EQUIPMENT LEASING ASSOCIATION
Construction and Agricultural Equipment Leasing, 2004
U.S. Market Dynamics and Outlook
Prepared By:
R.S. Carmichael & Co., Inc. White Plains, NY
(914) 761-8200 rsc@rscarmichael.com
TABLE OF CONTENTS
Page INTRODUCTION Objectives 1 Methodology 1 EXECUTIVE SUMMARY 2 CONSTRUCTION EQUIPMENT Market Overview 18Lease Financing Practices 20
Rentals 26
Manufacturer Practices 29
Dealer Practices 32
End-Customer Practices 35
Competitive Environment 36
Road Building Equipment 41
Cranes 44
Mining Equipment 47
AGRICULTURAL EQUIPMENT
INTRODUCTION
Objectives
• The principal objectives guiding this research study have included the following:
1. Measure and characterize the U.S. construction and agricultural equipment lease financing markets.
2. Identify trends affecting lease financing penetration in each market.
3. Evaluate the leasing practices and needs of customers and equipment vendors (manufacturers and dealers).
4. Assess the lease financing competitive environment.
5. Project the U.S. construction and agricultural equipment leasing markets through 2005 and identify the requirements for leasing company success. Methodology
• The following work steps represented the basis for this market research:
1. In-depth telephone interviews with construction and agricultural equipment lessees, equipment vendors and other industry participants.
2. Analysis of secondary data from the Equipment Leasing Association, other trade associations, publications, government agencies and other sources. 3. Analysis of recent R.S. Carmichael & Co. research in relevant markets.
This study of construction and agricultural equipment leasing has been conducted by R.S. Carmichael & Co., White Plains, New York, in cooperation with the Equipment Leasing
EXECUTIVE SUMMARY
Overview
• The U.S. construction and agricultural equipment leasing markets, including the
forestry and mining equipment segments, have languished in recent years. However, there are signs that all of these industries have experienced improvement in 2004, and the near-term outlook for lease financing in each market is positive. Moreover, key equipment manufacturers such as Caterpillar and Deere have reported gains in construction and agricultural equipment sales, as well as strong increases in their lease financing volumes.
Construction Equipment Overview
• The construction equipment categories where lease financing is most prevalent include
earthmoving, road building and forestry equipment. Mining is also a noteworthy market segment.
- Earthmoving equipment includes cranes, excavators, graders, back hoes and bulldozers. Road building equipment includes rock crushers, pavers, asphalt handlers and concrete mixers.
- Forestry equipment includes strippers, skidders, loaders, de-limbers and slashers. Customers include independent loggers/contractors, as well as major forest products companies. Caterpillar and Deere are significant players, and there are also a number of specialty
The construction and agricultural equipment
industries represent two of the largest markets for lease financing.
EXECUTIVE SUMMARY (Cont.)
• Ticket sizes for lease financing of construction equipment range widely from $25,000
to $5 million, but mainly fall in the small-ticket category (i.e., $25,000 to $250,000).
• The principal manufacturers of construction equipment include Caterpillar, CNH,
Deere, Komatsu, Terex, Volvo, Ingersoll-Rand and JLG. In the crane segment, Manitowoc is a significant player. Astec Industries is an example of a leading specialist in the road building equipment field.
• Construction equipment distribution is largely through independent dealers. Direct
sales are limited to major accounts, such as the U.S. government.
• End-customers for construction equipment include road building and home building
contractors, major forest products companies, mining companies, and government agencies.
Lease Financing
• Much of the equipment financing in the construction industry is “money-over-money”
in the form of conditional sales agreements and finance leases. This reflects the long useful lives and high residual values of construction equipment.
• Residuals-based lease financing products (e.g., fair market value purchase options,
operating leases) have become more attractive in the industry because of their lower monthly payments and some customer preference for off-balance sheet financing.
• Equipment rentals are widely utilized in the construction industry and compete with
conventional lease financing products. Rental companies and dealers with rental pools have become prominent in the industry.
At least 50% of construction equipment sales are
EXECUTIVE SUMMARY (Cont.)
• Tax-exempt/municipal leasing is an important financing product since construction
equipment purchases are often made by state, county and local governments.
• Lease financing terms average 3 to 5 years.
• The seasonality of the construction industry in many parts of the country has led to flexible
lease structures such as skip-payment options.
• Construction equipment vendors (i.e., manufacturers, distributors/dealers) capture a large share
of the lease financing market through captive finance companies or third-party leasing company relationships.
Market Size and Growth
• The U.S. construction equipment leasing market resumed its growth in 2003, as the industry
experienced strong replacement demand. Additional replacement demand is projected to sustain market growth through 2004 and into 2005.
• Annual market growth is forecast to be in the 8% to 10% range for 2004 and 2005. Construction Equipment Leasing Volume, 1999-2005
$12.0 $11.5 $11.0 $10.5 $11.4 $12.5 $13.5 5 10 15 $ Billions The construction equipment market is returning to lease financing levels found in the late 1990s.
EXECUTIVE SUMMARY (Cont.)
• Earthmoving and road building equipment will continue to represent key segments of the
construction equipment leasing market.
• Most other equipment categories will also experience renewed leasing growth. Leasing Market Drivers
• A number of factors influence the construction equipment industry and hence the
utilization of lease financing.
Factors Affecting Construction Equipment Sales, 2004 35% 21% 16% 15% 12% 7% 5% 0% 10% 20% 30%
Source: Association of Equipment Manufacturers Base: Construction Equipment Manufacturers General
Economy
Highway
Funding CompanyRental Demand Inventory Levels Housing Starts Interest Rates Credit Availability
• General Economy. The general economic situation in the U.S. is the most influential
driver of the construction equipment leasing market. With the improving business climate, equipment manufacturers and lessors have become more optimistic about a resumption in equipment leasing growth.
Construction equipment lease financing will exceed $12 billion in 2004.
EXECUTIVE SUMMARY (Cont.)
• Highway Funding. Construction equipment leasing is heavily impacted by federal,
state and municipal government funding for highways and other construction projects. Legislation for funds to improve and repair highways should help boost the
construction equipment leasing market in 2004 and 2005.
• Rental Companies. Contractors and other construction equipment customers have
continued to demonstrate a strong preference for rentals. As a result, equipment rental companies will need to modernize their aging fleets to keep pace with increased demand.
• Housing Starts/Construction Spending. Residential home building continues to be a
major driver of the construction equipment leasing market. By contrast, commercial building construction will be a weaker influence because of the uneven economic recovery.
