|International's 4000 Series comes with a free fill-up. (Photo by International Truck and Engine Corp.)|
Oil prices are skyrocketing with more force than the U.S. space shuttle program, prompting truck suppliers to fuel around with a new giveaway. Meanwhile, off-road producers are trying keep up with a still-robust demand for construction machines.
Soon after the success of General Motors' "employee discount" campaign, Navistar International, the parent company of International Truck and Engine Corp., thinks that giving away free fuel is the ticket to selling more commercial vehicles.
Its dealers hope to convince construction fleet owners to pick up a new 4000-Series International truck by offering a pre-paid debit card loaded with $1,000. Finance the sale with Navistar, and the company will throw in another $250. The promotion, limited to five trucks per customer, expires on October 31.
The Warrenville, Ill.-based manufacturer says it is trying to "alleviate some of the financial burden" of todays energy costs, according to Mike Elwell, director of marketing for medium-duty trucks. If successful, Navistar may expand the program to other truck models.
Average highway diesel prices climbed to $2.57 per gal this week, a new record that beats the previous spike on July 11. Diesel pump prices in California are well above $3.00 per gal, roughly 93¢ higher than this time last year, according to the Energy Information Administration.
Despite this inflation, equipment market observers predict solid movement of new construction machinery through 2006, followed by a potential slowdown in 2007.
"Things are looking very good for the next six quarters. After that, were worried," says Steven Latin-Kasper, director of market research for the National Truck Equipment Association, Farmington Hills, Mich. Truck sales are up 25.4% over last year, he notes, but the monthly rate of growth is on a gradual decline.
The off-road side of the equipment business is on a similar track, soon to get another boost from new federal transportation legislation that President Bush signed into law last week at a Caterpillar Inc. wheel loader and excavator factory in Montgomery, Ill. The transportation funding bodes well for the equipment needed to build roads, bridges and rail lines.
"We think this cycle has some legs," says Cat spokesman Jim Dugan. The Peoria, Ill.-based company has raised its outlook for 2005, targeting annual revenue between 18% and 20% higher than last years $30.25 billion.
Contractors could spend as much as $17 billion on equipment over the next five years for federally-funded highway and rail projects, according to Associated Equipment Distributors, Oak Brook, Ill. But state budgets are a factor. "We continue to be concerned about the states ability to match available federal funding," says Matt Walsh, CEO of contracting firm The Walsh Group, Chicago.
In 2002, when the equipment market was softer, transportation contractors spent $5.2 billion on construction machinery sales and rentals, estimates the American Road & Transportation Builders Association, Washington, D.C. William Buechner, ARTBAs vice president of economics and research, adds that highway construction is "a major source of demand for larger equipment."
Machine orders dipped this past spring as production slots filled up for the rest of the year. But sales are picking up again as builders start to plan next years workload. "We are working feverishly," says Jim Orr, director of worldwide marketing for Deere & Co.s construction and forestry division.
The Moline, Ill.-based manufacturer blames drought on lower-than-expected sales in its August 16 earnings report. However, construction equipment sales rose 29% for Deere's third fiscal quarter, outperforming its other product lines.
Nuts and Bolts
In addition to our regular analysis of the construction industry's equipment suppliers, a flurry of stock splits, acquisitions and corporate announcements have been pouring in over the newswire. Following is a brief roundup of this summer's highlights: