New or Used Construction Equipment - The Return on Investment Decision

It has always been a debate whether to buy new or used construction equipment. Smaller fleets prefer to buy used construction equipment as they attract less capital investments. Another reason for people to opt for used construction equipment is that they are sometimes as good as new and come at a very heavy discounted price as compared to that offered at the showrooms.

Moreover, Associated Equipment Distributors (AED) and TradeYard, Inc, have jointly announced an alliance that shall provide certified inspection of used construction equipment that can also be sold online. This has been done to boost the business-to-business sales via online medium. It gives better promotion to the sale of used construction equipment and buyers to be confident about their purchase. Usually buyers buy the used construction equipment only upon the preliminary inspection done by the technical agent from either the buyer or the seller side. Since a neutral and unbiased inspection report shall be available it would lead to increased sales and more profitable bargains to small investors. Small fleet owners usually opt for used construction equipment sold from earlier projects. Large construction companies that carry huge fleet of construction equipment can also strike a good bargain at onsite purchase of such certified used construction equipment.

There had always been a skeptical attitude towards the economies in the Indian sub-continent, Russia or Latin America. But over the past years these economies have shown a constant and steady growth. The demand to construct new projects or to renew the old ones has been always in demand. Since these countries are not as cash rich and affluent, they usually have constructors who have smaller fleet. Moreover, they also do not have enough capital to be invested in developing a large fleet. They are always on a look out for used construction equipments. Along with this these constructors take on projects in the neighboring countries and shifting heavy and used construction equipment is also not feasible. Thus sales of such equipments is constantly in demand

Apart from the projects in these countries, bigger companies take up their projects in the continent of Africa and also the Gulf countries. Thus they opt to buy used construction equipments available locally from the companies or constructors who wish dispose off their fleet. The used construction equipments are also on the sale due to the feasibility reasons that lie on the seller’s side as well. The construction companies who have finished off their projects in foreign lands and take up projects in other countries, for such large companies it is more feasible to dispose off their used construction equipment and assemble a new fleet at the onsite location rather than carry them to the new land. This is due to the reason that various countries have different rules for export and import of heavy equipment required for infrastructure development.

Some countries impose heavy taxes and import duties to restrict import of used construction equipment. This is done to prevent the domestic markets and small construction companies with limited resources. Further, export of such used construction equipment requires various documentation procedure, inspections and other legal formalities. All such activities are not only tedious but also time consuming. These formalities also require lot of duty fulfillment at both the ends. Moreover clearance at the ports and damage caused in handling and shifiting these equipments is also very tedious job.

Thus construction companies prefer to buy new or used construction equipment locally. Only Large construction companies or companies who have strategic partnerships in the local market for a company prefer to import a part of their used construction equipment for their ongoing projects.

Estimating the Market for Construction Equipment Sales

Heavy construction equipments are required in all parts of the world. Their demand has increased all the more after the growing economy in the Indian sub-continent, Middle East, Far East and Oriental nations as well.

Countries like China, Singapore, etc. are developing at an exponential rate in the area of infrastructure development. Chinese infrastructure has become so strong in the recent past that even the interior cities and remote areas are also well laid with clean broad roads, buildings, shopping malls, bridges, etc. All this growth has let to increase in the construction equipment sales.

Construction equipment sales had been most in the western regions in the decades of sixties to mid-eighties. But in past twenty years the economical growth in the eastern part of the globe had been exponential. The rise in the middle class and better earning resources has led to the growth of the economy. This growth has called for more development of residential and commercial outlets, etc. The increase in the development of such outlets has led to increase in the construction job works. These job works have adapted to the changing developmental pattern thus construction equipment sales have gathered pace equivocally.

More and more builders and architects have come together and large construction companies have built boulders all along the economical growth. Huge towers, shopping malls, big broad roads, expressways, highways, bridges, flyovers, etc. have led to the increase in construction equipment sales. Since all this development work calls for larger companies to shoulder all kinds of job works, many companies have made strategic partnerships, joint ventures, governmental bodings and alliances with the domestic counterpart for better growth. All these large companies have built up their own construction fleet along with the construction specific manpower.