• Interest Rates. The low interest rate environment has encouraged contractors and
others to finance their equipment.
• Credit Availability. Ample credit capacity in the construction equipment marketplace
has further stimulated the use of lease financing.
• Equipment Aftermarkets. An active aftermarket exists for construction equipment as a
result of its long economic life and limited technological obsolescence. The aftermarket is efficient because used construction equipment is often remarketed through manufacturers’ networks, as well as through dealers’ used equipment channels.
The general economy and highway funding are particularly significant market drivers.
EXECUTIVE SUMMARY (Cont.)
• Leasing Acceptance. The use of lease financing is entrenched in the construction
equipment industry, especially since vendors have increasingly viewed lease financing as an essential sales-aid. The widespread acceptance of leasing is evidenced by high lease penetration rates.
• Lease Subsidies. Equipment manufacturers through their captive finance companies
or third-party leasing providers subsidize or “buy down” financing rates. This helps stimulate sales of their equipment.
• E-Commerce. According to some surveys, vendors might originate more than 10% of
their equipment lease financings via the Internet in 2004. Also, the Internet will become a more important tool for lease application processing, credit scoring and documentation.
Replacement demand from customers with aging equipment will spur lease financing.
EXECUTIVE SUMMARY (Cont.)
Leasing Competitors
• According to the Equipment Leasing Association, banks and bank-affiliated leasing
companies originate more construction equipment financings than captive finance companies or independent third-parties.
Captives 20% Banks 60% Independents 20%
Base: $7.4 billion, reported new business volume, 2003
Source: ELA Survey of Industry Activity, 2004, and RSC&Co. estimates
• Most of the major construction equipment manufacturers have captive finance
companies.
Captive Parent
John Deere Credit Deere & Company Caterpillar Financial Services Caterpillar, Inc.
CNH Capital CNH Global
Komatsu Financial Komatsu America
Captive finance companies are less prominent in the construction equipment field than in the agricultural industry.
EXECUTIVE SUMMARY (Cont.)
• One leading manufacturer, Astec Industries actually exited the captive finance business
(Astec Financial Services) in favor of establishing customer lease financing programs with unaffiliated third-parties.
• Other construction equipment manufacturers have joint ventures or formal customer
leasing programs in place with third-party providers. Terex Corporation’s creation of Terex Financial Services in 2003 in partnership with GE Vendor Financial Services is a notable example.
• The major third-parties in the construction equipment lease financing field continue to
be CIT, CitiCapital and GE.
CIT Longstanding player with strong dealer referral relationships in-place at the local level.
CitiCapital Claims to be construction equipment financing leader.
GE Commercial Finance Both vendor and end-customer origination of construction equipment leases through its Vendor Financial Services and Commercial Equipment Financing units.
• The competitive environment also includes several sizable independent finance
companies such as Financial Federal and ORIX Financial Services.
• Some of the major bank-affiliated leasing companies are also significant competitors,
including Fleet Capital Leasing/Banc of America Leasing & Capital, US Bancorp Equipment Finance, and Wells Fargo Equipment Finance.
CIT, CitiCapital and GE are the principal non-captive competitors.
EXECUTIVE SUMMARY (Cont.)
Agricultural Equipment
Overview
• Agricultural equipment that is most typically lease financed includes tractors,
harvesters, irrigation equipment and treatment/application equipment.
• Lease financing ticket sizes can range from $25,000 for tractors to >$250,000 for
center-pivot irrigation and treatment/application systems.
• Major manufacturers of agriculture equipment include Deere, CNH and AGCO.
Other significant manufacturers include Gehl and Lindsay.
• Agricultural equipment is distributed largely through independent dealers. These
dealers often represent multiple manufacturers.
• End-customers range from family and “hobby” farms to major corporate farms and
government agencies.
Lease Financing
• Conditional sales agreements and finance leases are prevalent in this industry because
of the long-life characteristics of agricultural equipment and farmers’ historical preference for equipment ownership.
• Residuals-based leasing (e.g., fair market value purchase options, operating leases) is
The agricultural equipment industry is closely linked to the construction equipment market at the manufacturer and dealer levels.
EXECUTIVE SUMMARY (Cont.)
• Tax-exempt municipal leasing and TRAC leasing are also significant lease financing
products in the agriculture industry.
• Lease terms are generally 3 to 5 years; however, extended-term financing is offered. • A variety of lease financing payment schedules are utilized based on seasonal and
harvesting variables. Monthly, quarterly and annual payment structures are all found.
• Equipment vendors are very influential in the sourcing of lease financing for
customers, either through captive finance companies or relationships with third-party leasing providers.
• Equipment manufacturers will subsidize lease financing rates to help retain customers
in a largely replacement market.
• Floorplanning is a related financial service that is widely used by agricultural
equipment dealers.
Market Size and Growth
• Overall investment in agricultural equipment has been stable in recent years. • The agricultural equipment market has been largely a replacement market.
• Lease financing volume for agricultural equipment was estimated to have exceeded
$9 billion for the first time in 2003.
Agricultural equipment represents one of the major U.S. lease financing markets.
EXECUTIVE SUMMARY (Cont.)
• The agricultural equipment leasing market is projected to grow 5% annually. Agricultural Equipment Leasing Volume, 1999-2005
$8.5 $8.0 $8.1 $8.9 $9.5 $10.0 $10.5 0 5 10 15 1999 2000 2001 2002 2003 2004(E) 2005(E)
Source: Equipment Leasing Association and R.S. Carmichael & Co. estimates $ Billions
Leasing Market Drivers
• Credit availability and interest rates are the most positive factors influencing
agricultural equipment sales, as well as the utilization of lease financing.
95% 93% 92% 85% 79% 78% 78% 40% 60% 80% 100%
Positive Factors Affecting Agriculture Equipment, 2004
The outlook for
agricultural equipment lease financing is positive.
EXECUTIVE SUMMARY (Cont.)
• Demand for agricultural equipment and lease financing depends on crop prices and
yields.
• Farmer attitudes toward equipment ownership are very much in evidence in their
selection of lease financing options.
• In terms of equipment replacement, used equipment sales can dampen the growth of
new equipment sales.
• In selecting a lease financing provider, the attributes most valued by agricultural
customers are fast turnaround, strong customer service, competitive rates, and structuring flexibility.
• Agricultural equipment manufacturers with captive finance companies view lease
financing as a tool to generate incremental sales and increase market share.
• Manufacturers may offer incentives through their captives in the form of lease
financing rate subsidies to stimulate equipment sales.
