Equipment Distributors Ready for Relief
Stimulus Funding Hasn’t Impacted Equipment Dealers Yet

After initial lag, distributors remain hopeful that stimulus funding will kick-start activity.

By Steve Hudson

Construction equipment distributors in the Southeast remain hopeful that an upturn in the economy and their business is on its way.

The slowdown in construction has meant a drop in equipment sales, and for distributors and dealers that’s had implications ranging from shifts in business strategy to staff reductions to the closing of some dealership doors. A recent issue of BusinessWeek notes that Standard & Poor’s is calling the current recession the “deepest and longest since the Great Depression, with a sluggish recovery beginning in late 2009.” (Both BusinessWeek and Standard & Poor’s are published by McGraw-Hill Cos., the publisher of Southeast Construction.)

Will the economic stimulus package ride to the rescue?

Waiting for Stimulus Impact The stimulus plan passed by Congress provides between $130 billion and $140 billion for road and bridge work, utility projects, energy projects, schools, parks and other items.

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As those funds begin to affect project starts, expectations are that demand for key construction materials such as aggregate, concrete and asphalt will increase. There also could be increases in demand for construction equipment.

Sources contacted for this story felt demand for materials and equipment would eventually increase, but it could be until the end of ‘09, or later, before this happens.

“We’re not there yet,” notes Alan Ashlock of Orlando-based Crane Rental Corp., a company specializing in crane rental and specialized rigging. “It’s still a little early.”

Ashlock predicts that it will be “several months, if not the end of the year” before stimulus impacts begin to affect the business.

“We’re hopeful,” he adds. “We need it.”

Ray Ferwerda Jr., president of GS Equipment Co., a Tampa-based multiline earthmoving equipment company serving Florida, sees some sectors doing better “six months out, but overall I think it will be flat.”

Ferwerda says one of the stronger sectors will likely be parts of the road construction industry.

“Roadbuilders doing overlays and fixing existing roads may tend to do better,” he adds.

Ferwerda says the municipal market is another bright spot.

“The stimulus has the potential to affect municipalities’ construction programs,” he says. That could boost sales of some equipment – but not until the funds begin to flow and the projects start construction.

Ready for the Turnaround Jim Stephenson, president and CEO of Yancey Bros. Co., the Austell, Ga.-based Caterpillar dealer for the state of Georgia, sees things in much the same way.

He says that even though “I’m trying to find something good to say,” the picture seems to be one of relatively flat equipment sales. “There’s not much happening out there.”

He adds that even as new projects ramp up, it may not necessarily result in new business right away.

Southeast equipment dealers have not experienced an uptick in sales or service business as a result of the impact of the economic stimulus funding. They remain hopeful, however, that some improvement will occur later in the year. (Photo courtesy Steve Hudson)

“Our customers have excess capacity, so the need for new equipment and service has diminished,” Stephenson says.

However, Stephenson adds that on the parts and service sales side, things have stabilized at a level slightly above the low point, which he says was reached in November.

“We have seen some stability over the last few months that we hadn’t seen over the last few years,” he says.

Stephenson says that, overall, stimulus funding “may not move the needle for us. Most projects we are seeing are not new capacity projects” but are maintenance, resurfacing and bridge repair projects instead. “Those are not particularly equipment intensive.”

Specialized Suppliers: Less Optimism Others are less optimistic. For example, Frank Abrams, CEO of Austell, Ga.-based Abrams Architectural Products, a designer, manufacturer and installer of fabricated architectural metal, says stimulus funding has not yet impacted his company’s business.

“From our standpoint,” Abrams says, “we haven’t seen any stimulus money in anything we’re involved in.”

And he doesn’t look for significant impacts for a while. One reason, he adds, is that many developers have postponed projects.

“A lot of people put work on hold when the talk about the stimulus began,” Abrams says, adding that those developers are now in a wait-and-see mode.

Developing Alternate Markets “Flat” is also the adjective chosen by Chris Dixon, sales manager for Pensacola, Fla.-based Coastal Machinery, a dealer serving equipment users in the Florida Panhandle area.

“I don’t really see the market growing,” Dixon says. “But I don’t see it contracting any more, either.”

Dixon says that, currently, there is some spending going on in areas such as military construction.

Resurfacing projects are plentiful in the $1.3 billion of stimulus-funded transportation contracts that are starting to move forward in the four-state region. (Photo courtesy Steve Hudson)

“But it’s hit or miss whether or not our local contractors are being awarded the work,” Dixon says. “A lot of big general contractors from out of town are coming in to bid the work, and they’re bringing their subs and their equipment with them.”

Also, he adds that since many out-of-town contractors bring their own equipment, such projects may not translate into business for local equipment dealers.

“In that sense, stimulus money is not trickling down to midsized and smaller contractors at the local level,” Dixon says. “Instead, a lot of it is being gobbled up by the big ones.”

Dixon says Coastal Machinery has adjusted parts of its marketing plan to keep pace with the changing market. For instance, as some contractors have struggled just to make payroll, they’ve been forced to liquidate parts of their fleets. These surplus machines may sell for 40 to 60 cents on the dollar, at best, and Dixon says the resulting bargains have found a ready market in Canada, Central and South America, the Middle East and Asia.

What’s Ahead? Throughout the Southeast, there is guarded optimism that stimulus funding may yet bring relief. Florida provides a good example of how stimulus funding can impact state construction programs – and how that funding might ultimately impact the construction equipment market.

In late May, when asked if the stimulus package has impacted Florida’s transportation construction picture, Florida Transportation Builders’ Association President Bob Burleson answered “not yet.” But he added that between June 1 and the end of September that picture will change. That’s when FDOT will bid about $1.3 billion worth of stimulus projects.

The list of Florida’s stimulus-funded projects includes big and small jobs, and Burleson adds that they’re spread all over the state. About $940 million of that $1.3 billion in stimulus-funded work will be done directly by FDOT, and the rest are projects selected by local governments and in some cases let by DOT, he says.

Burleson adds that some of the stimulus money is also being used to “fill the gap” on a number of big projects that otherwise would not have been able to move ahead.