December 2008

Fleeting Truck Sales

Quotable Concerns

Need for Speed

Tough Times Ahead

Contractors Kick Back

In The News

Fleeting Truck Sales
Longbow Survey Results Show a Downturn in Fleet Expansions

The global economy is decelerating. Like a lot of industries, landscape and construction contractors are feeling the financial squeeze. Projects are becoming more competitive, cash flow is getting leaner and new equipment purchases are seemingly a luxury in this uneven economic ebb and flow.

According to a recent survey of North American fleet managers by Longbow Research analyst Eli Lustgarten, demand for freight services are falling as well and this is impacting the demand for Class 8 trucks.The report notes that decreased demand rose from 24 percent of fleet managers to 54 percent of fleet managers. As a result, carriers that do not plan to add to their fleets rose to 63 from 50 percent. 

“The bottom line is that the ability to skip buying trucks in 2009 is rising,” Lustgarten noted. “With a rising probability of no pre-buy in 2009, heavy truck production in 2009 may be about 195,000 units [ranging from 185,000 to 205,000], making it the third year of sub-normal sales compared to the robust 377,000 units sold during 2006 driven by a pre-buy in front of the 2007 emissions.”

Current production schedules suggest a weaker fourth quarter output compared to the 51,000 heavy trucks produced in the third quarter, bringing fiscal year 2008 production to about 200,000 to 205,000 units; nearly 10,000 units below the 212,000 produced in 2007. In response to market conditions, Lustgarten reduced his 2009 earnings estimates for engine maker Cummins nearly 20 percent, but kept his NEUTRAL rating.  He also maintained his NEUTRAL rating on other companies affected by the survey results including Caterpillar, Donaldson Co. and Hawk. 

Despite recent drops in diesel prices, truckers are now facing weaker demand and are being forced into price concessions in order to maintain lane densities.

Profitability and credit availability are now of paramount concerns. The implication is likely lower levels of demand both for the remainder of 2008 and 2009, including these other trends:

1. The case for no pre-buy in 2009 is growing stronger; trade talk suggests that 2010 Urea-SCR trucks may get as much as 1/2 mpg better fuel economy than today’s engines:
   
   • 2010 estimated engine cost may be in the $3,000 to $5,000 range
   • 2006 engines on average about 6.5 mpg; 2007 averaged less at 6.0 mpg; results vary materially
   • With base MPG between 6 and 9, a 1/2 mpg improvement in 2010 could save 3,000 to 5,000 gal over a three-year period suggesting a one- to two-year payback
2. Strong Mexico and export sales to date will wane in 2009 by as much as 25,000 units
   
   • Emissions standards in 2008, which drove Mexican demand, will not occur in 2009
   • Exports will be affected by the stronger dollar and global slowing
3. Credit availability could limit the ability to pre-buy trucks; used capacity coming to markets as trucking companies fail

According to Lustgarten, heavy-truck production in 2009 may have more sub-normal sales, but it should be noted that since the average fleet turnover has typically been around four years, stabilization of the credit markets and the domestic economy could lead to an economically justified upturn in truck demand in 2010 as freight and the domestic economy begin to recover.

Longbow Research is an independent institutional equity research firm based in Cleveland that provides market research and analysis to over 200 institutional accounts throughout the United States and Canada. For further information contact the report’s author, Eli Lustgarten of Longbow Research at elustgarten@longbowresearch.com or visit www.longbowresearch.com.

Quotable Concerns
Anonymous Respondents Sound Off About the Longbow Truck Survey

“Recently there has been a big reduction in the number of trucks on the road. I’m talking in the last month or two. There are record low numbers of trucks in some areas of the country right now. I think demand has been falling almost as fast here. We’ve had numerous orders cancelled by customers who are holding off to see what the economy does.” — Ore.

“We are adding one to two trucks this year. That’s similar to what we do every year. We avoid adding anything that we can’t actually afford to run right away. Trucks are a little cheaper, but that’s been true during the glut the last couple of years. The things that are the cheapest are older trucks, which you can’t even afford to run. If it doesn’t get 6 to 7 miles to the gallon, don’t bother buying.” — Wis.

“Even if the economy picks up, we won’t be able to expand our fleet. We are in too much debt right now to make any big purchases.” — Calif.

“We have our magic number of 90 percent on the utilization front, so we probably won’t [buy any more]. There are a few reasons. We’re having trouble getting drivers right now and there’s the government mandate on urea. We haven’t made any decisions yet on what we’re going to do with that. My experience so far has been that fuel efficiency is dropping on the new trucks instead of the other way around. It’s not a good thing.” — Ill.

“Rates are pretty close. Fuel was way up, but it’s come down a lot in the last month or so. We generally negotiate contracts for close to a year, so our rates don’t change real fast.” — La.