- In addition to subsidized lease financing rates, captives may offer other incentives such as skip-payment options and initial waivers of finance charges.
Lease financing subsidies reflect the importance of retaining customers in the consolidating agriculture industry.
EXECUTIVE SUMMARY (Cont.)
Leasing Competitors
• The leading equipment manufacturers have captive finance companies that are
important sources of lease financing in the agriculture industry.
Captive Parent
AGCO Finance AGCO Corporation
CNH Capital CNH Global
John Deere Credit Deere & Co.
Gehl Finance Gehl Company
Kubota Credit Kubota Corporation
• Third-party lease financing sources are also significant competitors in the agricultural
equipment industry. They include several notable specialists:
Specialist Parent
Agricredit Acceptance De Lage Landen/Rabobank Agstar Financial Services Agstar member
Farm Credit Leasing CoBank
First National Equipment Financing First National of Omaha
• Another specialist, Telmark, was acquired by Wells Fargo Financial Leasing in 2003
and now comprises its Rural Markets division.
The largest third-party lease financing competitors (CIT, CitiCapital, GE) are also found in some segments of the agricultural equipment leasing market.
EXECUTIVE SUMMARY (Cont.)
Opportunity Considerations
• Successfully addressing lease financing opportunities in the construction and
agricultural equipment lease financing markets hinges on a number of requirements, including a full product line, high-quality execution, and strong vendor relationships.
• Full Product Line. Equipment manufacturers and dealers often have a strong
preference for lease financing providers that can meet a wide range of customer needs. A product line that includes finance and residuals-based leases, as well as specialized capabilities such as municipal leasing, is attractive. In addition, lease financing providers that can meet dealer needs for floorplanning and rental pool financing are valued.
• High-Quality Execution. The construction equipment marketplace seeks lease
financing providers that can deliver fast turnaround on credit approvals, vendor payments, and other leasing-related activities.
• Vendor Relationships. Lease financing opportunities are often found at the
equipment dealer level since many of them utilize providers other than their manufacturers’ captive finance companies. In addition, equipment vendors value leasing companies that can provide sales support at the local level. This includes the training of dealer sales personnel on how to better integrate leasing in the equipment sales process.
• Industry Expertise. Lease financing companies with construction and agriculture
industry expertise and specialization often are perceived as more responsive and flexible than generalist lessors.
• Credit Appetite. Construction equipment dealers and manufacturers also value leasing
partners that do not cherry-pick their customer base and will accept a wide range of credits. They may expect leasing companies to approve upwards of 80% to 85% of customers.
There are distinctive requirements for success in the construction and agricultural equipment lease financing fields.
EXECUTIVE SUMMARY (Cont.)
• Market Niches. Cranes, mining equipment, forestry equipment and commercial
grounds care equipment are among the niches that have unique financing practices and needs.
• E-Commerce Capabilities. Leasing company web-based capabilities will steadily grow
in importance as a requirement for success. This includes lease application processing, credit decisioning and documentation via the Internet. These capabilities will represent important competitive advantages in the construction and agricultural equipment lease financing markets.
DETAILED FINDINGS
According to the U.S. Department of Commerce, agricultural, construction, and mining equipment manufacturing is classified as a broad industry covering businesses engaged in producing construction equipment, mining equipment, farm machinery, forestry equipment and commercial lawn care equipment. Each of these categories is analyzed on the following pages in terms of market dynamics, lease financing practices, and the competitive environment.
CONSTRUCTION EQUIPMENT
Market Overview
• Principal categories of construction equipment include earthmoving, lifting (e.g.,
cranes), and road building equipment.
- Earthmoving equipment includes excavators, graders, backhoes and bulldozers.
- Lifting equipment includes cranes and aerial lifts.
- Road building equipment includes asphalt pavers and rollers.
Equipment Type Ticket Size Significant Vendors
Earthmoving Excavators Backhoes Bulldozers $75,000 to $2 million Caterpillar John Deere Komatsu Lifting Cranes Aerial lifts $25,000 to $250,000+ Manitowoc Genie Road Building Asphalt handlers Concrete mixers Pavers $50,000 to $2 million Astec Caterpillar Terex (Cedarapids) Independent contractors are an important market for construction equipment.
CONSTRUCTION EQUIPMENT (Cont.)
• Customers for construction equipment include independent contractors, major
corporations, and government agencies.
• Sales to government agencies can be as high as 25% for some construction
equipment manufacturers.
• Dealers are often exclusive to particular manufacturers for the principal equipment
lines; however, they will also carry many different categories of equipment from a number of different manufacturers.
- Annual equipment sales for dealers vary considerably. The largest dealers with branches in multiple states can have annual revenues exceeding $100 million.
- While some dealer bankruptcies occurred during the recent economic downturn, manufacturers indicate that their dealers have endured by reducing headcount and inventory levels.
• Direct equipment sales are generally confined to the largest corporations and the
federal government.
• Caterpillar, Komatsu and Deere produce full lines of construction equipment. Other
competitors, such as Hitachi and Case (CNH), tend to be niche players.
_ Caterpillar also produces a small line of agricultural equipment.
_ Case and Deere have a primary focus on agricultural equipment.
Construction equipment is largely distributed through networks of independent dealers.
CONSTRUCTION EQUIPMENT (Cont.)
Lease Financing Practices
• Capital expenditures for construction equipment in the U.S. increased to $22.1 billion in
2003 after dropping during 2001 and 2002.
$22.9 $23.2 $20.3 $21.0 $22.1 $23.5 $25.0 0 10 20 30 1999 2000 2001 2002 2003 2004(E) 2005 (E)
Construction Equipment Capex, 1999-2005(E) $ Billions
Source: U.S. Department of Congress
• Improvements in industry sales have been uneven in the major equipment categories.
-11.6% -22.0% -11.5% -1.3% -5.7% +2.0% +4.9% -7.0% -1.5% +7.2% +2.4% +7.1% -20% -15% -10% -5% 0% 5% 10% Earthmoving Lifting Road Building % Increase/Decrease
Earthmoving and road building equipment sales have rebounded more quickly than lifting equipment.
CONSTRUCTION EQUIPMENT (Cont.)
• Lease financing of construction equipment amounted to an estimated $11.4 billion in
2003 and should reach $13.5 billion by 2005.