These construction equipment sales are usually related to the iron and steel prices. Since there have been more excavations for the iron ores and new outlets, iron and steel market has grown at a healthy pace in these developmental decades. The large projects require heavy capital investments. In developing countries the cyclic rotation of capital is more regulated and strategic. Thus the investors are able to opt for large borrowings and generate their own capital for purchase of heavy construction equipments. Thus the heavy equipment sales in these countries are more properly funded and less prone to financial risks.

In case of construction equipment sales pricing is also an important factor. It determines the extent of sales or whether the constructor would prefer to go in for rental equipment. Pricing also acts as a determinant of demand in the market. Demand is led as per the specific country, availability of these equipments in the region, prices of iron and steel, etc. moreover, for the construction equipment sales financing of the purchase of the construction equipment acts as an added advantage and gives a competitive edge in selling the equipments. Financing the purchase leads to increase in the construction equipment sales of the manufacturers.

Thus construction equipment sales are more or less directly dependent on the pricing structure and financing available, as it gets included in the project cost. These sales are more prevalent in the growing economies where more infrastructure developments regularly take place.

Making Capital Investments in Heavy Construction Equipment

Heavy construction equipment requires a lot of capital investments. When the companies opt to buy these types of heavy construction equipments then they look out for the used equipments that may be on sale in the local market. This helps them in various manners. Companies sometime get used heavy construction equipment which are as good as new but the cost is much lesser than that offered in the showroom. Moreover, buying heavy construction equipment from the local market reduces the transportation cost as well. These overheads not look good in the balance sheet as they lead to increase in the project costs.

Financing is a major concern while buying heavy construction equipment. Most of the companies look out for times when the interest rates are low and they can strike a good bargain. In developing countries the rate of economic growth determines the external investments. A healthy growing economy attracts heavy foreign investments. Thus since the financial inflows are more the interest rates are much low. Thus buying heavy construction equipments or taking them as rentals is much more economical.

After the opening up to the markets and signing of the GATT agreement by most of the countries there has been increase in the competition and reduction in cost of equipments. Moreover, the heavy construction equipments have been manufactured at more locations than before. This trend has been on increase to serve the global market and cross-country support for infrastructure development. Moreover, there has also been increase in the duty-free import structure in the economies. But in case of the growing economies, increase in exports and development of local markets is still required to support the imports in the countries.

Demand for heavy construction equipment is more region-specific. In US markets and Western Europe, requirement for up-gradation of the locations is more required rather than developing new projects. These countries require maintenance and upgrading of the existing projects, which is more crucial for the existing infrastructure for long time sustenance.

In case of developing countries, building up of rail, roads, flyovers, high-rise, airports, and urban development is more crucial. All this requires lot of construction work, which requires use of heavy construction equipment. The largest producers of heavy construction equipment are located in the U.S., Japan, Germany, the U.K. and France, followed by Italy, South Korea, Canada, Sweden and Belgium. There are manufacturing units located at other locations also like China, Russia and Latin America. More manufacturing units for heavy construction equipments are expected to crop up at locations, which offer low material costs and cheap labor.

Heavy construction equipment is also available on rent. These can be leased out easily from the domestic market. It is much more beneficial to take the heavy construction equipment on rent or on least for a day or few days rather than purchase them and then sell them at lower cost or carry overheads like transportation, maintenance, etc. Buying heavy construction equipment is not much preferred option. Mostly in the US, long-term leasing is much more preferred over purchasing due to tax structure.

Acquiring Construction Equipment

Many companies and contractors in need of acquiring new or used construction equipment often don't have the financial resources needed to buy the construction equipment outright, unless it is a large corporation or some branch of the government. This is when the option of renting or leasing construction equipment comes into play. Deciding to rent or lease often depends on what the contractor or business manager feels most comfortable doing from a financial perspective after evaluating the many possibilities and deciding what suits their need from long term leasing to short term renting. The side of construction equipment rentals has met a positive growth since 2004, where nearly 50% of construction equipment dealers' are offering heavy equipment rentals as part of their operation.