Need for Speed
Case Co-sponsors Sheltra Motorsports’ NASCAR Nationwide Series Races

UC staffers armed with specialized digital cameras were able to capture an image of the lightning-quick Case-sponsored Dodge Charger as it made its practice runs.

While normally driven by productivity on the jobsite, the gearheads at Case Construction Equipment are occasionally moved to motor as fast as humanly possible. And there’s no better way for speed freaks to get their fix than sponsoring a NASCAR. So Case backed the No. 4 Dodge Charger driven by NASCAR rookie Patrick Sheltra, of Sheltra Motorsports, in the final two NASCAR Nationwide Series (NNS).

The races were held at Phoenix International Raceway on Saturday, Nov. 8, and the season finale at Homestead-Miami Speedway on Saturday, Nov. 15. Joining Case as a sponsor was Briggs Construction Equipment, a Case dealership with 21 locations in the Southeast United States.

“NASCAR has some of the most brand loyal fans in all of sports,” said Ion Warner, Case Construction Equipment Senior Director of Marketing in North America. “Our sponsorship of Sheltra Motorsports and our visibility will give race fans at the tracks — and the millions watching on television across the country — another reason to get excited about Case Construction Equipment.”

Sheltra’s family, owners of Sheltra Motorsports, also owns Sheltra and Son Construction Inc. Specializing in road and bridge construction and underground work, Sheltra and Son Construction currently owns two Case excavators (a CX330 and a CX240) and several Case 621D wheel loaders.

The NASCAR Nationwide Series features 35 races in 2008 — 26 combination events with the NASCAR Sprint Cup Series and three in conjunction with the NASCAR Craftsman Truck Series. There are 26 racetracks on the schedule divided among 20 U.S. states, Canada and Mexico.

“This is an enormous opportunity for all of us and we certainly plan to make the best of it,” said Sheltra. “Both races are an instrumental part of the Nationwide Series and we hope to find ourselves in the hunt for a good finish, while making our marketing partners proud.”

Sheltra Motorsports (www.sheltramotorsports.com) is a three-tier Motorsports operation consisting of dirt and asphalt competition. Headquartered in Indiantown, Fla., with additional operations in Richmond, Ind., and Whitesville, Ky., Sheltra Motorsports is owned by Richard, Grace and Patrick Sheltra.

Tough Times Ahead
AEM’s 2009 Construction Outlook Gloomy

As the sun sets on 2008, the economic gloom is likely to continue through the first half of 2009.

From grumblings on trade show floors to jobs that are few and far between, it should come as no surprise that the beginning of 2009 is going to be tough.

The question is just how tough will it be? The Association of Equipment Manufacturers’ (AEM) 2009 Construction Outlook Survey took stock of the situation. The construction equipment manufacturing industry expects continued business declines in the United States through year-end 2008 of 8.6 percent, followed by flat growth in 2009 of 0.04 percent.

“The overall slowdown of the past year or so, after record expansion, accelerated this fall with a worsening housing market and collapse of major financial institutions in the U.S.,” stated AEM President Dennis Slater. “The continued financial turmoil is affecting commercial projects as well. While the strength of the global economy has spurred equipment export growth, we now face a slowdown here as well.

“But we have learned from previous downturns how to operate more efficiently, and we are positioned for a rebound, hopefully as 2009 progresses and into 2010. Government measures to boost infrastructure investment will play a critical role in our industry’s recovery, as well as strengthening the U.S. economy overall.”

Year-end 2008 business for earthmoving equipment is expected to decrease 15.8 percent for the U.S. and 6.8 percent for Canada, while increasing 6.0 percent in worldwide markets. Business volume in 2009 is anticipated to decline 3.3 percent in the U.S., remain flat (down 0.6 percent) for Canada and gain 4.8 percent worldwide.

The earthmoving segment includes crawler and wheeled excavators; rear dump and articulated haulers; motor graders; backhoe, crawler, wheeled, compact and skid steer loaders; crawler tractors; trenchers and ditchers; wheeled log skidders; and scrapers.

Sales of miscellaneous equipment such as light-, medium- and heavy-duty trucks, earth drills (augers), side dump, live bottom and flatbed trailers, sewer vacs, environmental grinders and trenchless equipment for year-end 2008 are anticipated to decrease 11.2 percent for the U.S. and 1.6 percent in Canada, while increasing 16.5 percent in worldwide markets. For 2009, U.S. sales are expected to rise 9.5 percent, sales in Canada are predicted to increase 11.1 percent, and worldwide sales are forecast to grow by 9.3 percent.

The business volume for attachments and components, however, is predicted to show year-end 2008 gains of 3.3 percent in the U.S., 2.6 percent for Canada and 6.9 percent for worldwide markets. Sales in 2009 are expected to grow by 3.4 percent in the U.S., 2.6 percent for Canada and 5.4 percent for worldwide markets.