$12.0 $11.5 $11.0 $10.5 $11.4 $12.5 $13.5 0 5 10 15 1999 2000 2001 2002 2003 2004(E) 2005 (E) Construction Equipment Leasing Volume, 1999-2005(E) $ Billions
Source: Equipment Leasing Association and R.S. Carmichael & Co. estimates
• The majority of construction equipment leasing transactions are small-ticket (i.e.,
$25,000 to $250,000). Large-Ticket + Micro-Ticket 1% Small-Ticket 72% Middle-Market 27%
Base: $7.4 billion, reported new business volume, 2003 Source: ELA Survey of Industry Activity, 2004
• Finance leases/money-over-money financing products are widely used in the
construction equipment industry.
• Residuals-based leases have grown in popularity.
- Fair market value (FMV) leases are sought by customers interested in
Lease financing volume has returned to levels seen five years ago.
CONSTRUCTION EQUIPMENT (Cont.)
- The off-balance sheet financing characteristics of operating leases are appealing to some larger corporate customers.
• Because of the seasonal nature of the construction industry in many parts of the U.S.,
lease financing products are required to have flexible repayment structures, such as skip payments and step payments.
• A major portion of construction equipment financing is in the form of conditional sales
agreements and money-over-money financings.
• Leases written can be split from 50%/50% to 15%/85% between residuals-based
(FMV) and finance leases. The particular situation of each vendor and customer dictates the type of lease written.
_ Of the 50% of parent sales captured by one of the leading captives, roughly 60% to 65% is straight debt financing, while the remaining portion is broken down between finance leases, residuals-based leases (e.g., FMV), and tax-exempt municipal leases.
• Since municipal leases are tax-exempt, rates are lower than on conventional lease
financings. Financing can be in the form of a conditional sale with an appropriations cancellation clause.
- When municipalities make cash purchases, equipment with lower
specifications and lower ticket sizes may be acquired. When equipment is leased, they may be more inclined to acquire higher quality and consequently
Lease financing penetration exceeds 50% for some vendors.
CONSTRUCTION EQUIPMENT (Cont.)
• Operating leases may be preferred by some contractors, not only because of their
limited working capital, but also because of their need for performance bonding.
_ Construction contractors are often required to obtain a performance bond which states that an insurance company will fund the completion of a project should the contractor default or fail to properly complete the work. Therefore, if a contractor has a heavy debt burden as the result of financing equipment, this may reduce the contractor’s eligibility for bonding, hence forcing it to lose out on potential projects.
• For construction equipment, as much as 45% to 55% is lease financed. This compares
to the agricultural equipment field where lease financing penetration is closer to 25% to 40%.
• In instances where FMV leases are provided by a manufacturer’s captive finance
company, it may have every intention of taking the equipment back from the customer at the end of the lease term.
- Some manufacturers/captives like to have their on-lease equipment
returned because of their remarketing capabilities and the equipment’s high residual values.
• A challenge of lease financing in the construction industry is determining the
equipment’s residual value.
_ The conditions under which construction equipment is utilized are not constant. This is in contrast to other types of equipment (e.g., materials handling) where it is easier to estimate what the equipment will look like when it comes off lease.
Lease financing can be advantageous from a bonding standpoint because equipment is not on the books. As a result, contractors can seek larger projects.
CONSTRUCTION EQUIPMENT (Cont.)
• The major construction equipment manufacturers believe that strong remarketing
capabilities are essential for success in lease financing. Some have used-equipment units that will remarket equipment returned at the end of the lease term or if the equipment is repossessed as the result of customer default.
_ In the case of smaller equipment manufacturers, the aftermarket may be dealer-driven, with the manufacturer becoming involved only if there is a large fleet coming to the used equipment market (i.e., a portion of the fleet will roll back to the manufacturer). This is done to avoid cannibalizing new equipment sales in specific geographical areas.
_ Third-party lease financing providers often have to sit on used equipment for longer periods of time and remarket through auction channels. This can mean accepting less on resale value.
• Lease financing rates are frequently based on comparable-term treasuries as the index. • Equipment manufacturers and their captives can offer competitive rates through
subsidy programs, often in the form of rebates to customers.
• Lease financing is generally over a 3 to 7 year term.
-
A typical finance lease can have a 4-year term with a fixed-price purchase option (e.g., 10%).• Lease financing providers may offer below-market rates, zero-percent interest for the
Lease financing has become essential to small contractors without ample working capital.
CONSTRUCTION EQUIPMENT (Cont.)
• Captive finance companies have a distinct advantage in the redistribution of used
equipment.
• Lease financing sources, especially banks, may fade in and out of the construction
equipment market depending on the strength of the economy.
- Some banks do not have a strong presence in the construction equipment financing field because of the perceived risk level. They are very sensitive to the cyclicality of the construction market.
• Industry-specific knowledge is vital in establishing successful lease financing relationships
between construction equipment vendors and customers and their financing partners.
-
Quick turnaround and acceptable credit approval ratios are highly dependent on industry knowledge. Where approval decisions are based solely on credit, underwriters unfamiliar with the construction industry may not approve acceptable ratios (e.g., 80% to 85%) of customers.• The vendor-oriented lease financing business is a relationship one where success
depends on service levels that are delivered. Once a lease financing provider is competitive on rate, it boils down to turnaround times and credit acceptance ratios.
• Floorplanning is a related financial service that is widely used in the construction
equipment industry.
- Floorplanning for construction equipment remains the traditional pay-as-sold model.
-
The manufacturer typically offers the equipment to dealers for an free period (e.g., 6 months), then the floorplan financing becomes interest-bearing until the equipment is sold.Lease financing rates may be subsidized by the equipment manufacturer.
CONSTRUCTION EQUIPMENT (Cont.)
• Both equipment vendors and customers express optimism about the prospects for
construction and agricultural equipment lease financing in 2004.
8% 30% 10% 45% 46% 0% 20% 40% 60%
Worse Equal Better
Distributors Contractors
Source: CIT Construction Industry Forecast, 2004 Base: 1300 distributor and contractor interviews
62%
Rentals
• Rentals of construction equipment have grown in importance and can account for
upwards of 50% of dealers’ annual equipment movement.
_ Dealers will provide rental/purchase products that allow customers to rent the equipment for one year. If the customer wants to buy the equipment, a percentage of the rental payments is applied toward the purchase of the equipment.
As construction equipment utilization has become more project-by-project, rental financing has grown.
CONSTRUCTION EQUIPMENT (Cont.)
• In 2004, construction acquisition dealers expect their rental business to grow. Percentage of Dealer Sales Expected from Rent-to-Sell Business in 2004
0% 10% 20% 30% 40% 50% 60% 70% 2004 2003 2002 2001 2000 1999
Source: CIT Construction Industry Forecast, 2004 Base: 189 distributors with rent-to-sell business
• The increased demand for rentals has had an effect on the utilization of traditional lease
financing.
