Knowing when to let go……..

Recently the market landscape has been “reported” to be improving. I am in Florida, the market is a mess. It’s erratic, it’s unpredictable, and it’s unforgiving. The auction companies are doing the best they have ever done. There’s a reason for that: it’s an auctioneers world right now. Contractors can’t lose, their equipment will sell no matter what.

Sometimes they just don’t know when to let go. Granted, sometimes they can’t. They may owe too much or may believe that the value is going to increase when the market comes back. History tells us different. I had an incident recently where neither case was present. A few months back I called on a contractor who wanted to sell some items. He had some older, poorly maintained machines that all needed some work. I worked up some numbers and gave him a range on what he could expect. He was happy with most of the pricing. I began working on moving them for him and about a week in presented him with an offer above what we had discussed. He changed his mind. He wanted to wait until the market comes back and try to sell at higher prices. Bad move. Equipment sits and rots, defects show up, engines rust and lock up. Case in point, his Galion grader that we offered him 11k for:

Sometimes we just have to let go………….

The equipment industry is bleeding…..

There is a massive destruction going on in our world right now. It’s not the buildings being blown apart by bullets across the world, it’s not the earthquake ravaged orient. It’s the economy in America. I just heard a video by AEM that says the construction equipment industry has an unemployment rate right now of 37%. That’s right, over a third of our colleagues, partners, bosses, and friends are out of a job. While our money is being plowed into this healthcare mess that likely will never help anyone (our government has a history of failing in these areas), and put into banks that may or may not be using the money to help our country, the construction industry is still waiting for the check that the government says is “in the mail”.

If this industry fails it will be catastrophic. Not detrimental, catastrophic. Many people don’t realize how much of our economy is built upon the construction and related industries. If they are “bleeding”, the heart (our country) will not function properly. I have many clients who I have been helping liquidate their fleets who are praying every night that they will be able to keep their workers and still be able to keep the doors open. They are in desperation right now. It’s not just the mom and pops, it’s some of the largest companies in the world.

At what point do we work on focusing on just the economy instead of political side projects? While our president is off trying to be Robinhood, the middle class are quickly becoming poor. Of course, he is not worried, he get’s a steady paycheck and knows there will be book money when he is not reelected. He’s set for life. Those of us who have to hope our next check will be there and equally worried that it will clear, have no other option than to watch our government drag our economy back 200 years. Any way you look at it, we lose with the people we have in place. They have stopped acting in our best interests and have now switched into ass-kissing mode to make a name for themselves and ink some book deals. There are no more pioneers like back in the day. George Washington would be rolling over in his grave………….

How Will You Be Remembered?

Timing is everything in life and in business. Some thing we can control the timing of, some things we can’t. Take for instance the economy. No one knew exactly when the bubble was going to burst, but they knew it was going to happen. Those who could gauge it enough to shore up their finances and get traction enough to survive are doing well despite the tough times going on worldwide. Those who timed it wrong are likely in line at the US Bankruptcy Court waiting for their chance at a new beginning.

My good friend who I mentioned in previous blogs owns a small rental company called Coastal Rental Center. He built the company from the ground up, beginning with only him and his wife. When the economy started to turn, he was ready and he has actually had some of his best months during this recession. He will be remembered as a very intelligent business man who remains involved in the community.

On the other hand, take John Milne. He will be forever remembered as the guy being prosecuted by the SEC for inflating United Rentals stock prices. (Please note, I am not commenting on whether I think he did it or not, and will not make an opinion on that point). There had to be some involvement, even if by ignorance, or the SEC would not put their neck on the line with accusation. Had United not had a failed buyout by Cerberus, these allegations likely would have never surfaced in my opinion. Again, timing is everything.

Then you have pioneers like Robert Gray and Mark Richter, who took the down economy to their advantage and launched a very necessary service that matches potential customers with rental prices for equipment. Marketing a site like that is tough, but looking into their background it looks like they have the necessary skills. With success, they will be remembered as pioneers.

We all spend a lot of time trying to time the market, the economy, and other people’s intentions. In all this, we can’t lose track of why we do this in the first place. If we do what we are passionate about and do it with honesty and integrity, we will be remembered that way. Passion is just as important as knowledge, ability and drive. So, how will you be remembered?

