S WE approach the end of another year, it is appropriate to look back at 2007 and see if there are any indicators for 2008. There have been some interesting developments over the past 12 months but who were the winners and were there any losers?
To gain a perspective on the market as a whole, I spoke with Colin Timms from Off Highways Research which is probably the world’s most authoritative source of market data for the construction industry. Although, understandably, not prepared to comment on individual companies, Timms did say that early statistics indicate that the North American market is down significantly – advanced orders down by up to 25 per cent.
This can be attributed to the crisis within the housing market. The major impact of this has been on the demand within the US for smaller machines. The upside is that many manufacturers are likely to switch production of US spec’d machines to ones for the European, Asian and Australian markets. This is potentially good news for the industry given the weakness of the US dollar and inevitable shorter lead times. The forecast is for the US dollar to weaken even further against major currencies including the Australian dollar.
This could be very good news for US manufactured equipment with lower cost and shorter delivery times. The losers could be European manufacturers who, if they can, may try to switch production to the US to try and get some protection.
At this time, demand for larger machines remains positive in the US because the North American mining sector is still buoyant. Apart from the US, other markets are still seeing growth. According to Timms, the China and India market is well up as is demand within Europe. Order intake in Europe is up between 15 and 25 per cent depending on the product and the country.
Main products in demand continue to be excavators, particularly minis. It has also been a good year for wheel loaders, but at a lower growth level. Telehandlers and dump trucks, more so ADTs than rigids, have seen steady growth. The statistics would point to equipment being bought for new-build and infrastructure projects because compaction equipment is lagging behind which is normal as it is some of the last equipment to be used in many projects.
A product that has traditionally been a North American tool but has gained markets around the world is the skid steer loader. The market continues to grow but, interestingly, the Off Highway Research assessment would indicate that the introduction of the tracked versions has not grown the market. Customers are simply switching from one type to the other. The winner here is definitely the tracked skid steer.
Outlook is generally good news for the manufacturers so if there is a potential problem, where it is? Timms sees potential problems in the second-hand market, which could have a knock-on effect to new equipment sales. “Within Europe, the newer member countries to the European Community were, for a long time, a good market for used equipment. The demand helped keep the value up. However, these countries are now purchasing more new equipment. Ironically, the introduction of new technology could impact on used equipment value as it limits the size of the market that can take these products,” explains Timms.
The latest engine technology with the Tier III compliant and more advanced Tier II engines feature more electronics, which require computers and advanced diagnostic equipment in order to maintain them. These products may not be acceptable to third-world countries where the necessary technology is not available to enable servicing. Modern engines also require a much cleaner fuel.
This demand could be taken up by equipment from China, Korea, India and other Asian countries, which is already built to lower specs than for Europe. Customers may, therefore, retain new machines for longer as the demand for used equipment falls. This has the potential to impact on future orders. Customers could be winners as equipment costs could fall.
For every winner, there is a loser and this could be the plant hire industry. The potential reduction in residual prices could impact heavily on plant hire companies who traditionally have relied on a strong used-equipment market for profitability.
Winners or Losers
There have been some interesting acquisitions in the past few months. Volvo acquiring the road division from Ingersoll Rand was one of the first. This has the potential to rapidly propel Volvo Construction Equipment up the size league table. Rumours had been circulating for some time about Volvo looking to grow the business through acquisition and Dynapac was considered to be the prime candidate.
However, Dynapac did not offer the dynamic market penetration of the established dealer network that came with the IR Road Division. Dynapac was taken into the Atlas Copco Group. The latter does provide a strong financial base and a worldwide distribution network for Dynapac from which it can further grow and expand the brand name.
Given the US situation, did Volvo foresee this or are they hoping that the US Government will proceed with its massive road rehabilitation program? With Presidential elections next year, there is not going to be any major announcements in that respect. Fortunately, the roading sector is not seeing the same turndown but this could, of course, change if housing developments are not going ahead.
The coming together of Neuson and Wacker is interesting. Is it a merger or is it an acquisition? No matter what PR spin is put on it, if Wacker has acquired over 90 per cent of shares then, by my reckoning, it is a takeover. What they are trying to say is that they are not closing down Neuson and will not run Neuson as a separate entity. Putting the two names together should help retain the customer values attributed to the respective brand names. Both brands could be winners: corporate PR the loser.
The Doosan takeover of Bobcat has just been finalised, having been given the EU clearance. However, the market is still waiting to see what will happen with the dealer networks although Doosan has stated that they intend to retain the Bobcat identity.
What will be the impact on the tower crane market of Manitowoc’s purchase of the India’s leading tower crane manufacturer, Shirke Construction Equipment? India has long been mooted as a future exporter of equipment because of the low manufacturing costs it provides. Whether Manitowoc sees the acquisition as an opportunity to increase penetration of the Indian sub-continent or as an opportunity to produce quality products at a lower cost for export remains unanswered.
In the access equipment sector, the last big acquisition was the Oshkosh Truck take-over of JLG, which the company has reported has been a big success with a buoyant European market helping to offset a weaker US market. Certainly JLG are going to be more heavily promoting ex-US sales at discounted rates because of the weak dollar. Will it be enough?
Breaking news is a strategic alliance between Case Construction and Hyundai for larger wheel loaders to the Case range. Jim McCullough, president, Case Construction Equipment says, “The expansion of the Case line-up with larger wheel loaders, along with the heavy-range excavators, larger crawler dozers and articulated dump trucks Case already offers, adds to the full line available through Case dealerships.”
The first new model – Case 1221E – resulting from the alliance with Hyundai will be at ConExpo-Con/Agg in Las Vegas in 2008. Under terms of the agreement, the new model will be available in North America, Europe, the Middle East and Africa, so Australia does not appear to be within the agreement at this time.
However, this move by Case illustrates a direction that the company wants to take – into the larger sized machines. This could prove to be a win-win situation. Case benefit from large wheel loaders giving them opportunities in the mining and quarrying sectors; Hyundai benefit from the extensive dealer network offered by Case. Losers could be loyal Case customers in Australia wanting bigger wheel loaders.
Roger Lindley, Construction Contractor's London-based correspondent, looks at recent introductions and developments worldwide that could impact on the Australian market.
Source: Construction Contractor