_ From the customers’ perspective, they seem to have less and less desire to own the construction equipment. In the past, many of them were
purchasing the equipment after a 6-month rental because they did not want to lose the equity already invested. During the recent economic downturn, many of them were returning the equipment because of the uncertainty of future business.
_ Rentals have become very popular and pose a major challenge for the dealer because the equipment remains on the books as a rental. Since rentals may represent a large part of a dealer’s credit line, they may not be able to obtain more equipment for cash or leased sales.
Rental pool financing is an important need for many construction equipment dealers.
CONSTRUCTION EQUIPMENT (Cont.)
_ Rentals can represent a risky business for dealers because of the large capital investment required and the cyclical nature of the construction industry. However, since their customers are expressing a desire to rent rather than purchase or lease, the dealers must be willing to provide rental programs – with the support of their manufacturer’s captive or third-party commercial finance organizations.
• The major independent equipment rental companies active in the construction
equipment field include National Equipment Services, NationsRent, Rental Service and United Rentals. Some of them have been struggling in recent years.
_ United Rentals appears to be the largest commercial and industrial
equipment rental company in the U.S. Construction equipment (e.g., aerial lifts, bulldozers) represents a significant segment of its business. Revenues in 2003 approached $3 billion and represented a slight increase over 2003.
_ Rental Service Corporation rents construction and other types of commercial/industrial equipment. It is reportedly the second largest rental company and also sells used and new equipment. Its revenues in 2003 exceeded $1.4 billion, but have not grown in recent years.
_ National Equipment Services rents cranes and other construction
equipment to contractors. NES is also active in the sale of new and used equipment. Revenues in 2003 amounted to $567 million which was a decrease of nearly 9% compared to 2002. The company also reported a loss exceeding $200 million. It exited from Chapter 11 bankruptcy this
Independent rental
companies are recovering from their financial
CONSTRUCTION EQUIPMENT (Cont.)
Manufacturer Practices
• Lease financing is used as a marketing tool by many construction equipment
manufacturers. Profiles of specific manufacturer practices follow:
- A leading manufacturer of road construction equipment (e.g., pavers), with ticket sizes ranging from $25,000 to $2+ million, indicated that lease financing captured an estimated 15%-20% of its sales. Until recently, a captive finance company provided customer financing for the parent’s equipment and also financed construction equipment manufactured by others. However, this vendor decided to eliminate its captive in favor of a private-label program with a third-party lessor.
- A major manufacturer of mining equipment (e.g., shovels, drills), with ticket sizes in the millions of dollars, has found that most of its customers arrange lease financing through their own sources. As a result, the vendor has found no compelling need to establish a captive finance company. Where leasing support is requested, this vendor will informally refer customers to several independent lease financing companies. The referrals are based on the lessors’ industry expertise and proven appetite for transactions in the mining industry.
- One of the largest earthmoving equipment manufacturers that distributes through a network of independent dealers has a well-established captive that provides a range of lease financing products. This captive has successfully integrated lease financing with equipment sales by placing financial sales representatives in the parent’s regional equipment sales offices throughout the U.S. It also has strengthened the parent’s relationships with dealers by providing floorplanning and other wholesale financial services (e.g., capital loans).
The sales-aid value of lease financing is widely recognized by equipment manufacturers.
CONSTRUCTION EQUIPMENT (Cont.)
- Another manufacturer of construction equipment has found that most of its equipment is financed in some fashion. While its contractor customers will often turn to their local banks for equipment financing, others expect the manufacturer and its dealers to provide lease financing in conjunction with the equipment purchase. This vendor has formal agreements with third-party lessors to provide this financing. It also reports that these programs, which are private-label in nature, can capture more than 20% of eligible equipment sales. Another facet of its relationship with third-parties is that it will sometimes remarket used equipment on their behalf.
- A major manufacturer of construction equipment (e.g., backhoes) with ticket sizes ranging upwards from $75,000 has a captive finance company that captures a high percentage of parent equipment sales. It also provides floorplanning to dealers to facilitate their stocking of inventory. The captive appears to hold most lease paper in its portfolio, though some is discounted to third-parties or periodically securitized. This captive has found that a major requirement for success is offering a broad financial product line that addresses a range of customer needs (e.g., tax-exempt financing).
- A manufacturer of both construction and agricultural equipment has a captive finance company originating lease financing transactions averaging under $100,000. The finance rates in many cases are subsidized by the parent. The captive was established to provide end-customers with a financing option and to generate incremental equipment sales for the parent. Lease penetration is an estimated 25% of parent sales. The captive also provides floorplanning for dealers in addition to financing their rental fleets.
Some equipment
manufacturers have found no compelling need to create captives.
CONSTRUCTION EQUIPMENT (Cont.)
- A producer of construction-related cranes and aerial work platforms utilizes a handful of third-parties for its customer lease financing. Lease penetration for these programs is an estimated 25% of the manufacturer’s eligible equipment sales. Floorplanning is also offered to the independent dealer network, and this typically includes an interest-free period of 90 days or more. Rental houses are an important customer base for this manufacturer’s equipment, and rental fleet financing support from the manufacturer is often sought.
- A large manufacturer of construction and mining equipment (with ticket sizes ranging up to $500,000) recently established a captive finance company to replace a private-label program with a third-party. Much of this captive’s focus may be aimed at rent-to-own programs since rentals have become an important construction equipment financing tool. In the case of mining equipment, customers often line up their own financing sources, so that the captive’s role here could be less significant than in supporting parent sales to the construction industry.
- A leading construction equipment manufacturer created a captive finance company to provide sales-aid financing for its independent dealer network. In some customer segments, this captive reports lease penetration
approaching 50%. Products offered include finance leases, residuals-based leases and tax-exempt financing. Floorplanning is also offered to the dealer base, as well as rental pool financing. While this captive holds some finance paper in its portfolio, much of it is discounted to third-parties.
- A producer of cranes and other construction equipment has subsidized its lease financing programs in order to remain competitive with other manufacturers that have their own captive finance companies. These programs were formed with third-party finance companies that assume all of the credit risk. This manufacturer has also relied on its dealers to offer their own financing programs to the end-customers.
At the manufacturer level, the provision of dealer floorplanning is an important adjunct to customer lease financing.
CONSTRUCTION EQUIPMENT (Cont.)
- A manufacturer of mining equipment has established leasing program relationships with several third-parties. They were selected on the basis of their industry knowledge, ease of execution, and competitive rates. These third-parties are also involved in the financing of used equipment that is refurbished by the manufacturer.
