Construction Machinery Manufacturers Optimistic About ’04

Wed December 10, 2003 - Northeast Edition

The construction machinery manufacturing industry expects overall business to remain slow through the end of 2003, but then anticipates 2004 growth in the 3- to 5-percent range, according to an annual industry forecast of the Association of Equipment Manufacturers (AEM).

Sales increases in 2004 are predicted for all major product groups covered in the AEM forecast, with the biggest gains in U.S. business.

Machinery manufacturers participating in the annual AEM outlook survey expect construction equipment business in the United States to close out 2003 with a .4-percent loss, followed by 2004 growth of 5.5 percent.

For Canada, construction equipment shipments are predicted to grow 1 percent by year-end 2003, and record a 3.7-increase in 2004. The forecast for other worldwide business is growth of .3 percent for year-end 2003, followed by a 3.4-percent gain in 2004.

Each year the AEM international trade group polls construction equipment manufacturers on anticipated business conditions. This year’s survey covers 63 whole goods categories and 17 types of attachments and components.

Economic and Industry Trends Affecting Growth

“We are certainly more optimistic than we have been in the past few years,” stated Ron DeFeo, 2003 AEM chairman and chairman/CEO of Terex Corp., Westport, CT. “We look for a general improvement in business conditions to positively impact the construction equipment manufacturing industry. For our business segment in particular, our customers’ fleets are aging and need replacement. Also, the federal government needs to pass highway spending legislation, and this should boost equipment sales.”

The AEM outlook survey asked manufacturers to rank several factors which would influence future sales, and also list their major concerns. The state of the general economy continued to be the overriding factor that will determine if business returns to levels not recorded since 2001, according to AEM survey respondents.

This includes factors such as the impact of interest rate levels and credit availability on overall job costs, and financing for housing and commercial building starts, dealer inventories and fleet replacement.

Also cited was renewed business confidence to spur capital investment as well as steady gains in consumer confidence and thus spending.

“Our customers have taken a wait-and-see attitude during the past few years as our economy has slowed, delaying new equipment purchases. General business conditions are still fluctuating, but we are hopeful that confidence — and with it, buying — will increase as more economic indicators register positively for a sustained period of time,” noted DeFeo.

Transportation Funding, Rental Fleet Replacement Spur Sales

U.S. public works construction is an important revenue source for a significant portion of the construction machinery manufacturing industry.

Funding under TEA 21 transportation legislation was listed as another major factor in future market growth. Related is the impact of federal funding on states’ ability to earmark money for transportation improvements, especially with shrinking state budgets.

Congress failed to reauthorize TEA-21 by its September 2003 deadline, and passed a five-month extension to Feb. 29, 2004, in which to work out a new six-year funding package.

“Reauthorization of federal transportation legislation is definitely a significant factor in any future industry growth. Congress needs to allocate adequate money to repair and maintain our aging roads, highways and bridges, if we are to move goods and people safely and efficiently across the nation,” DeFeo stated.

“An increase in federal transportation funding also translates into more American jobs, particularly important in this so-called ’jobless recovery’ we’re now experiencing,” added DeFeo. “It’s estimated that every $1 billion in such funding creates 47,500 jobs annually.”

Rental markets will continue to account for an increasing share of equipment sales. Capital spending by rental firms to replace aging fleets is another factor that will positively affect future machinery business, according to AEM outlook survey participants.

The construction equipment manufacturing industry is global in scope, and the relative strength of the U.S. dollar compared to other currencies remains a concern. World conditions such as continuing Mideast and Iraq tensions also are seen as negatively impacting a fledgling recovery. On a positive note is renewed business in the Asian sector, spurred by China’s huge demand for equipment.

Industry Forecasts by Product Lines

Sales of earthmoving machinery are anticipated to be strongest overall for 2003-2004, followed by light equipment. Overall, sales are expected to be slowest in the lifting equipment and bituminous machinery sectors for 2003, but then are predicted to rebound in 2004.