Not surprisingly, the state of the general economy was cited as a key factor affecting future industry growth. Specifically, the level of housing starts and highway funding will be a major influence on construction equipment business volume. Continued export demand, and the relative strength of the U.S. dollar, will also affect sales, and the price of steel and other commodities continue to be a concern.

“We need to get dollars into the construction pipeline. An immediate increase in public works funding will help jumpstart the U.S. economy,” said Slater. “Construction projects are being deferred and our customers are looking for work. It’s estimated that there are currently 3,000 projects that could begin work within 30 to 90 days of a governmental funding commitment.
We also need a proper investment in our water infrastructure to replace an aging and inefficient system. Here too, more jobs are created at the same time that the public benefits.”

Contractors Kick Back
Komatsu Distributor Invites Contractors for Chicken and Equipment Contests

Equipment and BBQ — that’s how contractors chill. Komatsu dealer Berry Tractor and Equipment Co., Topeka, Kan., was more than happy to host more than 300 contractors for an Open House of good food and games.

Up before the sun and calling it quits long after it has set, contractors endure a brutal work schedule; at times working around the clock to get the job done. Knowing the toll taken on their customers, Berry Tractor and Equipment Co., a Komatsu dealer in Topeka, Kan., hosted an Open House in late October. A standing room only crowd of more than 300 flocked to the event for barbequed beef and fried chicken with all the fixins from Puffy’s Steak and Ice House, Texas Roadhouse and Timberline. Prizes were awarded every hour, and operators tested their skills in backhoe loader and excavator contests.

“We wanted to take the time to thank our customers for their loyalty and to meet anyone who was interested in learning more about Berry Tractor,” said Ken Wasinger, Berry Tractor and Equipment Co. Sales Manager. “We were quite pleased with the turnout, and it looked like everyone had a terrific time.”

Operators were lined up to compete in timed skill contests involving moving balls from cones and dropping them into a bucket. The winner achieved the highest accuracy in the least amount of time. Chris Decoteau of Potawatomi Road and Bridge won first place in the backhoe loader contest, and Heath Harris of Harris Construction earned the top prize in the excavator competition. Both received model replicas of the machines they were operating — a Komatsu WB146 backhoe loader and a Komatsu PC35 mini excavator — and gift certificates from Applebee’s.

Prize winners also included Lyle Bausch of Shawnee County Parks and Recreation, who won a $200 Cabela gift certificate. New television owners from the raffle are Lance Mannell of Brahma Excavating, who took home a 19-in. model, and Robert Arnold of Prairie Band was the 26-in. television winner. New chainsaws were purchased through vendor donations and won by Merle Lietz of Lietz Construction and Warren “Hardy” Eteeyan of Prairie Band.

Everyone left with a Berry Tractor hat and a stomach full of tasty barbeque. Representatives were available from a selection of the equipment manufacturers for which Berry Tractor distributes products. Answering questions from attendees were sales representatives from Bomag, Henke, Komatsu, Paladin, Screen Machine Industries, Superior Broom, Tramac and Trail King.

Berry Tractor and Equipment Co. has been selling and servicing heavy machinery since 1957. Berry Tractor is one of seven companies that manufacture or distribute heavy equipment that are owned by Berry Companies Inc., headquartered in Wichita, Kan.

Anglin’ Excavators Every job has an angle, and now New Holland and Kobelco excavators offer a blade option to match it. The two manufacturing giants will now offer an angle blade on all New Holland compact excavators models E30B, E35B and E50B and Kobelco models 30SR, 35SR and 50SR. Along changing terrain and in situations that require material movement to both left and right of the excavator, the utilization of an angle blade can often be crucial to backfill and grade dirt while minimizing cycle time. Whereas standard straight blades can cause win rowing to the side of the blade, the option for angle blade operation gives the operator more flexibility as the blade adjusts 23 degrees on each side to push dirt to either side of the machine when backfilling and grading. In addition, the new four-way blade design offers up to 22 in. of lift height, as well as exceptional vertical clearance and deep dig capability of up to 17 in. of dig depth. Meaty Acquisitions Acquisitions are the food needed by a growing company. To keep its business well fed, John Deere and Co. acquired full ownership of ReGen Technologies Inc. — a remanufacturing company located in Springfield, Mo. John Deere said the operations will be more fully integrated with remanufacturing operations in Edmonton, Canada, and the overall name of the business will be John Deere Reman — an organization focused on growing Deere’s remanufacturing business globally. “We aspire to an enhanced leadership position in the remanufacturing business,” said Barry Schaffter, Senior Vice President of manufacturing in Deere’s Construction & Forestry division. “ReGen has delivered impressive business results through a dedication to quality and ingenuity.” ReGen was founded in 1998 to remanufacture engines for John Deere products in the U.S. and Canada and has broadened its product line since then to include other engine components, fuel injection systems, starters, alternators, air conditioning components and other key parts for John Deere customers of agricultural, construction and forestry equipment around the world. Deere had already owned 50 percent of the business.