- A leading manufacturer of cranes for the construction industry reports that at least 50% of its equipment sales are financed in some fashion. While customers often source their own financing, they sometimes seek
manufacturer-provided financing. Accordingly, formalized lease financing relationships have been forged with third-party providers since this manufacturer does not have sufficient capital to establish a captive finance company or hold lease paper in its own portfolio.
Dealer Practices
• Dealerships for the full-line construction equipment manufacturers have a great deal
of flexibility in financing a customer’s transaction. This may include financing a sale through their own lines of credit, either holding the paper themselves or selling it off individually or bundled to a third-party finance source.
• Depending on the size of the transaction or previous arrangements, the dealer will
refer the customer to the manufacturers’ captives or third-party financing sources.
• Profiles of specific dealer practices follows:
Manufacturers report subsidizing lease financing rates to stimulate equipment sales.
CONSTRUCTION EQUIPMENT (Cont.)
- Another heavy construction equipment dealer with more than 500 employees and five branches distributes asphalt equipment, backhoes/loaders, excavators and forestry equipment. Lease financing transaction sizes can range from $50,000 to $3.5 million. The dealer’s customers include contractors, major construction companies and mining companies. A significant trend reported by this dealer is the increased usage of rental programs. Contractors will do short-term rentals with no intention of purchasing the equipment at the end of term, while mining companies are more interested in rent-to-own programs that provide for a portion of the rental payments to be applied toward the purchase of equipment. Overall, an estimated 50% of equipment is moved via rentals, 40% are outright sales, and 10% of the equipment is leased.
- A dealer specializing in the sales of road and asphalt equipment offers products from more than 100 different manufacturers. Lease financing ticket sizes for this equipment can range from $25,000 to $250,000. Most
customers are independent road contractors and municipalities (40% of sales). Lease penetration is an estimated 30% to 35% of annual equipment sales. Tax-exempt leasing is an important product for municipality sales. Manufacturers may subsidize the lease rate to some extent. Current lease financing providers include CitiCapital and GE.
- A privately owned earthmoving equipment dealer for Case (CNH) reports lease financing ticket sizes ranging from $25,000 to $500,000. Customers include independent contractors, major construction companies and municipalities. Most sales are to contractors. Lease penetration may be 25% to 35%, while another 25% of sales are outright purchases. An estimated 40% to 50% of equipment is rented. Rental products include a purchase option in which 80% of paid-in rents are applied toward the purchase price if the customer elects to purchase. In addition to captive finance from CNH Capital for Case equipment, CIT is referred for lease financing for other equipment manufacturers represented by this dealer. CNH Capital also provides floorplanning for Case equipment.
The use of lease financing is ingrained among
construction equipment dealers.
CONSTRUCTION EQUIPMENT (Cont.)
- A dealership for heavy and light construction equipment in Texas sells to landscape companies, highway construction companies, and agricultural customers. This dealer reports that lease penetration has declined in favor of rental programs. For every piece of equipment sold outright, 10 pieces seem to be rented. Also, strong competition for rentals has emerged from specializing rental companies. In addition to manufacturers’ captive finance sources, this dealer uses CitiCapital and GE for customer lease financing. In some cases, the manufacturer will subsidize lease financing rates via its captive and will be more lenient than third-parties in its credit approval. This dealer also reports a strong aftermarket for used equipment and a separate department for this purpose. If the used equipment is not sold or rented by this department, it will be sold at auction.
- A heavy construction equipment dealership in the Pacific Northwest handles excavators, graders, pavers, rollers and other equipment. The average ticket size for the equipment exceeds $100,000. This dealer has found that customers would rather lease than purchase equipment, and lease penetration is 25% to 30% of equipment sales. Leasing seems equally popular among independent contractor and municipal customers. Lease terms are typically 3 to 5 years. The providers of lease financing include John Deere Credit, CIT and
CitiCapital. The dealer’s relationship with the latter two financing sources are characterized as informal and referral-based.
- A full-service dealer handling construction equipment from 25 different manufacturers has annual revenue exceeding $100 million. Most lease financing ticket sizes fall in the range of $30,000 to $300,000. Customers
At the dealer level, both captives and third-party finance companies are utilized.
CONSTRUCTION EQUIPMENT
(Cont.)
• Construction equipment dealers financing transactions through their own lines of credit
may readily accept higher-risk customers than the manufacturer’s captive if the equipment has a high resale value and the dealer has strong remarketing capabilities.
• Some dealerships will use their manufacturers’ captives exclusively, while others have
relationships with multiple third-party sources.
_ Captives will provide field sales support as well as floorplanning solutions to the dealers. Some captives will have financing specialists in every regional office of the parent.
• In some instances, the concept of lease financing is still not well understood by dealers
and their equipment sales personnel. They do not seem to be promoting lease financing as an option for equipment acquisition because of the perception that leasing is too complicated and delays the sale, resulting in the loss of business to competition.
• In addition to providing lease financing to end-customers, construction equipment
dealers are active users of “wholesale” financial services, especially inventory financing/floorplanning.
_ Manufacturers will offer their equipment to dealers with no interest during the initial inventory period (e.g., 3 to 6 months).
End-Customer Practices
• For construction equipment lease financing transactions greater than $1 million,
end-customers often will line up their own financing sources because of the perception that a better deal cannot be obtained through the vendor. For example:
Lease financing penetration can represent 25% to 35% of dealer sales.
CONSTRUCTION EQUIPMENT
(Cont.)
- A construction firm and independent contractor in the Carolinas tends to source its own equipment financing, independent of manufacturer- and dealer-sponsored lease financing. Cranes represent the largest category of equipment financed. This firm has found non-bank financing providers such as GE to be more responsive and flexible than banks. Lease financing rates are perceived to fall in a competitive range, so that provider selection is based more heavily on non-pricing attributes such as fast turnaround. Relationships with leasing company sales representatives are also important, and monthly or quarterly meetings are desired.
- A Florida-based company active in building construction and concrete production periodically acquires equipment ranging from bulldozers to mixer trucks. The primary method of equipment acquisition is through installment finance. Its finance sources include CIT and GE. In general, what this company values in an equipment lender is ease of execution, especially rapid credit approvals and quick documentation turnaround. It also prefers a frequent level of personal contact by its lenders so that they are familiar with the company’s financing needs on an ongoing basis. One benefit of using non-bank financing sources such as CIT is less stringent covenant treatment.