When in a Recession, Expand……….

While most people are thinking how bad a recession is killing their business, there are a few out there who have figured out that a recession is an open door. When better to get into the water than when the level is low enough that you can’t possibly sink? If you can survive and swim with the big fish in this kind of market, you are prepared to face the worst of the worst. That is, with really good planning.

Some of the best and most tenured businesses in this country were built in recessionary times. They found the entry point for their market and pinpointed how to sway the buyers into their businesses. Construction equipment is not much different. You can get in for next to nothing with a great network in place and some truly good people in your corner. You can build equity by building rapport with your clients and colleagues. It won’t happen overnight, but it will happen. I once had a contractor tell me you have two things in construction: Your word and your credit. Without them you cannot succeed. That’s why he is in a position where he doesn’t have to bid jobs out that make him lose money. That’s also why he won’t backtrack on jobs he does bid. Some are getting their money by putting in excessive change orders and others by cutting corners. He entered this business in a recession, he knows the game.

I have been watching some companies closely and those with too much invested think this is the time to pull back and retract their size and scope. I think it’s a fatal mistake. You don’t make money without putting your butt on the line. Smart ones are expanding and growing, taking the time to capitalize on the opportunity left on the table. It it those who will see the benefit of that expansion within the next 18 months.

The Importance of Networking

You can always tell the difference between old school and nexgen sales people by the way they network with others. I once had a sales manager that told me that you should hate the competition and should never be amicable with them. I completely disagree. I often had lunch with the competition. A few times I had been to their homes and them to mine. Competition today is different than most people think. If you network intelligently, your businesses can coexist peacefully and do well from combined experience and lessons.

I have been networking since I got into equipment sales and rental in 1997 in one form or another. Whether it was communicating with local companies and exchanging deadbeat lists, or calling around to find clients equipment I didn’t have. Sites such as Linkedin, Facebook, and Twitter are fantastic outlets to broaden your contact base. I have made many friends and contacts through these sites and worked with people across the world. I got on Linkedin in 2006 when it was still relatively new just to test the waters. I followed with Myspace, then Twitter, and finally I jumped on the Facebook bandwagon (which I couldn’t live without now).

Without networking, we are in the dark. My old sales manager is in the dark. He has no idea what the competition is doing, nor the clientele for that matter. You gotta get out, shake some hands and kiss some babies if you want to broaden your base and expand your network. Recent networking has enabled me to meet people I would have never met otherwise and opened up so many more avenues in the way I do business. I have been able to take my game to a global level. If you are interested, I would love to network with you. http://www.twitter.com/equipmentmedia is the best place to find me. I look forward to connecting.

Positive Indicators of the Construction Equipment Market

For the past four or five months I have been witness to some very erratic behavior within the construction industry. It is actually misleading in some ways and comforting in others. I had the pleasure of talking to a contractor whom I now consider a friend about the cycles in the business and if you read my last blog you know some of my views. He told me that he had the benefit of going through several downturns, though nothing quite this bad. In 2005 he refinanced some of his equipment. He didn’t refinance it to pull money out, he refinanced to lower his interest rate, release some of his equipment from his loans, and plan for another downturn. It’s easy to say “I seen this coming”, but not quite so easy to say you did something about it. I guess it goes without saying that he wasn’t going to sell his equipment at wholesale prices like I had asked him upon meeting him. I did however sell two of his older pieces that he was ready to part with at every penny he was asking for them. I bring this up because he is not the first person who told me they had planned ahead and not only don’t want to sell anything, but they don’t need to.

This past month we have sold several pieces at prices that seem to be going up. The hard part now has become getting contractors to part with their equipment at a price that allows me to make some money on it. Again, it seems very erratic. Some contractors have no jobs at all while others seem to be landing jobs enough to bring some laid off workers back to their previous jobs. I have seen places starting to hire again and you can see a little bit of money starting to change hands.

We are not out of the woods yet, not even close. However, it can be summed up similar to some of those horrific winters I spent in Northern New York. You start to think it will never end and then one day you wake up and the gray clouds seem to have parted enough to let the sun through. The snow melts and soon enough you see the leaves starting to grow on trees and the grass taking it’s original shape. After this, you get nailed by another nasty snow storm and think to yourself again that it won’t end. I think we just hit that first parting of the clouds and the next storm will be the remaining fallout and dust settling of the finance, real estate and construction industries combined.

