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How's your 2016 looking?
Garry Bartecki
Garry Bartecki

Good question. We should take a poll and find out what your equipment sales personnel are hearing for 2016. Are customers buying, selling, renting or all of the above. And if all of the has the mix changed over the last couple of years.

As you know I read quite a few economic and industry newsletters, reports, etc. It is amazing how the opinions differ for 2016 and beyond, but I have to say that the positive opinions are not expecting much because of the strong dollar and slowing economies around the world.

One report of note is the fourth quarter Wells Fargo Construction Quarterly report that says that fleet sizes of large general rental companies increased 55% since 2010. That percentage for the period June 14 to June 15 is 12.6%, and for OEM and dealer rental operations it is 17.9%. The reasons for this phenomenon appears to be unpredictable work backlogs and projected business activity levels.  Other reasons point to weak balance sheets due to the economic downturn and banking requirements. But no matter how you look at it those percentages are significant to the point where some serious C-Level discussion is in order to see if your organization is in sync with the market.

My personal opinion is that customers are getting better educated about the costs to own and operate equipment. National and public rental companies really educate investors and in addition any party that wants to review their quarterly financial results. Add in the data available from telematics and all of a sudden equipment owners have a whole new perspective when it comes to replacing or buying new equipment. When you start hearing that national rental companies are keeping units in a rental fleet three years longer to improve ROI you start putting two and two together and ask yourself why are you turning over your lift trucks after five years if your "data" indicates that you could keep them (debt free) for another two or three operating cycles.

I also participate in the Duke University, CFO magazine Global Business Outlook. More than 1,000 financial executives from around the world responded for the 4th quarter survey. I have always liked this report because it covers a broad spectrum of industries and markets. Some highlights from the report follow:

·         Two-thirds of US firms expect to increase employment in 2016....2% average growth....which includes wholesale and retail but a 1% decrease for manufacturing.

·         US firms expect wage increase of 2.9% in 2016.

·         Finding qualified employees - one of top three concerns.

·         Sparce spending on cap-x expected to continue

·         60% say regulations and economic conditions hurting productivity.

·         80% say technology and automation improve productivity.

·         On scale of 1-100, execs rate the outlook at 60, down from 65 in last survey. Biz spending to remain soft but hiring steady.

·         Big issues....economic uncertainly, difficulty finding employees, regulatory requirements and benefit costs.

As I noted above...nothing to write home about regarding 2016...and increased market share will be what you take from someone else.    

I have to think that lift truck dealers and their customers kind of fall into place as noted in the Wells Fargo report and the Duke report kind of supports my thinking. Consequently, I would have to say that the market for lift trucks in 2016 will be somewhat flat, which on the other hand should supply more product support activities as fleets age in both your rental fleets and customer fleets. I don't have to say it but now is the time to review John Walker's material and beef up the parts and service business.

By this time I am sure you are aware of the Tax Extender bills passed by Congress in December, 2015. Customers who purchased either new or used units in 2015 have the ability to apply both Bonus Depreciation (new equipment only) or Sec 179  (new or used equipment) depending on their tax situation. These two tax benefits will be available for some time and your sales personnel should be well versed in both. They can get a little complex but there are "Tax Benefit Calculators" available on the internet that calculate the tax savings from using either Bonus or 179.

I am telling sales folks I work with that 2016 is going to a year where they will earn their keep. And I believe it.  

Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail to contact Garry.