Competitive Environment
• Captive finance companies are less of a competitive factor than in the agricultural
equipment leasing field.
Captives 25%
Customers often express a preference for non-captive financing.
CONSTRUCTION EQUIPMENT (Cont.)
- Caterpillar Financial Services is the captive finance unit of the largest manufacturer of earthmoving equipment. The parent also manufactures a range of equipment for the mining and forestry industries. Caterpillar equipment is mainly distributed through a network of independent dealers, and end-customers range from small independent contractors to the U.S. Government. Lease financing volume for Caterpillar Financial Services exceeded $8 billion globally in 2003, and total assets amounted to nearly $20 billion. In addition to lease financing services, CFS also provides
floorplanning and other wholesale financing services to its dealer base.
- CNH Capitalis a wholly owned subsidiary of CNH Global N.V. that provides financing to dealers and customers of its construction and agricultural equipment. CNH is the third largest manufacturer of construction equipment (e.g., backhoes, excavators) globally after Caterpillar and Komatsu. Through Case Credit and other brands, CNH provides lease financing, dealer floorplanning, insurance and other financial products. Volume for CNH Capital amounted to $5.1 billion in 2003, and its portfolio exceeded $9.1 billion.
- John Deere Credit is the captive finance arm of Deere & Co. which was established almost 50 years ago. The parent manufactures construction equipment, such as backhoes and excavators, as well as forestry and lawn care equipment. Its construction equipment customers range from small independent contractors to major corporations and government agencies. Most equipment is sold through a network of independent dealers. Floorplanning services are also offered to these dealers. Lease financing volume for John Deere Credit totaled $10 billion in 2003, and assets amounted to $12.4 billion.
Vendors are mainly concerned with the turnaround cycle and credit acceptance ratios of their lease financing partners.
CONSTRUCTION EQUIPMENT (Cont.)
- Hitachi Capital America provides lease financing to customers of Hitachi Construction Machinery America and Euclid Hitachi Heavy Equipment, as well as to others requiring commercial financing. Its 2003 lease volume was $585 million, and its portfolio amounted to $950 million.
- Ingersoll-Rand Financial Services has been evolving as a captive financing unit within the parent company. The parent is a leading manufacturer of construction, forestry and mining equipment. Financial Services provides lease financing for a number of its product lines including Blaw-Know, Bobcat and Club Car. Historically, Ingersoll-Rand Financial Services has operated as a unit of CitiCapital, one of the major third-party commercial finance organizations in the U.S.
According to the Equipment Leasing Association, Ingersoll-Rand Financial Services captive annual volume may be in the $700 to $800 million range.
- Komatsu Financial is the captive finance arm of Komatsu America Corporation. The parent is a major manufacturer of construction equipment, such as backhoes, graders, excavators, and bulldozers, sold through a network of independent dealers to general construction companies and contractors. It also produces mining equipment that is sold quarries and mining companies. Komatsu Financial was founded over 20 years ago and offers a range of lease financing products, as well as dealer floorplanning and rental fleet financing.
- Volvo Commercial Finance is a relatively new provider of captive lease
Some captive finance companies, such as Hitachi Capital America, also provide financing to business at-large.
CONSTRUCTION EQUIPMENT (Cont.)
- Terex Financial Services was established by Terex Corporation in 2003 to provide customers with a range of lease financing products. The parent manufactures construction equipment, cranes, aerial platforms and mining equipment. TFS was formed in coordination with GE Vendor Financial Services, the largest vendor leasing organization in the U.S. Terex Financial Services allows the parent to offer customer financing with minimal expense and without adding additional debt to the Terex balance sheet by leveraging the resources and operational capabilities of GE VFS.
• Very few new captive finance companies are coming on-stream because of the capital
requirements and rating agency scrutiny.
• Most of the existing captives should remain in place because they are generally healthy
and are helping their parents to grow.
• Some captives engage in rediscounting their lease financing paper, while others hold
most of it in their portfolio. Some have relied more on securitization models.
• Captives will finance other manufacturers’ equipment (both competing and
non-competing), but only if this equipment is sold through the parents’ dealers.
• Captive finance companies are considered to be very flexible with their credit approval
ratios and try to work with every potential customer. This is attributable to the captives’ first-hand knowledge of the equipment and the end-customer.
Some captives report a credit approval ratio exceeding 90%.
CONSTRUCTION EQUIPMENT (Cont.)
• The third-parties with recognized industry knowledge and a consistent industry focus
are CIT, CitiCapital and GE.
- These competitors have nationwide organizations of financing sales representatives which provides them with a distinct advantage because much of the construction equipment lease financing business is locally oriented.
- Another strength of these third-party lease financing organizations is their ability to train dealer sales reps on the benefits of leasing and how best to introduce the lease financing option during the equipment sales cycle.
- CitiCapital is one of the largest non-captive providers of construction, mining and forestry equipment lease financing in the U.S. It also provides floorplanning and rental pool financing for dealers. Total lease financing volume in 2003 was nearly $16 billion, and net assets
approached $22 billion.
- CIT is also a widely recognized non-captive player. It enjoys a longstanding positive reputation among construction equipment manufacturers and dealers.
- GE Commercial Finance is another leading non-captive provider of lease financing services through its Commercial Equipment Financing and Vendor Financial Services units. For example, VFS established a joint venture with Terex, while CEF acquired a portfolio from JLG (aerial
CIT, CitiCapital and GE are the entrenched third-party competitors.
CONSTRUCTION EQUIPMENT (Cont.)
• In addition to these top-tier independent (i.e., non-captive, non-bank) lease financing
competitors, there are several other third-parties that provide construction equipment financing on a national basis.
Competitor Total Lease Volume, 2003
Financial Federal $696
ORIX Financial Services 504
Alter Moneta 257
Source: Monitor 100
• Bank equipment leasing subsidiaries active in the construction equipment leasing
field include the following:
Competitor Total Lease Volume, 2003
BB&T Leasing $142 million
Center Capital (Webster Bank) 268
Citizens Leasing 769
Irwin Commercial Finance 273
SouthTrust 288
TCF Leasing 570
US Bancorp Equipment. Finance 2152
Wells Fargo Equipment. Finance 2509
Source: Monitor 100
Road Building Equipment
• Road building (or bituminous) equipment includes rock crushers, pavers, conveyors
and asphalt plants.
• Leading manufacturers include Astec Industries, Blaw-Knox (Ingersoll-Rand) and
A number of local, regional and national commercial banks have a strong interest in the lease financing of construction equipment.
CONSTRUCTION EQUIPMENT (Cont.)