We are headed in the right direction, I assure you. As i said in my last post, we are far too advanced a society to continue to sink. Those who have weathered the storm and emerge ready to move on will be the ones with the most to show.

The rental market and it’s future

Let me start out by saying I am very tired of hearing about how bad our economy sucks right now and how it will take decades to get back to previous levels. It will not. I am not being overly optimistic or hopeful, I am being realistic. Call it what you will but we don’t live in the era of the great depression and our circumstances and resources are tremendously different now than they were back then.

There has been a lot of very bad fallout from our economy and I have seen good friends and clients go bankrupt and lose houses, businesses and life savings. Our way of life will not allow the economy to sustain this downfall, it will come back. People have to have transport, they have to live in houses, and we have to eat.

What we will see over the next 18 to 24 months is going to be stabilization of rental rates (hopefully an increase as well) and we will see a lot of smaller companies grow much stronger as a result of this fallout. Why? Most of them have prepared for reality a long time ago and if they are still in business now, they aren’t going anywhere. We are going to see alot of the “whores” go under. By this, I mean all the companies who said low price is all they need. They dropped service by the wayside and just went in for the kill with their pants down saying that they can get it to the contractor cheaper than their competition. This business is not about price, it never was. Just ask my good friend who got me into this business right out of high school. His business Coastal Rental Center in New Port Richey, FL is doing better than ever. He kept his service top tier, cut his rates only a little bit, and increased his business the old fashioned way, by being better than the competition. Now he is in a position to be much more profitable when the market comes back and if he capitalizes, more market share and deeper penetration in the region.

Equipment companies don’t get bailouts or huge incentives to do business in a certain area so they have to adapt very quickly to their economic environment by keeping in the positive. The ones who went in and cut their rates to $700 backhoes and $150 20′ scissors are going to have a difficult time when they can’t get the rates back up and are forced to continue paying out more than make on their equipment. I think we all know what the result of more going out than coming in becomes.

With companies closing down, thinning out their stores and stretching their sales force thinner, it leaves us to wonder how stable they were in the first place. When you have to layoff over 20,000 people like Caterpillar did or close 75 branches like United did, how do you inspire your investors to have trust in you when you want to do it again? When you have to write down hundreds of millions for branch closures, layoffs, and fleet disposal it seems a little hard to say let’s do it all over again.

Here are my predicitions for the next 24 months in the rental industry:

The market will feel the end of the free fall by the end of this year and we will begin to see who still has the contractors’ confidence. I am quite sure it won’t be the lowest price that keeps the customers. In the Spring of 2010 we will see major projects starting to break and seeing this, investors will again begin to spend their money. The rental market will be much stronger more appealing because equipment manufacturers do not have the capacity to build and sell equipment as quickly as they did before and buyers will not have as much confidence in purchasing as they once did. If the equipment companies can get it right this time, the rates should see a 10-15% increase within a year or so. By 2011 everyone will “forget” what happened and how it began and we will go back to business as usual. People will be just as greedy as they were before and likely just as careless as they were when this mess began. There are some very powerful exceptions to those people. I think we will see people like Bryan Rich, who is now with Acme Lift, lead the industry in a different direction with profitability and service running parallel to each other. There will be a lot of “out of the box” thinking and this will spawn new avenues that will no doubt face harsh criticism. Some companies will see their diversification pay off, but they will lose track of it once the market heats up again, and it will. Larger companies will again begin to gobble up the smaller ones to make up for the hundreds of branch closures in the past three years. Their will be an influx of people coming back to the industry from the “temp jobs” they took while the market was down. We all come back, no one really leaves the business. Obviously, not all of this will transpire in the next 24 months but the events in this time frame will lead to everything mentioned above. There will be roughly 10 percent who plan for the next down market which I am guessing will come around 2015 based on history. Those 10 percent are going to be the ones who have lost hard at least once or had the foresight to predict this one.

The only true unknown is who will learn their lesson and build from it and use this lesson to create a backup plan for our next down cycle.

