During a conversation with a contractor recently, I felt a flash of familiarity that I just couldn’t place. Have I heard these concerns before? Weren’t we just excited by future industry growth after the Infrastructure Investment and Jobs Act passed in late 2021 but worried about economic uncertainty? Call it déjà vu if you like, but when I look back to my previous years’ industry outlooks, I couldn’t help but notice how some predictions are not exactly repeating but feel similar in nature.
As we move further into 2023 here are three things I am watching.
Interest And Equipment Price Both Going The Same Direction
In the first part of 2022, there was a lot of optimism in the construction industry. Contractors were preparing for the investment of billions of dollars in infrastructure thanks to the Infrastructure Investment and Jobs Act. Housing started to outpace the previous year and projections were looking strong. In March, things started to shift a bit when the Federal Reserve Bank raised its rate for the first time since 2018. And, that increase was the early indicator of what was to come – the Fed raised rates seven more times last year.
The impact on equipment purchasing was that buyers who financed their purchases were paying more as interest rates continued to climb in step with Fed rate increases. But, because of the strength of the market and prior year supply chain issues, contractors continued to buy, which kept the pressure on the supply chain even when equipment prices increased to keep with inflation. Most of us in the industry have not seen these two market trends collide. In most cases, it was a challenge to understand if the price or the interest increase was what impacted the payment more. All you know for sure was in both cases it was more than you had seen in recent years, if ever. Contractors leveraged price protection guarantees on the equipment, when possible, to only be impacted by one of these unprecedented head winds.
In my experience, contractors look six to 12 months out to help gauge confidence. In bad times, contractors say, “We only have six to 12 months ahead of us.” During the good times, they’ll say, “We have at least six to 12 months ahead of us.” In the next year, I expect to hear more “we only have” due to the continued changing market.
That doesn’t mean that, if you didn’t order in 2022, you are out of luck for new equipment this year. We expect that supply will start to catch up to demand and there will be greater availability of new equipment this year, particularly in the second half of the year. More supply will mean more options for buyers. Will price increases and interest rates change direction for 2023? We will see.
Renting: How Will 2023 Look Different
In addition to more new equipment coming online, there will also be newer machines coming into the rental fleet. This gives you more options besides buying new equipment. Last year, there weren’t as many rental options as we have had historically. I predict that those will come back to you in late 2023.
If you are renting today, chances are you are renting an older machine. Those older machines will be phased out and replaced by newer machines. This is the normal process of managing a rental fleet. Due to supply chain issues, most fleets are overdue. Newer technology, newer machines and less downtime — that’s all-good news for contractors. The not-so-great news is rates are likely to increase. Although, the American Rental Association and I expect to see the rental market continue to grow in 2023 and beyond. With the higher cost of equipment, repair parts, technician wages and interest, rental rates will likely be increasing.
Nonetheless, the advantages of renting equipment are many so if you don’t have a clear line of sight on future business, renting equipment may give you an opportunity to build a bridge between what you think and what you know.
Everyone is coming to terms with new technology and one advantage of buying in 2023 is that the technology is continuing to improve and there are some exciting new versions of products on the horizon.RDO Equipment
Technology Is Now A “Must Do”
As I’ve said in previous articles, contractors need to adopt technology to address immediate challenges, including the lack of labor and increased material and input costs. And 2022 saw a significant increase in technological integration into existing machines and the purchase of new machines with new technology. I believe that 2023 will usher in a new era where technology is no longer optional. In talking with professionals last year, I’ve heard them say that technology transitioned from “too risky to invest” to “too risky NOT to invest in.” Everyone is coming to terms with new technology and one advantage of buying in 2023 is that the technology is continuing to improve and there are some exciting new versions of products on the horizon.
In fact, many new products from John Deere, Vermeer and more are expected to be unveiled at CONEXPO this coming March. RDO Equipment Company team members and I will be on-site to bring you the news on what these products and services can do for your operation. I hope to see you there.
Service And Support On-Demand
With greater use of technology, there becomes an even greater need to use that technology to streamline maintenance and support for equipment and operators. That’s why many contractors are opting for machine monitoring software that connects an operator to technology experts and remote technicians. This trend is only expected to increase in the year ahead.
To have a lifeline to an accurate and reliable source of experts who deal with equipment issues every day is vital to any contractor’s operation in 2023. The machine monitoring allows the machine to share information so it can tell what’s wrong and help the operator to fix it without a physical visit from a tech if possible.
Right now, there are a lot of dealers that have great field support technicians who can come out and service your machine – for technology, mechanical or other needs. Moving ahead, I see that more dealers will supplement their field tech presence with a centralized support service center that can identify machine needs from any location. Providing centralized support can oftentimes get customers back up and running in a matter of minutes. Make no mistake, we still need the great field technicians we have today. As we continue to struggle as an industry to find technicians, we must find ways to support them. Having a technology solution where we can avoid operators rolling a truck is an example of a great start.
Dealing with economic uncertainty is nothing new to contractors. But price increases and interest rate increases we have seen in the past 12 months are new headwinds we all are learning to navigate. While no one can predict every trend, I do believe that by planning ahead, exploring all your equipment options and embracing technology, you are on solid footing for whatever 2023 might bring.
