Construction inventories climb in February

Inventory levels of used medium- and heavy-duty construction equipment rose for the second consecutive month, as dealers struggled to offload inventory and compete with manufacturers that continue to offer competitive financing options.  

The used construction market still has an oversupply problem, said Jim Ryan, equipment lease and finance manager at analyst firm Sandhills Global. Until inventory levels begin to normalize, dealers will have a difficult time offloading older used equipment as OEMs have begun to prioritize financing their new equipment, Ryan told Equipment Finance News.  

In the construction sector, “although individual machines are depreciating [year over year], the overall value indexes have increased due to growing availability of late-model inventory,” Sandhills  said in its monthly report.  

Heavy-duty inventory levels up 

• Inventory of used heavy-duty construction equipment was up 14.56% YoY and continues to move upward. Inventory was up 6.2% month over month.  
• Asking values dropped 1.37% YoY.  
• Auction values were down 6.73% YoY and are projected to drop more.

Medium-duty inventory more than doubles  

• Medium-duty inventory rose 59.76% YoY and 4.76% MoM, continuing a monthslong pattern.  
• Asking values were 5.98% lower YoY, following a trend of declining prices, Sandhills said.  
• Auction values were up 1.96% MoM, but were down 5.98% YoY. This suggests “softening” in the market, Sandhills said.  

Used lift market seems to stabilize  

• The used lift market saw minimal change in inventory, down 0.9% MoM, but up 10.07% YoY.  
• Asking values were down 5.28% YoY.  
• Auction values were down 13.37% YoY.  

Sandhills said the telehandler category is driving inventory increases and that further pressures market values. 

Dealers challenged by OEMs 

Ryan said that until inventory in the construction industry normalizes, values will remain pressured.  

“Inventory has consistently grown like crazy,” Ryan said. “There’s a lot of lease returns coming this year, so I think we’re still going to see some month-to-month [inventory] increases coming at times. What we need to do is get this market flushed out.”  

Dealers, banks and financiers “need to find a way to maximize as much as they can for what they need to move now,” he said.  

The increase in used construction inventory, which traditionally depreciates quickly, remains a pain point for dealers, manufacturers that are beginning to offer competitive finance options.  

Ryan said he’s heard from dealers that “there is some concern. … Some of them are frustrated with some of the OEMs and the financing deals that are being put out there.”  

“They feel like it is directly affecting them,” he said. “They are supposed to be with the OEMs, not against them. I do think there’s some concern of frustration that not everyone’s essentially working together in the same way to fix this [inventory problem].”  

But spending remains high in the construction sector, a segment that lenders are confident in, according to a lender survey published March 12 by the Equipment Leasing and Finance Association. 

“Construction spending was up about 7% last year, and now we’re over $2 billion in construction projects,” said Carl Chrappa, senior managing director of equipment advisory firm Alta Group’s asset management practice. “New construction sales also increased by around 7.8%.” 

Chrappa noted that there will be more new construction starts because of the president’s November 2021 bipartisan infrastructure bill, but also because the prices of raw materials continue to fall.  

“Materials were running at about 10 to 15%, now they’re about 3.9%. So the lower these go, it’s easier to go fund a construction project,” he said. “That’s a positive.”  

Registration is now open for Equipment Finance Connect, the nation’s only dealer-centric equipment lending and leasing event, which will take place May 5-7 in Nashville, Tenn. Learn about the event and free dealer registration at EquipmentFinanceConnect.com.