For those of you wondering why my fascination with Bryan Rich, he is first and foremost an industry icon but that’s not the only reason. He is the perfect example of someone who lost big and came back and built something he truly believed in. That being the NationsRent bankruptcy. He went in after and built them into a profitable company and sold it to another with perfect timing. He did what it took and if everyone in this business did that, we wouldn’t have the extreme volatility we do now. His most recent position with Acme Lift will be interesting to watch. I have long believed that there is profitability in rerenting equipment if done correctly against some tremendous opposing views. I will be watching this one closely.

It’s all about the timing……………..

It’s been a little while since I updated this blog, I have been quite busy in a new project but I had to tell this story. More blogs will be coming very soon.

I had a client recently tell me a story about a mutual friend of ours. This friend had been in business for many, many years and was approached by investors at the height of our perfect market. Having done business for so long, he knew the offer was too good to last, so he took it. He sold his business to those investors who quickly over leveraged their debts based on a perfect market and did not factor in the potential for losses. Sounds familiar right? Many of the closing companies today have fallen prey to this. He is now in a position to buy his company back for pennies on the dollar. I say buy. Can’t go wrong if he does business the way he always has.

Three months ago, I mentioned to a good friend to buy United Rentals stock. Why? They were at the bottom, but still on the top. Their stock prices were at the lowest EVER, but they are still the number one company. I told him this when they were selling in the $3 area. Had he listened, he too would have doubled his money with their recent gains to above $6 per share. They are positioned to be triple their current price in the next year. What the hell do I know though, I have only been watching rental companies for twelve years. Some of the other stocks I think will do quite well: Caterpillar and Terex. I think RSC is a chump bet, their stock doesn’t have any remarkable highs or lows that would make a serious profit, Deere isn’t as strong a company as it should be, and H&E Equipment just sold off a ton of their fleet and I think they fail to capitalize on the market the way they should. Please listen carefully on the United Rentals stock, I am going to sell when they hit the $20-$25 range as historically this is where greater risk begins.

I use those above analogies because everything we do right now is about timing. Too early and you lose, too late and you lose. You can apply this to anything in your business from submitting bids, hiring, firing, and even applying for jobs. Timing is everything, you just have to take your emotion out of every prospective deal and use your head. Don’t ever forget, you can walk away if it’s not right, there will ALWAYS be another one.

The current layoff tally in the construction equipment industry (more to come)

Gehl Co. plans to lay off 81 workers, or about 23 percent of its total workforce, due to slumping sales. (Dec 16th) The West bend, Wis.-based firm will cut 62 salaried employees at its headquarters and 19 hourly workers at a plant in Madison, S.D., which saw 46 workers laid off in November. President and CEO Malcolm Moore told the newspaper. “Unfortunately, our current outlook has necessitated the laying off of some very talented people.”

Case (Nov 11) CNH Capital, the Racine-based financial services arm of CNH Global N.V., recently laid off about 115 employees, mostly because of the softening in the construction equipment manufacturing sector.
More than 50 percent of the layoffs were from the company’s Racine headquarters, said CNH spokesman Tom Witom. CNH Capital has about 750 employees in North America.

Case (Dec 20) is reportedly working on layoff terms right now as well.  The president of a local machinists union says Case-New Holland – Fargo’s largest manufacturing employer – is planning temporary layoffs during the next four months. According to www.in-forum.com Chris Skeldum, the president of the International Association of Machinists, said the plant plans 10 weeks of temporary layoffs spread over four months, although most of the construction equipment workers affected apparently will be shifted to the plant’s tractor line. Case will not respond to requests for information. More than 600 people work on the assembly lines at the plant, making about 20 different types of front-end loaders and farm equipment. Skeldum said the company has been “pretty straightforward and honest” with employees about what’s going on.

Caterpillar- (Dec 22.) Notified 814 production employees at its’ Mossville, IL engine assembly plant that the company would indefinitely lay off those employees. Employees impacted by this decision were notified today by Caterpillar and were told that the layoffs would begin on February 23, 2009. In addition, various government agencies and other officials were notified of this decision under the United States Department of Labor’s Worker Adjustment and Retraining Notification Act (WARN) and the Illinois Worker Adjustment and Retraining Notification Act (“IL WARN”).

