Customers are increasing Renting Heavy Equipment and how it effects the used equipment market
Both the private and public sector hunt for savings everywhere except under the operator’s seat and one cost saving trend that is growing in popularity is to rent the equipment for a period of time rather than purchase it. Renting helps to ensure that equipment isn’t gathering dust and taking up space in a garage as well as saves on maintenance and storage costs associated with ownership.
A recent survey by Purchasing.com reported that renting and leasing were notable shifts in thinking for the construction and industrial industry. It reported that “rental preference soared in popularity across the board.” The survey pinpointed that rentals for compact track loaders have increased dramatically and explains that these rentals are “advantageous for jobsite and fleet managers who are either not ready to commit long-term or lack the necessary budget to buy one or more pieces of equipment. For these individuals, renting is even more cost-effective as typically 100% of the rental rate is applied to the purchase price. This enables them to recoup most or all of their rental fees if they intend to purchase the machine.”
The Future Market for Heavy Equipment
In the five years since the economic recession, construction has been generally stagnant, but people never stopped driving on public highways, roads and bridges. As such they are in need of repair, rebuilding and expansion in some places. Construction expertsexpect the industry revenue to recover, and the public sector will have to begin investing in their state and local infrastructures; with that comes parallel investment in heavy construction equipment. As important, Congress is discussing transportation funding, which would support states’ efforts in infrastructure rehabilitation.
Construction builders and suppliers, as well as transportation vehicle vendors, will have opportunities as cities and states invest in construction and road projects. Meanwhile, information technology software and telecommunications companies could find a relatively new market expanding as telematics technologies are becoming an increasingly desired part of heavy equipment consumers.
What this Means for Used Equipment Values
2016 saw a decrease in available used equipment in auctions. With oil prices trending down throughout the year needs for purchasing new equipment has deceased in North America. Moreover, the demand for used equipment has slowed lowering the machine values to the market. This will continue to keep the “buyer’s market” mentality when procuring equipment from dealers.
In 2017, you should except a slow start for used equipment through the first quarter. Expect to see prices rise in the second quarter in 2017. This will be predicated for all the oil producers disposing of their assets in 2016. Lack of primary equipment pieces will decease thus enhancing values due to lack of low hour units in the market.
Dealer rental fleets will play a key role in used equipment values to the market. Several of the mainline equipment dealers are tasked to rollout older pieces to make room for newer machines from the manufacture. Most mainline dealers/rental houses prefer to liquidate assets through territory sales to capture continual parts and service business. Coupled with that they will typically get a higher sell price to the buyer due to condition, hours and service records. Expect dealers/rental houses to push rental conversions to customers whom have had equipment pieces on rent for several months. A tip for the buyers whom rent and may have ownership desire in the equipment. Get a sales price of the unit before you take it out on rent. This will assist you in getting a better number upfront. If you rent the asset for 5 months and ask for a price it will most likely be inflated to capture higher returns from the dealer. This is how the dealers/rental houses keep a higher premium vs. buying a like-in-kind unit from a wholesaler/auction. However, there are pros to purchasing rental machines. Although you will most likely pay the highest price on rental machines, most reputable dealers will assist if there are issues with the unit within a reasonable timeframe of purchase.
What does this all mean?
Mainline dealers have and will continue to put machines in the rental fleet with telematics on them. This will drive up market costs when procuring equipment in the used sector. Although telematics is growing in contractor usage, still many years away before it becomes the majority. If you purchase an integrated system and have a 6 year or less plan to dispose of the asset, then you will most likely not recover the value of the system on trade or auction. If you keep the asset for a longer period of time, then the usage will outweigh any shortfall on devaluation of the system and the machine. Most importantly, buying the right machine far out-weights the expected return. Just keep in mind that technology depreciates far faster than the host machine due to constant upgrades and improvements on telematics.
Standard overview of the used market
2017 will be a soft used market the first half of the year. There are plenty of good opportunities for purchasing used equipment. With the material industry remaining soft supply should increase thus driving down values of the iron. I do believe that the end of second quarter through the third quarter should bring stronger values. This is predicated if the materials markets start the slow increase in market value such as oil.
