Lease returns push construction inventory higher

An influx of lease returns from financing agreements signed during the pandemic pushed elevated inventory levels of used construction equipment even higher in April.  

The construction industry has also noted an uptick in repossessed assets that is expected to continue, Sandhills Global Equipment Lease and Finance Manager Jim Ryan told Equipment Finance News.  

“Medium-duty construction is one of the highest categories in construction right now” in terms of inventory. Repossessions in the sector are also increasing, Ryan said.  

Used construction equipment inventories rose for the fourth month in a row in April, Sandhills found in its monthly report.  

Medium-duty equipment  

• Used inventory was up 59.05% year over year in April, following a 3.2% month-over-month increase from March to April.  
• Skid steers, which lead the uptick, saw inventories rise 82.3% YoY in April.  
• Asking values for used construction equipment decreased 5.5% YoY, while auction values decreased 10.4% YoY.  

Heavy-duty equipment  

• Used construction equipment inventory levels rose 21.6% YoY in April.  
• Asking values in the used segment dropped 3.3% YoY. Auction values declined 8.8% YoY, and both are trending downward.

Used lifts, telehandlers  

• Inventory levels grew 8.56% YoY in April.  
• Asking values for used lifts dropped 7.55% YoY and auction values declined 13.47% YoY. 

Returns, repos   

The increase in lease returns is mainly cyclical, Ryan said. Companies that entered into financing arrangements in the past three to four years are now concluding their leases, which is a natural part of the lending cycle, he noted.  

“There’s an influx of those term dates that have come up or are coming up this year or early next year,” he said, adding that he expects this to continue to push inventory levels higher in construction. “They’re essentially returning those assets.”  

Returns present opportunities to enter into new leases. Operators “may try to get another lease on new equipment coming in,” he said, noting that older machinery that isn’t liable to be leased because of its depreciating value will continue to be sold at auctions.  

The construction industry is also seeing an increase in repossessed assets, which are taken over by banks when lessees can’t make loan payments, Ryan said.  

“You’re seeing the repossession signs a lot heavier on the transportation side, but you’re starting to see those pop in the construction realm for sure,” Ryan said.  

New equipment piles up 

Inventories of newer, medium-duty construction machinery also showed an increase in April.  

“Nearly half” of excess track skid steer and mini excavator inventory is less than 5 years old, partly due to easing supply chain constraints and manufacturers fulfilling orders, Ryan said.  

“Fulfillments are getting done, and as those are getting filled and you’re getting a lot of new equipment, you’re obviously going to dump what you have, and a lot of that is in the zero- to 5-year-[old] range,” he said.  

When supply chains were constricted, lessors and rental companies held onto equipment, but now they’re able to flush out aging inventory for newer stock, which has exacerbated the regular lease return cycle, Ryan said. Lease returns are “always expected, every single year, but not at this volume,” He added.