The MHEDA Journal - Third Quarter, 2013 - (Page 15)

ASK YOUR EXPERT ADVICE BOARD Q “Considering the current used equipment shortage, when do you think the supply of used equipment will bottom and availability will return to more normal levels? How much worse does everyone think the used equipment shortage will get before it improves?” John L. Gelsimino, President at All Lift Service Co Inc., in Willoughby, Ohio Jerry Weidmann President Wisconsin Lift Truck Corp. Brookfield, WI A The primary sources of used equipment includes off-lease equipment, trade-ins on new equipment purchases or leases and retirements from rental fleets. When the economy goes into recession, used equipment availability rises. Rental fleet utilization rates go into decline. Dealers sell off their rental fleets to reduce their costs, generate cash and get their utilization rates back to more normal levels. Typically, during the onset of the recession and until the expansion commences, used equipment availability exceeds demand. During recessions, fleet owners purchase fewer lift trucks and will frequently extend their ownership or lease period because the equipment is not used at the rates they anticipated when they put them into their fleets. As the recovery starts, demand for rental assets increase. Dealers put used inventory into their rental fleets to meet the demand. Fleet owners extend the leases on their existing fleets during the early stages of recovery to avoid making significant investments and demands on their lines of credit. Fleet owners are more likely to purchase used equipment during the early stages of recovery. As a result, as the economy recovers used equipment availability declines. As the recovery lengthens, the accumulated hours on equipment rises and an increasing portion of the equipment population needs to be replaced. As equipment replacements increase, availability of used equipment will rise. It is only when new equipment orders are sustained at a higher level for an extended period of time that the availability of used equipment normalizes. In my view, we had three years of retired rental sell offs and we have only had two years of expansion of rental fleets. Rental retirements as a source of used equipment will likely normalize in 2015. Likewise, fleet replacements and therefore trade-ins and off-lease sources will recover as equipment owners must replace their equipment. I expect the fleet retirements to increase in 2014 and to normalize in 2015 and thereafter. It is my belief that the used market will be tight for another two years, bottoming out in 2014. Mark Milovich President Lift Atlanta Decatur, GA A I think the scarcity of used equipment will remain as long as the economy continues to grow at a snail’s pace. With the full implementation of the Healthcare Act coming next year, and the uncertainty that goes along with it, I think the demand for used equipment will continue to exceed the supply. The benefit of this should be an ability to sell used equipment at a higher retail price. I think we have seen the bottom, and I also think it will take several years to return to more normal levels. Many dealerships, such as mine, filled used truck demands by selling off rental trucks that were sitting idle. Most, if not all, of those are gone. Dealerships will have to rebuild their rental fleets and depreciate these assets down to a retirement date before making them available to the used market. Likewise, customer demand for new equipment will have to increase, and with this, the opportunity for trade-ins should increase as well. Many customers are looking for the elusive 5,000-pound capacity truck for $5,000. Although there may be some out there, they are not of a high quality, and it becomes buyerbeware! Best of luck! The MHEDA Journal | Third Quar ter 2 013 15

Table of Contents for the Digital Edition of The MHEDA Journal - Third Quarter, 2013

President’s Perspective
From the Desk of Liz Richards
Ask Your Board
MHEDA Member Profile
At Work
Happy Anniversary!
Implementing a Successful Internship Program
The Value of Being a MHEDA Member
Convention 2013 Recap
Exploring the Equity to Sales Ratio in the Equipment Industry
Professional Skills for Material Handling Distributor Sales Managers
Recruiting Young Talent
Increase Your Engagement & Balance Your Life
Emerging Leaders Conference
New Members
Spotlight on Association News
MHEDA University Calendar
MHEDA Milestones
New Products
Index of Advertisers by Product Category

The MHEDA Journal - Third Quarter, 2013