Getting flexible: Finance and rent models are influencing the Gulf’s excavator purchases
PMV Middle East explores the broader trends in the excavator segment, including the rising role of finance options and service agreements in purchasing decisions, as well as the growth of rental
One noticeable trend in the region, and one that is part been driven by the familiar issues of payment delays to contractors and uncertainties over future projects, is the increasing demand for alternative procurement options, including rental and leasing arrangements and financial service that can help mitigate risk for customers in the earthmoving segment.
As Benjamin Zhu, deputy GM for overseas sales at GuangXi LiuGong Machinery, notes: “Because of the drop in oil prices in the Middle East, countries whose economies depend on oil and gas, and especially Algeria and Saudi Arabic, have been postponing existing projects, cancelling new projects, and reducing their budgets for others.
“In this climate, the market conditions in the construction industry have become much more difficult, and ever more customers are opting to rent rather than buy machines.
“While for large excavators, the industry segments of quarry or mining has always presented the greatest opportunity, for medium excavators, more potential is now being seen in second hand machines sales and with the rental business.”
From the perspective of Caterpillar distributor Mohamed Abdulrahman Al Bahar, the excavation and earthmoving product manager, Samir Ismail, notes: “Finance solutions in particular are adding a lot of value for customers, especially when they are able to bundle a range of different machine purchases with one supplier.”
At the same time, he “definitely” sees tightening cash flows driving rental options “for the short term projects”, and Al Bahar itself is encouraging its customers to opt for rent-to-purchase or lease-to-own options.
Like Al Bahar, Moonju Kim, marketing manager for Hyundai Construction Equipment, countries: “We see a growing trend away from the purchase of excavators on their own, and growing momentum towards the purchase of excavators as part of a solution, with packages including options such as financing, maintenance agreements and site or fleet management.
“Fluctuations in the oil prices and tightening cash flows have played a role in the increased demand for longer-term financing and rental or leasing options in the Middle East and across emerging market, though the penetration rate varies.”
At UAE Liebherr distributor GENAVCO, Saif Khan, senior sales manager agrees that the drop in oil prices has driven demand for rental options, but notes payment recovery can be “a big challenge” in the segment. His customers in the emirates are also pushing for extended payment terms and warranties, as well as free annual service contracts.
In addition to growing rental potential, John Boyd, MEA region MD for Kobelco Construction Machinery, concurs that “most customers looking for value-added warranty conditions and finance options”, while adding: “They are also increasingly aware of the value to have fuel efficient machines which will actually make a positive contribution to their bottom line costs.”
For Case Construction Equipment, Franco Invernizzi, senior business director for the region at CNH Industrial, highlights financial solutions accompanied by standard warranty terms and distributor capacity and support as the two key drivers behind customer purchasing decisions in the region.
He adds: “Rental options are certainly on the increase, particularly where the customer has a contractual requirement for the equipment for a year or less, and no further agreed or prospective projects.”
Piet Van Bakergem, GM at Hitachi Construction Machinery Middle East, which is noticeably in the process of expanding its service network in the region, meanwhile notes: “We have several warranty programmes up and running and available; on top of that, we can offer on demand and customised requests. With some markets very much in a state of uncertainty under the influence of the oil price and other situations, there is a growing interest for rental options among some end users.”
Liugong’s Zhu, adds that market conditions are elevating credit support and finance options to become almost as important a factor in purchasing decisions as the provision of aftersales support.
He details: “Financial support has become much more important since the oil price dropped. More and more key customers are looking for both comprehensive warranties and financial support.
“Some of our key accounts in Morocco will ask not only for the standard warranty, but for the manufacture and distributor to keep track and take care of their machines all the time, and solve all the problem to confirm the working time and productivity.”
In a final market trend, Ilkay Fidan, business director for Middle East and Africa within Volvo CE Sales Region EMEA, notes: “There is an interesting trend regarding fuel prices in the Middle East. Lots of subsidies have been lifted and fuel prices have increased in most of the Gulf countries — and that has been making investors think about lower fuel consumption machines.
