Secondarily, he adds, dealers and rental companies wanting to put the machines in their fleets to work are keeping rental rates competitive right now.
Sums up Volvo Financial’s Rankin: “Blending of the options is often a smart move as it allows the customer to address specific needs for the various types of equipment on a big job and optimize profitability.”
Doing the Deal
Much like the equipment they use, where to find the money for that equipment may involve digging into different pots, in different locations. After all, a guy who operates nothing but Brand C excavators may just have a preference for Brand D backhoes, right? Then again, when it comes to finding the money, that may not matter.
“That customer, maybe more than ever before, is, to the extent they can get it, looking for kind of a one-stop shop,” says Norris. “That’s where they want that dealer to be able to provide solutions that meet their total business, and not have to do an a la carte type of solution.
“As Komatsu Financial, we’re very interested in helping our dealers and their end-users be successful,” he says, “and so we will finance on occasion some non-Komatsu product when it’s included in a package of our own. But we stop short of doing other manufacturers’ product on a stand-alone basis for obvious reasons. We are not an independent commercial finance company; we’re first and foremost to support our product line and our dealers.”
Step right up then, Wells Fargo’s Crum urges end-users, the overwhelming majority of whom his company serves are from the private sector. “The conservation of their working capital is the biggest thing,” he says. “We’re at a particular point in the business cycle and the economic cycle where rates are very advantageous to a contractor to go out and put some long-term financing in place right now. At the same time, with manufacturers wanting to sell their products, there are also manufacturer-sponsored programs that are offering some really attractive finance and lease options out there as well. It’s a good time to do all.”
Doing all today, says Norris, includes a heavier consideration of used equipment. “For our types of products, the obsolescence curve is very long and very flat,” he explains. “If it still moves dirt or moves down the highway, there’s value there, and I think you’re seeing that today in used equipment. There’s been some real interest in used machines, just because of that price-to-value ratio and a little bit less uncertainly. Customers are more willing to commit and have to deploy less capital.
“This may be a function of the economy as well, because many of the folks in our space have gotten a great deal of machines back, and you have to work that back through the traditional channels,” says Norris. “You’re certainly seeing that through not only the other captives, but commercial finance companies and banks. Unfortunately a lot of businesses failed and a lot of iron had to come back and is still in the process of being moved through the pipeline. Until that has run its course, it’s going to be a little bit harder from the manufacturer perspective or dealer perspective to convince customers that they want to ignore half of the bell curve and only look to buy or rent new products.”
Whether a company makes the equipment or not, it definitely has a wicket at the proverbial bank for equipment users, says Norris. “From a capital market or pure treasury perspective, we love other financial institutions to have interest in our industry and our space,” he says. “It’s a very capital-intensive business; manufacturers require capital, dealers require capital and the end-users require capital. Informed market participants who want to engage funds, we’re happy to talk to and in some cases even point them in the right directions. Unfortunately, what you get sometimes is the cyclicality of our industry will attract participants during some periods, and at times others will run for cover when things get tough.”
Despite the recent struggles, the construction industry retains “attractive features for us as a lender and lessor,” says Well Fargo’s Crum. “One of the reasons why this is a core business is because it is a very capital-intensive business. There is the need for the kind of service that we provide, which is capital, either in the form of capital to the dealer or capital to the end-user.”
Step right up, indeed.v
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