taking more risk and less margin. The supply of loan and lease money available to the equipment industry should not change significantly — although it will come with higher risk premiums and more standard approval structures. If unit sales in 2008 are lower than in prior years, as anticipated, the same amount of money will be competing for fewer transactions. It seems that 2008 will still be an advantageous time for customers with good credit to secure competitive pricing.
Other factors influence the equipment industry and the risk/reward parameters for finance and leasing participants. Lenders and lessors who serve the construction equipment industry throughout each cycle should be mindful of all factors as part of the daily duty of making smart credit decisions. Forecasting the cycles correctly is meaningless unless primary attention is given to the basics: thorough credit analysis, collateral expertise, strong collection skills, a reliable remarketing network and strong relationships with dealers and end-users.
Martin Weissburg is the president and CEO of Volvo Financial Services North America, based in Greensboro, N.C.
Cat Allocution
Caterpillar Clairman and CEO Jim Owens Expects Robust Sales and Revenues Growth
Highlighting the demand for large-scale infrastructure projects around the world and continued strength in key industries served by Caterpillar Inc., chairman and CEO Jim Owens outlined positive long-term growth expectations for the world’s biggest manufacturer of earth moving equipment during a presentation to financial analysts and institutional stockholders at CONEXPO. Owens provided the update on Caterpillar’s corporate strategy at the largest construction equipment exhibition in North America.
“There are significant new infrastructure growth opportunities in the world’s emerging markets and a need for infrastructure reinvestment in North America and Europe. Over the next decade, that should translate into increased sales of Caterpillar machinery, engines and related services,” Owens said. “In addition, most emerging-market economies are in good shape, with relatively low inflation and interest rates and strong balance sheets. They have a need to invest in infrastructure and they have the resources to do it.”
To position Caterpillar to capitalize on these global growth opportunities, Owens discussed the company’s planned investments in research and development (R&D) and increasing capital expenditures to add capacity.
“We continue to increase capacity and plan to invest about $2.3 billion in capital expenditures this year,” said Owens. “We’ll also be deploying significant resources in the area of R&D for new products to meet global emissions standards, support the growth needs of our customers and ensure our global leadership position.”
Additional highlights from Owens’ presentation included: sales and revenues approaching $60 billion by 2010; profit per share growth in the range of 15 to 20 percent from a 2005 base through 2012; 2008 sales and revenues outlook maintained at 5 to 10 percent; 2008 profit per share outlook maintained at 5 to 15 percent; and a broader emphasis on emerging markets as a critical success factor in Caterpillar’s enterprise strategy
Owens also updated analysts on the continued deployment of the Caterpillar Production System (CPS), which, with 6 Sigma, is improving manufacturing efficiencies in Caterpillar’s global operations.
“CPS is already driving great improvements in safety and across the board improvements in our early hour machine reliability,” Owens added. “Going forward, we expect CPS-related improvements in velocity and manufacturing costs. No company is better positioned to compete in today’s global economy than Caterpillar, and by delivering on our strategy, we will reward our customers, our employees and, of course, our stockholders.”
Caterpillar’s Electrified TractorCaught in an energy crisis with gasoline prices soaring and the bills piling up, the construction industry needs innovation. Caterpillar is looking toward the future with a fuel-efficient eye, with the announcement of the first electric drive track-type tractor. Although, we wouldn’t consider this a compact piece of equipment, the D7E track-type tractor will be the first in a long line of electric drive systems from the company, which will deliver increased productivity, reduced fuel consumption, reduced operating costs and longer drive train component life. In the D7E power train, the diesel engine drives a generator to produce electricity that ultimately powers two AC electric drive motors, which are connected to a differential steering system. A traditional mechanical transmission is not needed, because the variable speed electric motors serve the function of a continuously variable transmission. The electric drive train has 60 percent fewer moving parts compared to previous D7s. |
Wacker Neuson Emerges
The European Compact Kings Bring Small Machines to North America
Wacker Construction Equipment AG (Munich, Germany), parent company of Wacker Corp., and Neuson Kramer Baumaschinen AG (Linz, Austria), have finalized their merger. Together the two companies form a major global manufacturer of light and compact equipment with a comprehensive product portfolio.
“This merger strengthens our core light equipment line and positions us as the only company of its type that can support well defined phases of the construction process in the Americas,” according to Christopher Barnard, Wacker Corp.’s president and CEO. “This merger is motivated by the desire to grow.”
In addition, the company anticipates that fiscal year 2008 — the first full fiscal year for Wacker Neuson — will see its global revenue exceed the billion-euro mark. These two companies share a traditional, family-run background and a customer-oriented culture. Wacker Neuson’s emphasis stands firmly on outstanding quality, innovative technology, personalized service and close customer contact.
The merging of Wacker and Neuson Kramer allows the new company to offer a broad range of products that span the construction process along well defined Strategic Business Units. The high-quality light and compact equipment portfolios of both companies complement each other ideally and should enable the company to capitalize on strong opportunities around the world. In the United States, Wacker Neuson will now offer a new line of compact class equipment that includes wheel loaders, excavators and dumpers, as well as continue to support and expand its complete line of light and climate control equipment.
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