Caterpillar – (Dec 19) has announced temporary layoffs for some of its North Carolina employees. A press release says employees at the company’s Clayton and Sanford plants were notified of the layoffs Thursday afternoon. An exact number of how many people would be affected or how long the layoff would be was not immediately available.

Caterpillar, (Dec. 23) said Monday that it would cut executive compensation by up to 50 percent next year because of weakening global demand. Pay for senior managers also will be reduced next year by 5 to 35 percent, the company said. Other management and support staff members will see a reduction of up to 15 percent. It has instituted a hiring freeze and plans to suspend merit increases for managers and support employees. American-based management and support employees were also being offered incentives to leave voluntarily, the company said. Eligible employees have until Jan. 12 to join the program.

Volvo (Dec. 12) – Volvo Powertrain North America’s decision to lay off 142 workers at its Washington County Maryland plant next month. The layoffs will be effective Jan. 5, the day the plant is scheduled to cut transmission production by about a third and engine production by 25 percent, Volvo spokeswoman Ilse Ghysens said Friday. In November, Volvo laid off more than 1,000 powertrain workers worldwide, including 65 in Hagerstown. Earlier in the year, Volvo announced layoffs of 2,000 workers at truck plants in Belgium and Sweden, and 1,350 workers at its construction equipment unit.

Manitowoc said it will be laying off about 6 to 7 percent of its work force in Shady Grove — or more than 100 employees — because of weaker demand. Manitowoc employs more than 2,000 people at its crane facility in Shady Grove.

JLG – (Aug 1) The layoffs under way at JLG Industries facilities in McConnellsburg, Bedford, Pa., and Shippensburg, Pa., will affect about 375 people, according to a Pennsylvania Department of Labor and Industry spokesman. A total of about 250 workers will be laid off at the McConnellsburg plant by the time layoffs are completed in late September, spokesman Justin Fleming said. About half that number were affected in the initial round of layoffs, he said. While the company would not specify how many people are employed at the affected facilities, JLG officials put the McConnellsburg plant number at about 2,200 when Pennsylvania Gov. Ed Rendell visited there two years ago to announce state support for an expansion project. About 50 company employees and 50 staffing agency employees were laid off effective Friday at the Shippensburg facility, Fleming said. Another 25 employees are being laid off at the Bedford facility, he said.

JLG – (Sept 3.) JLG Industries met with employees late last week and annouced they’re cutting another 220 jobs from their North American work force. Some of those people will come from two local facilities.

JLG – (Nov. 21) JLG Industries announces it will cut more jobs. Some employees in Bedford could be out of a job by the New Year. A JLG spokesperson said it’s a 500 job cut for plants all over the world. She wouldn’t say how many in Bedford specifically.

JCB – (July 25) A rapid decline in orders, resulting in a 20 percent reduction in its forecast production schedule, has prompted heavy construction equipment manufacturer JCB to cut 500 manufacturing jobs and approximately 150 staff positions in factories across the United Kingdom.

JCB – (Oct 23) Thousands of workers at the manufacturing firm JCB have voted to accept a pay cut of £50 a week to prevent the loss of 350 jobs, it was announced today. The GMB union said around 2,500 of its members at seven JCB plants in England and Wales had agreed to work a four-day week for the next 13 weeks to help the company weather the economic downturn. This action saved approximately 350 jobs.

JCB (Nov 13) announced it has let go 120 workers at the Savannah headquarters factory effective immediately. CEO John Patterson said the falling housing market has caused the company to scale back the production of construction equipment. The workers are being given severance packages as well as out-placement support and counseling. Several employees who were not comfortable going on camera told The Coastal Source they were called into meetings today and told whether they still had their jobs and then were sent home.