“We are expecting the trend will be more towards lower total cost of ownership — and Volvo CE excavators are among the most fuel efficient on the market.”
With regards to the rental segment, he adds: “Rental solutions will be more important and this will lead distribution channels to be more pro-active in proposing different alternatives to end user.
“We expect the 20-tonne class will continue to dominate rental, but customers will increasingly look to the segment for other class machines. The main shift in some countries will be to have the right machine for the right application.”
He continues: “The key buying criteria are shifting. Brand used to be the most dominant criterion but now we have seen the trend going for low operating cost machines with proper dealer support, as well as the increasing popularity of rental options.
“In other market, bundling offers with the machine, extended warranties, service solutions with connectivity and finance are the major trends. The dealers have to be capable of offering different solutions for their different customers’ needs.”
Volvo CE is also hoping to drive the sales of its wheeled excavators in the Middle East, as Fidan adds: “We have not seen any drop in the market for these machines, which are extremely attractive for city jobs. There is definitely significant opportunity for them.”
In response to this trend, Caterpillar has also rolled out two wheeled excavators — M315D2 and M317D2 — with the express intention of targeting Middle East markets, and the pitch highlighting their versatile front-linkage and work-tool capabilities.
Back to basics
In terms of pure product, Liebherr has also unveiled its first 20-tonne to 25-tonne units in a new series of crawler excavators optimised for emerging markets with lower emissions regulations. Initially announced at Bauma 2016, the R920, R22 and R924 models also boast a simplified maintenance concept engineered to increase machine availability.
In February, Caterpillar also launched the Cat 320D2 GC excavator, a Tier III Cat 320D2 equipped with an electronically controlled Cat C4.4 ACERT engine that lowers fuel use by as much as 17% compared to the Cat C7.1 engine in the previous 320 model. An ‘automatic engine control’ system meanwhile reduces engine speed when full power is not required, saving fuel and reducing operating costs even further by using 30% less oil during routine oil changes than before.
Caterpillar expects strong sales in the Gulf, where sales of its predecessor and associated units have been strong for years, as Al Bahar’s Ismail adds: “The 20-tonne 320D2L, as well as the 40-tonne 340D2L was already designed and built according to the voice of customers in our region, and to fulfil the need of our customers. Over the years, customers have come to value the machine and be impressed by the specs, performance, reliability, durability and serviceability.”
Kobelco will also be launching a range of more fuel efficient excavators in 2018.
As for Case, Invernizzi notes: “The 20 tonne class are still the largest selling products in the region, while the Case CX210B, which sits competitively in this market, is our best-selling model. However, there is movement with heavier excavators in the 30-, 40- and 50-tonne classes.”
Hitachi’s Van Bakergem, notes: “The 20- and 30-tonne excavators are the bread and butter of our businesses, but we recognise a growing demand for mini excavators and larger specification excavators.”
He adds: “Our dealers within the region also carry a strong stock of spare parts, and we are involved in pro-active maintenance support programmes. We have the back up and support for tens of thousands of line items — at an availability of around 95% — and this is being recognised by end users and will form the backbone of our future sales.”
At Hyundai, Kim comments: “Excavators ranging from 22 tonnes to 33 tonnes traditionally make up about 50% of regional excavator markets, and we see that trend might continue to remain for a while.”
Hyundai is also doing good business shipping its Korean excavators and breakers as a package, with the combination making up a greater portion of the OEM’s excavators sales in this region compared to others.
LiuGong’ Zhu adds: “The 20- to 25-tonne and 30- to 40-tonne range account for around 80% of our market share, and we expect the same in the future.”
Volvo CE’s Fidan also sees a future for increasingly sophisticated telematics. He adds: “Telematics is going to become increasingly important. It is not only about connectivity to the machine, but receiving data, analysing it, and using that to improve the efficiency of the machine and jobsite.”