There are two ways most companies acquire their construction equipment, renting or leasing. Many contractors or business managers viewed renting or leasing as an opportunity to test out construction equipment at no extra cost and with no strings attached with the possibility of buying. Most often the rental would be converted into a purchase to avoid losing the invested equity. Most buyers would also take into account whether their business is flourishing or floundering, before committing to buying any construction equipment. In a case where a business has an uncertain future, the potential buyers may deem renting as the best way economically and then return the construction equipment to its owner when the job is done.

The Association of Equipment Manufacturers (AEM) is the international trade and business development resource for companies that manufacture equipment, products and services used worldwide in the construction, agricultural, mining, forestry, and utility fields. The AEM has conducted a survey that predicted that in the near future, more construction equipment buyers will turn to the Internet for product purchases; as construction equipment buyers increasingly turn to the Internet for transactions, information and support.

Consequently, the rise of on-line auctions, sales, renting and leasing are made available by a variety of merchants who cater to the needs of companies and contractors worldwide. On-line merchants such as: Machine Mart, Rock & Dirt, Machinery Trader, Iron Planet, Contractors Hotline, etc. are only a few of the leading markets where companies and contractors alike can find nearly every piece of construction equipment they are looking for, from the top manufacturers such as Caterpillar and John Deere to many more. Many of these merchants offer the options of buying, selling, renting and leasing of new and used construction equipment to parts service and repair and machine maintenance. It's always wise to investigate the background of any merchant before you place a bid or purchase any construction equipment, to ensure a good reputable stand point before entering into a contract with any dealer or merchant. It's always wise to shop around and compare deals on construction equipment to other offers before committing to any deal.

Construction Equipment – Buy, Lease or Rent?

Construction equipment is also known as engineering vehicles. These heavy-duty vehicles are specially designed to carry out construction and engineering tasks.

The finance needed for buying construction equipment is arranged through an equipment leasing association. The construction market is buoyed by a boom in the construction business after experiencing a couple of slow years.

Only those corporations or smaller businesses who are flush with cash can afford to buy the construction equipment on an outright basis.

Renting or leasing is the traditional best option for contractors who do not have large reserves of cash. The contractors who could not afford to buy the construction equipment have these methods as an alternative arrangement. Renting of construction equipment is an option to face a short-term need whereas leasing is the option suitable for long-term needs.

According to a survey conducted by the industry, there is less desire on the part of the contractors to own construction equipment and they always go through reviewing the concepts – leasing or renting – to select the best option.

Leasing or renting should be seen as a forerunner to buying since it gives a chance to test the construction equipment without the burden of large cost or long-term investments. Normally the rental of construction equipment for six months leads to out right purchase to avoid the loss of equity investment. Find more info at www.construction-financing4u.info

In a typical example for a project with three contractors bidding for the work, the contractor with equipment owned outright has to consider only the interest amount spent on financing the purchase while costing the project.

Whereas a construction company which opted for leasing only has to consider the recurring monthly payments for leasing while making the estimate for the project. The contractor who rents the construction equipment has only to calculate the rent he is going pay and he is not saddled with equipment, which is not incurring loss when left unused.

Complicating the matters further, there are too many types of finance plans, with offers of a wide range of schemes beckoning the contractors with repayment terms averaging from 3 to 5 years. Manufacturers such as John Deere and Caterpillar have their own sub division for financing, which permit the contractors to lease the construction equipment directly from the manufacturers. These types of sources serve nearly twenty percent of the market.

Leasing opportunities are also offered by banks. Because of the inherent risk, most of the banks steer clear of the construction industry. Still around sixty percent of the financing of construction equipment is carried out by banks or companies affiliated to the banks.