As equipment manufacturers stare into the second half of 2009 and see 30% to 50% fewer annual sales, a “Cash for Clunkers”-style program for dozers, backhoes and excavators may be just what the economy ordered. Or is it? Suppliers say they have been kicking the idea around internally since C4C started winding down this month. This year’s American Recovery and Reinvestment Act has done little to shore them up: Peoria, Ill.-based Cat alone has shed 34,000 jobs since late last year, it says.
“Misery loves company, but it is still misery,” echoes Ron DeFeo, chairman and CEO of Westport, Conn.-based Terex Corp. In the second quarter, Terex booked a net loss of $77.6 million on $1.3 billion in revenue with 55% fewer sales, in part forcing it to close its plant in Cedar Rapids, Iowa, which opened in 1923. It employed 170 workers. Globally, manufacturers this year have lost $25 billion in sales, “a car company’s worth of revenues,” DeFeo notes. Some categories, such as aerial lifts, are off a ghastly 80%.
Equipment dealers also are feeling the economic hangover. “A lot of contractors fleeted up in ’04, ’05 and ’06,” explains Mike Pack, president and COO of Henderson, Nev.-based Cat dealer Cashman Equipment. “We had the real high; now we are experiencing the real low.”
Meanwhile, C4C jump-started automakers this summer by offering federal rebates of up to $4,500 to encourage consumers and fleets to trade in old, polluting vehicles in exchange for new, fuel-efficient ones. The program is set to push August new-car and light-truck sales over the one-million mark for the first time in a year, reports J.D. Power & Associates, like ENR, a unit of McGraw-Hill Cos.
Could a construction C4C help boost sales and push fleets to clean up dirty diesels that increasingly are being regulated into extinction? Mark Koznarek, a stock analyst with Cleveland Research Co., responds with another question, “Where is the love for off-highway equipment?”
On the other hand, C4C suffered logistical nightmares—processing logjams that likely would multiply with bigger machines—and may end up freezing purchases tomorrow. “At the end of the day, it is a pull forward of sales,” Koznarek explains. Many industry firms already are sick of stimulus talk, disappointed by congressional lawmakers earmarking less than 10% of the $787-billion ARRA for infrastructure. “What we need to do is reauthorize the highway bill,” DeFeo says, calling for more long-range, federal spending. Pack agrees, noting that ARRA so far has helped Cashman sell only a few backhoes and other small machines. “The only way contractors are going to [buy] is knowing that they are going to have work,” he says.
Ironically, manufacturers this year plan to cash in on stimulus abroad. China’s $585-billion spending package is starting to boost Asia/Pacific sales, Cat says. It forecasts a healthy 8% economic growth there this year. Meanwhile, it predicts the U.S. GDP will fall more than 3%—“the worst peacetime performance since 1938,” says Cat’s most recent earnings report.
Manufacturers and dealers now are looking to late 2010 or early 2011 for a turning point, says Ion Warner, senior director of marketing for Racine, Wis.-based CNH Construction Equipment. He adds that uncertainty still abounds: “I don’t think we have a clear line of sight on when the recovery will occur.”