Sales of Heavy Construction Equipment Gaining Ground

After languishing in a hole for three years, the U.S. heavy construction equipment sector finally is digging its way out.

Caterpillar Inc. reported last week that retail sales at its North American machine dealers rose 19% in the three months ended in November, its biggest rise in several years.

This month, Deere & Co. reported a 22% gain in its fiscal fourth-quarter sales of construction and forestry equipment. And CNH Global Inc. said its heavy construction equipment sales in November rose more than that.

“The long wait appears to be over,” said Frank Manfredi, a Chicago-based market researcher and consultant and publisher of the monthly newsletter Machinery Outlook.

Analysts cite replacement demand from the owners of aging construction equipment as well as federal tax changes designed to spur equipment purchases.

A pickup in the U.S. economy has helped, they said. Next year also could get a boost from a highway spending bill pending in Congress.

The industry still has a long way to go before it recovers from the downturn. Manfredi estimates that retail unit sales dropped about 40% from their peak in late 1999 through 2002.

The industry got off on the wrong foot this year, with retail unit sales dropping 5.2% through April as the U.S. went to war in Iraq.

Industrywide, sales turned positive in May and have gained momentum since then, according to data issued by the Assn. of Equipment Manufacturers and CNH Global.

For the year through November, retail unit sales of heavy construction equipment rose 8.8% industrywide, according to the association. As late as the third quarter, makers of heavy construction equipment had been expecting 2003 sales to be down slightly, it said.

Replacement demand has been strong, especially from equipment rental companies, which now account for about one-third of the market.

“A lot of contractors are faced with having to do major repairs or buy new equipment,” Manfredi said.