Komatsu ( Dec. 6) Komatsu Ltd., the world’s second- largest maker of earthmovers, will cut 400 temporary jobs at its Oyama plant, north of Tokyo, to trim costs as the global economic slowdown crimps demand, Bloomberg news reported. The jobs at the factory, which builds engines for construction and mining machinery, will be eliminated by the end of March 31, spokesman Hiroshi Sunada said today by phone. The company will also suspend assembly lines at its domestic plants for 2-4 days this month. Komatsu and Hitachi Construction Machinery Co., Asia’s two largest makers of excavators, and rivals are paring output to counter weakening demand as the financial crisis pushes Europe, U.S. and Japan into recession

Bobcat (Dec 21)  Bobcat, West Fargo, N.D., began a six-week shutdown of its Gwinner and Bismarck, N.D., plants. Most of the 2,000 employees at the two plants will be off until Feb. 2. The period includes a week of normal paid holidays when the plants would normally be closed. The company said the move is in response to decreased demand for its products.

Husqvarna (Dec 21) Stockholm, Sweden, announced an estimated total reduction of about 960 employees, raising its earlier estimate of 850. The company said its operating income for the fourth quarter 2008 will be substantially lower than in the previous year. The decline is due to lower sales and production volumes, as well as costs related to the personnel cutbacks, which will be implemented faster than previously expected.

Snorkel International (Nov 16) will close its Elwood, Kan., plant for two weeks around Christmas. The plant also closed for a week in October. Employees also have been warned about possible layoffs. Dan Jenkins, a spokesperson for Snorkel’s parent company, Tanfield Group, said that there have been no layoffs since 100 workers were let go in September. However, workers at the plant have reportedly received letters stating the company may have more layoffs by Jan. 6. England-based Tanfield bought Snorkel in August 2007. The company manufactures and assembles commercial aerial lift platforms.

Deere (Nov 2) The John Deere Dubuque Works factory in Iowa, which makes various heavy equipment products, laid off 50 manufacturing employees one month after laying off another 25 employees.

Genie (Oct) Redmond-based construction-equipment manufacturer Genie Industries announced the layoffs of 475 workers in October. Merck said it would close its Seattle biotech research center next year.

Construction Equipment Dealers and Rental Companies

Finning International (Dec 21) Vancouver, British Columbia, Canada, announced last week that it is cutting about 265 employees in Canada and 260 in the United Kingdom. The company also said it is closing 22 of the U.K. rental depots owned by Finning through its subsidiary Hewden Stuart Plc. Hewden has about 370 branches and 4,300 employees throughout the U.K. Finning said that due to an uncertain economy, it will not provide earning guidance in the coming year. Before the announced layoffs, the company employed more than 12,800 people in six countries.

Kohler Co. (Dec 16) announced plans last week to lay off 80 employees because of the economic slump. The company is based in Kohler, Wis., and produces engines and power generation systems, as well as kitchen and bath products and home interiors.

Tecumseh Power Co. (Oct 12), Grafton, Wis., announced that its engine plant in Dunlap, Tenn., will begin closing down in December and will be closed completely in April. The plant, which currently employs about 180 workers, makes small engines for companies such as MTD, Toro and Lawn-Boy, as well as engines for generators and snow blowers.

For more info on outlooks for the 2009 market visit:

http://www.constructionequipment.com/article/CA6619750.html

Isn’t it all just a roll of the dice right now?

Over the past month I have everything from “it’s going to be a great 2009 with the new administration taking over and the market finally beginning the upward slope” to “2009 will be the worst year in the history of the construction and real estate market.”

Usually I don’t give much credit to baseless opinion without doing my own research to verify their sources and accuracy. This time is a little different, these people were very powerful in their prospective companies and I don’t think they would open their mouth without some sound sourcing.

My point is: Right now, it is all a roll of the dice. NO ONE, and I mean NO ONE, has the information necessary to make an accurate prediction of the future. Will it be bad? Sure. Will it get worse? Who knows? All it is right now is speculation.

The facts right now are that construction still MUST happen. Our roads don’t fix themselves, our homes don’t repair themselves, and necessary projects don’t go away. The new administration has some interesting plans but there is no saying that it isn’t all just a build up to nothing. Remember that popular phrase “Read my lips, no new taxes.”? How about the “I did not have sexual relations with that woman, Monica Lewinsky”?  People lie. People overstate their power.

If Obama comes in with his huge stimulus plan, the market will likely be put into much more favorable light. Critics can argue any way they want, but unless they know something WE don’t, you still cannot tell the future.

So let’s roll the dice, keep spending your money, driving your cars, and making the economy roll the way it’s supposed to and it won’t matter, will it?