• Equipment sales are direct to the end-customer through specializing sales forces, as
well as through independent dealers.
- Crushing equipment and paving equipment are sold through dealer channels. By contrast, asphalt production equipment is sold direct.
• Customers for road building equipment are primarily contractors and corporations in
the road construction industry.
• Installment loans, finance leases and residuals-based leases are all used to acquire
road building equipment.
- The prevailing lease financing for crushing (and trenching) equipment is residuals-based, usually in the form of fair market value (FMV) leases. The end-customers typically want to have ownership of the equipment at the end of term, thus necessitating the use of early buyout options (EBOs).
- The lease financing of asphalt plants is usually straight money-over-money financing.
- Financing of asphalt laydown equipment is also money-over in nature.
• End-customers for road building equipment have had a growing preference for
residuals-based lease financing because of the lower monthly payments. Moreover, customers prefer to assume the equipment upon lease termination because of high residual values since the economic life of the equipment often exceeds the lease term.
Some road construction companies prefer the off-balance sheet nature of operating leases.
CONSTRUCTION EQUIPMENT (Cont.)
• The average lease term is 5 years, but will range up to 7 years for some of the more
expensive crushing equipment and asphalt plants.
_ Shorter-term leases are usually written for paving equipment.
• Lease financing pricing is often based on a spread over comparable-term treasuries. • Lease financing penetration at the manufacturer level appears to be in the vicinity of
20% to 25%. This has been the pattern in the road building equipment industry for a number of years.
• Equipment purchased for more than $1 million often tends to be lease financed
through the customers’ own sources.
• Ticket sizes for lease financing transactions range from $25,000 to $2.5 million
(asphalt plants).
_ Asphalt plants are considered construction equipment, but are a fixture of the property.
• Rental programs are also found in this industry. Sometimes this is a trial period (e.g.,
4 to 6 months) for customers to check out equipment rather than a true rental agreement.
_ Dealers of road building equipment have seen increased demand for short-term rentals. They will offer rental credits toward the purchase amount and have found that 80% or more of renters will eventually purchase the equipment.
• The average life of road building equipment may be 5 to 7 years.
Overall, leasing may capture as much as 50% of sales since customers often arrange their own financing.
CONSTRUCTION EQUIPMENT (Cont.)
• Some manufacturers have used-equipment departments. They will take trade-ins and
recondition the equipment in order to facilitate a sale, but the secondary market is not of major interest to them.
_ On occasion, manufacturers will remarket equipment for their lease financing partners.
• Floorplanning of dealer inventories is also sought in this market, and the major lease
financing providers will offer this product.
• Competing lease financing providers include GE Commercial Finance and CIT. These
organizations have large networks of local leasing representatives, and they are valued because of their industry-specific knowledge that results in fast credit approvals and high acceptance rates. Their pricing is also considered to be in a competitive range.
_ CitiCapital is also a visible lease financing player in this market.
• Captive finance companies appear to be less visible than in other market segments,
especially with the decision by Astec Industries to discontinue its captive (Astec Financial Services) in favor of third-party vendor leasing programs.
• Local and regional banks are also important providers of road building equipment
financing since contractors often first turn to their banking sources to pre-arrange their own financing.
Cranes
Road building equipment manufacturers view sales-assistance financing as essential since their
contractor customers often want one-stop shopping.
CONSTRUCTION EQUIPMENT (Cont.)
• Upwards of 90% of cranes sales are through independent dealers and rental companies. - Rental companies have become increasingly prevalent for large crawler
and tower cranes. In the past, they generally handled only smaller model cranes, such as boom-truck and all-terrain cranes; however, they have recently experienced more demand for higher-capacity cranes through rental programs.
- Rental companies buy equipment to rent as a fleet for customers that do not have an interest in purchasing or leasing cranes.
• End-customers for cranes are often general contractors.
• The Manitowoc Crane Group (including Grove and Potain cranes) appears to be the
largest crane manufacturer. Competitors include Terex and Link-Belt.
• Crane companies usually do not have captive finance arms and do not seek to hold
lease paper in their portfolios. Instead, they will rely on third-parties to provide lease financing for end-customers.
- Manitowac Credit is an example of a third-party private-label lease financing program.
- Link-Belt evidently has had vendor leasing relationships with CIT and CitiCapital. Last year, it started a vendor program with Wells Fargo Equipment Finance.
Crane manufacturers have experienced an increase in sales to rental companies.
CONSTRUCTION EQUIPMENT (Cont.)
• Since the average life of a crane can be 20 years, s strong aftermarket exists for used
cranes.
- Some manufacturers are heavily involved in the remarketing of cranes.
• An estimated 25% of crane sales are leased through manufacturer-sponsored
programs or through informal referral relationships with third-parties.
• The average lease financing term appears to be 4 years, but will range from 3 to 7
years.
• Much of crane financing is in the form of finance leases. Residuals-based leases are
less significant, although fair market value (FMV) leases are utilized.
- One crane manufacturer with average ticket sizes ranging from $1 to $1.5 million indicates that the lease financing it provides to customers is split 50/50 between finance leases and residuals-based leases.
• Manufacturers are also actively involved in the provision of floorplanning to their
dealer base.
- Interest-free periods (e.g., 3 to 6 months) may be offered in connection with floorplanning.
• CIT, CitiCapital and GE are third-party commercial finance companies that have
been active for some time in crane financing.
Crane manufacturers will subsidize lease financing programs to remain competitive.
CONSTRUCTION EQUIPMENT (Cont.)
Mining Equipment
• Surface mining equipment includes electric mine shovels, drills and drag lines. • Ticket sizes for this equipment can range from $500,000 to $25 million.
- Mining equipment such as water-well drills and quarry blast-hole drills can have ticket sizes in the $500,000 range.
- Continuous miners can cost $1 million, while ticket sizes for continuous haulage systems can exceed $2 million.
• Sales of mining equipment are usually direct to the end-customer. This appears to be
the predominant channel of distribution in this industry.
• Major manufacturers of shovels and drag lines include Joy Global and Bucyrus
International. Leading producers of drills include Bucyrus and Ingersoll-Rand.
- In the case of Joy Global, two different divisions manufacture equipment for the surface and underground mining markets.
- Overseas manufacturers compete in some segments of the mining equipment industry.
• End-customers for mining equipment range from small, independent mine owners
and quarries to large natural-resource corporations.
• End-customers often obtain their own financing for mining equipment acquisitions
from commercial banks and other sources.
The mining equipment industry has had a traditional linkage to the construction equipment field.
