COVID-19 has had a major impact on every area of the economy, the used industrial equipment sector included. There was a major slow-down in new purchases as construction companies delayed projects or put them on hold.
Now, most states are beginning to reopen their economies after months of shutdown. The reopening may present opportunities for businesses of all kinds, including industrial machinery vendors. However, things won’t likely return to normal right away. Fears of a second COVID-19 wave may prompt states to reverse course — further disrupting construction and the industrial equipment industry.
Below, we’ll cover what used equipment vendors and buyers should expect as states reopen their economies, as well as the market outlook for the months and years post-COVID.
How the Reopening Economy May Change Equipment Spending
In many states, the construction industry was considered essential despite the pandemic. As a result, many projects continued through the shutdown.
Still, the COVID recession has meant a great deal of uncertainty. While some projects were able to continue, many others were postponed or canceled. Local officials aren’t giving the go-ahead to all projects.
There are some indicators that reopening is reversing this trend. The number of new projects breaking ground is beginning to increase, and other indicators of industry health suggest that the construction sector may be moving towards normal productivity. However, the total number of projects remains lower than usual. For many companies, this downturn has meant less demand for new projects and a restricted cash flow.
As a result, demand for industrial equipment is down. In May, Deere reported a 25 percent sales slump. The company also reduced its 2020 sales forecasts by 30 to 40 percent.
Other manufacturers reported similar struggles. According to one survey, one in three manufacturers plans to reduce their financial outlook by up to 30 percent over the next 30 days. One in eight manufacturers plans a similar reduction for the rest of the year. The consensus among industry figures is that equipment demand will likely stay lower than usual for the foreseeable future. As productivity increases, however, the need for construction equipment is likely to trend upwards.
As demand returns to normal and construction projects resume, construction companies will likely have limited cash on hand. Businesses that need heavy equipment to handle the return to normal production levels may need to do more with less. Used equipment is often a more affordable alternative to new equipment, and may be the best available option. Vendors of used industrial machinery may be able to take advantage of these market conditions.
Long-Term Outlook for the Used Equipment Industry
Some states, in response to rising case numbers, are pausing or reversing their reopening efforts. At this moment, another shutdown seems inevitable in some areas. Some governors have already implemented stricter health policies — like mandatory mask-wearing or increased restrictions on businesses.
Even in those states, however, officials have not paused construction yet. Many in-progress projects may continue without issue due to essential work status. Still, the construction industry will likely be impacted by the knock-on economic effects of another shutdown — even if the industry doesn’t need to adjust policies or practices.
In any case, it’s likely that the used equipment industry won’t have anything resembling a full recovery until after the pandemic is over. The disease will likely require a vaccine, which experts believe will be available towards the end of the year at the earliest. Vendors should prepare for demand to stay lower than normal and unpredictable until then.
Once the pandemic is over, the economy may recover fairly quickly. While most economists have ruled out an extremely fast, V-shaped recovery, many experts remain optimistic that the post-COVID economy will return to normal levels of demand and productivity swiftly.
The Future of the Used Equipment Market
COVID’s impact on the equipment market has been severe. Most manufacturers of new equipment are reporting significant decreases in demand. While the number of new construction projects is increasing, the industry hasn’t returned to anywhere near normal productivity.
Until the pandemic is over, demand likely won’t return to normal. Still, the reopening of the economy could improve the situation. Businesses that need equipment for new projects, however, may not have the cash on hand for new equipment. The used equipment market could provide a valuable alternative for these companies.