Heavy vehicle makers are seeing a resurgence after two tough year
When the worldwide economic recession began to bite in mid-2008, new machinery sales in the construction and mining industries felt the pinch.
Even major players weren’t immune: Caterpillar and JCB – two of the biggest names in the heavy vehicle industry were hit with the double whammy of a declining market and a hike in the cost of raw materials required to make their machines.
News was fairly bleak. JCB axed at least 500 staff in the UK as its European sales slumped 20% by July 2008 and, while emerging markets like the Middle East, Russia and Brazil were still reasonably buoyant, figures only partially offset the fall in European sales.
Caterpillar was also struck by the crisis. The company had been enjoying escalating year-on-year machinery sales increases since September 2004 in its Europe, Asia and Middle East – the second largest combined market after the Americas – but July 2008 stopped them dead in their tracks. The company equalled its year-on-year figures that month, but it preempted a 22 month decline in sales.
Caterpillar’s EAME operations reflected a general global trend for the company. Its worldwide sales slumped from $51.3 bn in 2008 to $32.4 bn for 2009, while sales in machinery dropped 43% from $31.8 bn to $18.1 bn.
The company’s stock price suffered too; Caterpillar’s annual report states stock prices based on the last day trading of every year and, according to these statistics, prices dipped to a four-year low of $44.67 in 2008.
However, of late, things have started to look up for the company. While revenues for the first half of the year were down on those posted in 2009, year-on-year monthly sales sheets for June and July have risen for the first time since 2008.
By the time CW closed for press this week, the company’s share price was listed at $70.08, almost reaching pre-financial crisis levels (2007: $72.56). Caterpillar senior executives feel that the pick-up in local and global sales seen in June and July is a sign that the market is in recovery.
“During the second quarter, portfolio quality began to show signs of improvement as economic conditions around the world continued to improve,” said Kent Adams, Cat Financial president and vice president of Caterpillar Inc.
“Our focus in 2010 has been in three key areas: serving our Caterpillar customers and dealers, managing the portfolio and ensuring we have ample liquidity. While there are still economic concerns around the world, we are well positioned to support our customers as the recovery gains momentum,” he added.
JCB survived the crisis by cutting staff and limiting work hours for those who remained with the company. In September 2009, workers also took a week of unpaid leave to help the business through the crisis. Since then, the company has started recruiting again and now employs 7,000 people worldwide, 3,000 of them in the UK.
JCB managed to post increased profits despite a 33% drop in sales during 2009. Global sales totalled $2.1 bn and the company’s pre-tax profits were $44.9m, up $1.5m on the previous year.
Sir Anthony Bamford, company chairman and son of founder Joseph Cyril Bamford, said 2009 was “hugely challenging” for the construction equipment industry.
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“Tough action was taken to adjust our cost base to align it to a much reduced level of demand, and this resulted in an improving profit trend as the year progressed.”
Komatsu, on the other hand, discovered growth in the Middle East and Africa where both Caterpillar and JCB have not. The Japanese specialists in heavy construction and mining equipment issued its first quarter (April-June 2010) results which revealed the company’s global sales totalled $4.8bn, a 42.3% jump in year-on-year sales for the quarter.
While construction projects in China and Oceania accounted for most of that growth, the Middle East and Africa had seen an 18% increase in sales for the period, totalling $254.7m.
While new equipment sales have pleased local dealers and their international parent companies, traffic through auction houses and rental firms has also picked up.
UEG, Qatar’s sole Liebherr tower crane dealer, keeps a stock of around 40 new cranes on its books but it’s the hire fleet of 30 additional cranes that has kept the company going during the downturn.
Company managing director, Samir Al Mughanni, said that contractors had been reluctant to sink large sums of money into new machinery during the crisis – and that had opened an opportunity for the UEG.
“To meet the boom years of 2006 and 2007 in the local market, everyone turned to Chinese manufacturers with lower prices and faster deliveries. Since then, after the downturn, everyone is beginning to look for quality, reliability and good back up services,” Samir said.
“Up to the cutbacks we had been unable to develop a clear strategy for future growth. Already it is much calmer and clearly beneficial. And as Government projects in the Ports, Petrochemical and gas related industries go ahead, it will generate confidence in the private sector, leading to a clear pick-up by 2011 – but the days of the past booms, with mega demand for equipment are clearly past.”
Keith Lupton, director and VP of regional sales at Jebel Ali, Dubai-based auction house WWA Group, said the company’s annual Ramadan sale attracted a large crowd and generated $6.1m in sales throughout the day.
“Every year we wonder whether people will turn up, and every year we’re pleasantly surprised. This year’s was better than previously, which is a great sign that the industry is pulling through,” he said.
“Saudi is where it’s at: there’s so much work going on out there that you simply can’t get enough, good quality equipment. Saudi buyers are a bit more discerning: they’ll pay extra for a machine in good order, and they’re quite prepared to pay full value if they feel it’s worth it.”
“Kuwait is also popular, and Oman is picking up. There are a lot of projects near Salalah that need machinery – and the Omanis tend to go for something with a little more operator comfort.”
Interestingly, Lupton says it’s not the latest machinery that tends to grab buyers’ attentions at auction: “It’s stuff like the Cat 966E (wheel loader) that they stopped making in 1992. The replacement was essentially the same design but is loaded with computerised gadgets that, while they’re nice, people ignore because they don’t tend to trust secondhand electronics once sand, dust and water gets in to them.”
“People come with a shopping list. One guy sat there and spent $2m with us for equipment he needed for a range of jobs in Saudi.”
While demand for wheeled and tracked earth-moving equipment is very strong, Lupton said the mobile crane market was still hobbled by machines that were still in the hands of the banks.
“Nearly 80% of buyers paid enhanced prices at the time, and they’re simply not worth what the banks believe they are. We can guarantee them a price, but they’re not willing to accept it. We’re longing for the day they cut their losses and accept that they’re not going to get what they’re asking for them,” he said.