Talking Business Up…When the Market Is Down

July 1, 2009

It doesn’t take Mike Freeman long to rattle off the list of onsite support equipment that’s selling well at California’s Edward R. Bacon Co..

“Nothing. Nothing’s really selling well these days,” says Freeman, inside sales coordinator at the equipment distributor with locations in Sacramento, San Martin, and Oakland, CA.

Freeman, of course, is far from alone. The slumping economy means that dealers are struggling to sell or rent nearly all their onsite support equipment. Everything from compressors, power generators, and pumps to signage and barriers are sitting in storerooms for longer periods of time.

This is little surprise. The construction business is in the middle of a long downturn, and equipment dealers are feeling it.

“Our business is very spotty right now,” Freeman says. “We’ve sold some used compressors, but, really, nothing is setting the world on fire these days. It’s been this way ever since the economy started struggling.”

Surviving in today’s economy means selling or renting the equipment that contractors specifically require to meet the demands of the job.
Generators are another support item indispensible to many projects.

Manufacturers, and other dealers, echo Freeman’s sentiments: Equipment sales and rentals are down. And until the economy improves, that’s not going to change.

“Our business is down pretty good this year. But in this economy, you have to expect that,” says Chuck Westhofen, product manager for compressors and generators with Commerce City, CO-based equipment manufacturer Atlas Copco.

But like other manufacturers and dealers, Atlas Copco is adjusting to the bad economy. The company is making sure that its salesmen aggressively promote the company’s financing plan to dealers. And company officials are carefully monitoring inventory levels to make sure they’re not burdened with too many unsold compressors or generators.

As bad as times may seem now, Westhofen has managed to find some signs of hope.

“I talk to our salesmen, and they tell me that they are quoting as much business as they ever have. To me, that’s a positive. Our hit rate is not as good as it has been in the past, but as long as customers are still asking for quotes, there is hope out there,” Westhofen says.

Battling a Tough Economy
The commercial construction industry went into its slump shortly after the housing industry crashed.

This isn’t surprising. If builders stop erecting new housing subdivisions, there’s little need for new supermarkets, strip malls, churches, or schools.

But there have been some encouraging signs for the commercial construction industry lately.

The Commerce Department in early May reported that spending on construction projects increased in March by 0.3% to $969 billion. That may seem like a minor increase, but it represents the first increase of any kind in six months.

According to the Commerce Department numbers, while residential construction spending was still down, certain nonresidential projects looked strong. Spending was up, for instance, on government structures and power plants.

There is hope that these projects will continue to increase as the federal government continues to distribute dollars from its economic stimulus packages passed earlier this year.

Still, in today’s economy, every bit of good news is tempered by somber reports. For instance, in a May 7 story by the Reuters news service, Kermit Baker, chief economist of the American Institute of Architects, was quoted as saying that a national recovery in nonresidential construction, a category that includes hospitals, office buildings and retail outlets, probably will not begin until 2011.

For those who make their living off of the construction industry, 2011 may seem like a long ways off.

The big stumbling block to an economic recovery, and to a rebound in the commercial construction sector, is the number of US residents looking for work. An economic turnaround won’t happen in force until the unemployment rate falls. According to the US Labor Department, the national unemployment rate stood at 8.9% in April, the highest it’s been in 25 years.

Bob Alsieri, senior engineer with Columbus, OH-based Air Technologies, specializes in selling onsite support equipment to industrial clients. That usually means electric drives that his clients use to keep their plants running.

Air Technologies, though, does sell the occasional portable air and gas compressor, mostly when an industrial client requires one.

Like other onsite equipment dealers, Air Technologies is seeing a slowdown, Alsieri says, but the company is fortunate in that it hasn’t seen a catastrophic dip in business.

“We would like to see our products moving better than they are now,” Alsieri says. “But we are maintaining ourselves, even with this economy. There is some hope out there. There seems to be some quote activity picking up. We’re not seeing the sales yet, but we are seeing the number of quotes beginning to pick up.”

Rebuilding Projects Bring Hope
Darryl Weflen, president of Edmonton-based Airworks Compressors, says that infrastructure projects are providing a boost to his company as it tries to work its way through the recession.

Clients are purchasing diesel-powered air compressors from Airworks in solid numbers, Weflen says. Sales have certainly been down since the start of the recession, he says, although they are still steady enough to keep Airworks healthy.

“We’ve seen slower growth because of the economy. There’s no denying that,” Weflen says. “But we are seeing steady growth. We have not seen as drastic a decline as other industries have. With the infrastructure rebuilding being a focus right now, that definitely helps our segment of the market.”

Weflen points, too, to his company’s compressors. Airworks’ compressors are designed to be mounted on trucks rather than towed behind them on trailers, offering several benefits to end users, he says. “End users don’t have to license and insure another piece of equipment. They don’t have to worry about where they’ll leave their compressor at night. It’s right there, attached to their truck.”

Surviving in today’s economy also means selling or renting equipment that contractors actually want. Fortunately, compressors are still viewed by contractors as must-haves, regardless of the economy, Weflen says.

