Guest Blog: A new deal

by Dan Donovan, road machinery sales director, North America, Volvo CE

| July 29, 2013

volvo_logojpgWith the housing market showing signs of new life and public infrastructure spending high on the agenda, it’s possible to believe that the long, nuclear winter of recession in road-building may just be drawing to an end.

In May, monthly home sales hit their highest level since July 2008. According to a Standard & Poor index of 20 American cities, housing prices rose by 11 percent in the year through the end of March. Meanwhile, in Phoenix and Las Vegas, it seems the housing bubble is having an even greater resurgence–prices there are up more than 20 percent.

Higher house prices encourage more house-building–which in turn means more roads. But such a historic slump in housing will take time to unwind–and actually, housing starts fell in June to an unanticipated 10-month low.

Meanwhile America’s public infrastructure is falling apart. In its comprehensive nationwide evaluation, the American Society of Civil Engineers (ASCE) gave the country’s roads a D grade and bridges a C+ this year. Previous report cards haven’t fared much better, yet Congress managed to pass only a two-year federal highway bill last summer. Having long-term, consistent infrastructure funding in place will create confidence in the market and encourage contractors to invest.

Washington must do more to invest in repairing and replacing the nation’s crumbling infrastructure–that’s all there is to it. The $54 billion Department of Transportation and Housing and Urban Development budget that the Senate is currently deliberating would be a good start. But getting through the gridlock in Washington will require strong support from constituents. Contractors and manufacturers that are far removed from the Beltway can and should partner with advocacy groups with influence on Capitol Hill. For example, Volvo Construction Equipment works closely with organizations like the Association of Equipment Manufacturers (AEM), whose I Make America campaign lobbies for pro-manufacturing legislation that will increase jobs by rebuilding and modernizing the country’s roads and bridges, among other things.

Despite a mixed economic forecast, many of us who work in the road business are starting to see the light, dim though it may be, at the end of the tunnel. And as highway jobs begin to pick up, contractors will have to replace aging fleets–and quickly. Competition is stiff and when a job comes through, contractors have to act immediately; there’s no leeway for a long machine lead time.

At the height of the economic crunch, when companies in all industries were tightening their belts, Volvo Construction Equipment decided it was more important to prepare for when the economy returned to good health. The company invested $100 million into its manufacturing facilities in Shippensburg and Letterkenny, Pennsylvania, creating and securing hundreds of jobs and allowing Volvo to manufacture machines closer to the customer–and deliver them faster. The expansion in the Letterkenny paver production facility will allow Volvo to launch a “supermarket concept” to more accurately meet demand. Starting at the end of 2013, pavers will be built to a bare-bones level. When a customer orders a machine, the paver and its parts will be completed with the options and components the customer has requested. With this method, we can deliver within 30 calendar days of the order being placed–about four times quicker than the industry average. I believe rapid delivery will be the new dynamic of a resurgent road sector.

Because the competition for contracts is squeezing margins, work has to be done right the first time if contractors are to be more profitable. Contractors receive bonuses for the smoothness and quality of the roads they build, meaning their workmanship has the potential to boost profits further. To guarantee this perfect quality, contractors need more high-tech compactors and pavers.

Volvo CE is helping pave the way towards that future state. We introduced new lines of soil and asphalt compactors in January, and at next year’s Conexpo trade fair, a new Volvo-designed 7000-Series 10-foot paver will also be launched, promising better performance and greater durability and reliability than its predecessors.

Things are a long way off recovery, but with signs of life in road building, there is room to be optimistic. But when the market does bounce back, it will be a different world–one where delivery speed, machine reliability and high quality are the order-winning criteria.

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