Earthmoving equipment sales are forecast to increase to all markets for year-end 2003 and 2004: for 2003, a 4.9-percent increase for the United States, a gain of 6.5 percent for Canada and a 3.9-percent rise in sales to other worldwide markets; and for 2004, increases of 7.2 percent for the United States, 6.5 percent for Canada and 5.2 percent for other worldwide markets.

The earthmoving segment includes excavators, loaders, trenchers, off-highway haulers, tractors, scrapers, graders and log skidders.

The light equipment market includes machines such as breakers, saws, trowels, light towers, generators, pumps, vibrators, compactors, screeds, lasers and mixers. Year-end 2003 business in this segment is expected to increase 1.1 percent for the United States and show smaller gains to Canada (+ .8 percent) and other worldwide markets (+.3 percent).

Light equipment business for 2004 is expected to increase to all markets: 5.1 percent for the United States, 2.4 percent for Canada and 3.3 percent for other worldwide markets.

In the lifting segment of the industry, which includes machines such as lattice boom and hydraulic cranes, tower cranes, aerial lifts, boom trucks, rough-terrain forklifts and telescopic handlers, year-end 2003 sales are predicted to drop to all markets, but then rebound in 2004.

Year-end 2003 sales are anticipated to decline 7 percent for the United States and drop 4.5 percent for Canada and 2.7 percent for other worldwide markets.

Gains of 2.4 percent are predicted for 2004 U.S. business, as well as increases of 1.8 percent for Canada and 2.3 percent for other worldwide markets.

Year-end 2003 business for bituminous machinery such as cold planers, asphalt pavers, rollers, soil stabilizers and asphalt plants also is expected to decline to all markets in 2003 but then rebound in 2004.

Business declines for year-end 2003 predicted in the AEM survey are 1.5 percent for the United States, 3 percent for Canada and 5.6 percent for other worldwide markets.

In 2004, the U.S. market is expected to gain 7.1 percent, followed by business increases of 5.6 percent for Canada and a 2.8-percent rise for sales to other worldwide markets.

The business volume of concrete and aggregate equipment is predicted to show a year-end 2003 loss of 7 percent for the United States, no growth for Canada and a 1.1-percent increase for other worldwide markets.

This segment includes crushers, screens, feeders, conveyors, washing equipment, rock drills, batch plants, pumps and pavers.

Sales of concrete and aggregate equipment in 2004 is anticipated to increase 3 percent for the United States, show gains of 2.4 percent for Canada and rise 2.8 percent for other worldwide markets.

Business volume for attachments and components, including buckets, blades, demolition tools, tires/wheels and hydraulic and electrical components, is predicted to increase .6 percent for the United States and 2.2 percent for Canada by year-end 2003, but decline slightly (.1 percent) for other worldwide markets.

The market for components and attachments in 2004 is expected to grow 6.4 percent for the United States, record gains of 3.5 percent for Canada and increase 3.1 percent for other worldwide markets.

Sales of miscellaneous equipment for year-end 2003 are forecast to increase .3 percent for the United States and .7 percent for Canada. Sales to other worldwide markets in 2003 are expected to increase 3.7 percent.

For 2004, the U.S. market is expected to gain 3.8 percent, the Canadian market to grow 3.3 percent and other worldwide markets to increase by 2.3 percent. Equipment in this category includes trailers, shoring, equipment washers and landfill compactors.

Scope of the AEM Outlook Survey

For its annual outlook survey, AEM polls construction equipment manufacturers for their predictions of year-end and next-year business volume. The AEM 2003-2004 forecast covers 63 different whole machine product types and 17 types of attachments and components.

These are grouped into seven broad product categories: earthmoving, lifting, bituminous, concrete and aggregate, light equipment, attachments and components, and miscellaneous equipment.

The association’s outlook report will be available on the AEM Web site, and includes graphs with a breakdown of respondents’ average responses in each equipment category, providing additional interpretative data to assist company benchmarking and trending.

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