Recession ruthless to equipment distributors.

By John Latta, Tina Grady Barbaccia and Tom Anderson

Just as a rising tide is said to have the power to lift all boats, the Great Recession apparently leaves no-one behind. Equipment distributors have taken a pounding.

While that’s a statement not likely to surprise anyone in the industry, the Associated Equipment Distributor’s (AED) 2010 Government Affairs Survey provides a snapshot of just how much they are hurting.

Here’s AED’s summary of the findings from the survey conducted in early April:

Since January 2007, AED members have taken difficult and painful steps to keep their companies in business, including the following:

75 percent of AED members have laid off workers;

68 percent have eliminated positions through attrition;

64 percent have reduced salaries and wages;

64 percent have sold equipment from their rental fleets at a loss;

36 percent have reduced health insurance benefits;

32 percent have suspended participation in a workforce development program (e.g., training

partnership with a local community college);

21 percent have cancelled the opening of a new facility; and

17 percent have closed one or more facilities.

AED says the survey found that, on average, companies that reduced their workforces cut employment by 23 percent since 2007.

A 2009 IHS Global Insight study estimated the equipment industry’s workforce had contracted by 37 percent since the start of the recession. This was a broader study of the industry. AED only surveyed members. Fundamentally, AED says the survey results reinforce IHS Global Insight’s original determination that the economic downturn has taken a devastating toll on equipment distributors and their employees.

The credit crunch has also taken a huge toll on equipment distributors. A stunning 80 percent of survey respondents said they had lost revenue over the past year because a qualified customer (or customers) could not get credit to finance equipment purchases. Forty percent report losing more than $1 million in revenues. AED reckons, using what it calls an extremely conservative estimate, that survey respondents have together lost $75 million in revenues because of customer credit issues.

“When the results are projected across AED’s entire U.S. distributor membership,” says AED, “equipment distributors have conservatively lost more than $475 million in revenues over the past year because equipment purchasers could not find financing. By combining the results of this survey and last year’s (which asked the same question), AED estimates that its members have lost more than $1.2 billion during the past two years because of credit issues.

The “stimulus” legislation has been a little bit of a silver lining for battered distributors.

AED says survey results show that “the stimulus bill’s infrastructure spending had some impact on equipment sales, as well as on equipment rental and product support business. However, the most benefit came from the capital investment incentives (50-percent depreciation bonus and increased Sec. 179 expensing levels), AED reports. Twice as many members report sales attributable to the capital investment incentives as to ARRA’s infrastructure spending, according to AED.”

Specifically:

36 percent of respondents said the ARRA’s 50-percent depreciation bonus and increased Sec. 179 expensing levels motivated equipment purchases at their companies last year;

29 percent said the ARRA’s infrastructure spending created product support business at their companies;

29 percent said the ARRA’s infrastructure spending resulted in increased equipment rentals at their companies;

19 percent said that ARRA’s infrastructure spending resulted in used equipment sales at their companies; and