Compressors remain steady sellers even during the economic crunch, because they are pieces of machinery that contractors can use in several different ways, he says. In today’s rough economy, contractors are looking to stretch the dollars they spend on equipment. Using a machine for more than one use is one way of dong this.

Weflen knows of one client, for instance, that is using an Airworks compressor mainly to run a jackhammer. But the company also used it during a big water project to pressure test small-diameter municipal pipes, Weflen says.

“A compressor is quite universal,” he says. “Once you have one, there are many, many uses for it. You’re not limited to just using it for what you initially bought it for. It’s just a handy piece of equipment to have around.”

A Cautious Mode
Manufacturers of onsite support equipment are reporting that the economic slowdown has caused their clients to move more slowly than they did in the past.

They are now more cautious when purchasing new equipment. They want to make sure the business is there first to justify these purchases.

Jeff Steer, sales manager for Eden Prairie, MN-based Goodall Manufacturing, said that his company is selling products that contractors still need. The fact that Goodall serves a diverse variety of industries helps, too.

Construction is a big market for Goodall, of course. And Goodall has felt the pain that the construction industry is now suffering. But Goodall also provides its product line of jump starters, air compressors, generators, and welders to the trucking industry. And though that industry has suffered, too, during the recession, trucking companies still need to purchase generators and jump starters to keep their fleets running.

“The downturn was felt earlier in the trucking industry,” Steer says. “People stopped shipping a lot of goods. We saw the decline in that early. But you still have to start those vehicles. You still have to keep those vehicles moving. That has helped us in these times.”

Steer says buyers are more cautious today than they have been in the past.

“People do not want to overextend themselves too far with a new piece of equipment,” Steer says. “That’s what we are facing: the slowdown in the amount of new equipment that is being purchased to support the construction or activity that is out there today. We started to see this last spring with people pushing orders out. As we got into the fall, it kind of kept tumbling more and more in that direction.”

Steer, though, says he sees hope for manufacturers and dealers in the way the construction and trucking industries have evolved.

Both businesses are now more sophisticated, and require more complicated equipment. Smaller contractors in the past could run a solid business with just a full toolbox, a single vehicle, and maybe a scraper blade, Steer says.

That has changed. Today’s vehicles have more electronic parts in them. Contractors need to be able to test those electronics to make sure they are running properly, Steer says. “The whole thing is about keeping those vehicles moving. You now have fewer construction companies covering the same amount of area. They are getting farther away from that shop or their main facility. If a big grader goes down in the field, operators have two choices: They can take the truck back to the shop and fix it there. Or they can bring in a service vehicle that is equipped with tools that the mechanics need to do their job. That’s where we provide that power.”

At Generac Power Systems in Waukesha, WI, Terry Strange, senior product manager at the company, says that even in this bad economy the company is still selling a good number of portable generators.

Again, part of the reason for Generac’s steady business is the fact that it sells products that can be used for a wide variety of jobs.

Dealers have sold many Generac generators as a result of severe weather events, for instance, Strange says. Residents suffering through tornadoes, hurricanes, or ice storms and their aftermaths often purchase portable generators as a safe way to generate onsite power, he says.

At the same time, even though the construction market is soft, most contractors view generators as a necessary piece of equipment, one that they wouldn’t try to do business without, Strange says.

“There is a considerable market out there for products that are substantial, products that have a long life and many uses,” Strange says. “A portable generator fits that definition. A good generator lives through many uses.”

Looking Toward a Brighter Future
No one would argue that these aren’t tough times in the construction industry. But dealers and manufacturers of onsite support equipment says they are seeing signs of hope.

And until times do get better in the industry, they say, they’ll continue to rely on the business relationships they’ve built up during their years serving the construction market.

Stephen Connolly, vice president of Boston-based ATS Equipment, a dealer, says that though the economy has definitely hit his business, it hasn’t crippled it.

In fact, Connolly says, ATS is doing well enough that it recently opened a third branch, in Auburn, MA.

The dealership is selling a large quantity of P185 compressors, Connolly says. ATS is also selling a good number of pneumatic tools, he says.

“We’re seeing an uptick because of the increase in bridge work in the Northeast area of the country,” Connolly says. “There has been a lot of money allocated to the upkeep and repair of these bridges. Because of that, we are selling a lot more compressors than we used to.”

The dealership also promotes its financing plan heavily, Connolly says. This helps contractors who may be struggling with cash-flow issues to purchase needed equipment.

For his part, Connolly says that some concerns about the weak economy might be overblown by the media.

“If you don’t read the newspaper in the morning, things are fine,” he said. “There is work out there. It’s not a perfect time. Don’t get me wrong. But it’s not the end of the world, either.”

Steer, from Goodall, would agree with that sentiment. There is business out there; dealers and manufacturers just have to work harder to get it.

That often means drawing on the relationships that they’ve already formed in the industry.

“In tough times, relationships are important,” Steer said. “We’re a very service-minded, service-oriented company. We’ve built those relationships.”