Heavy Equipment Rental Trends

Construction Equipment & Rental

Industry Insight

Date August 2020

Projected Values - Construction Equipment & Rentals


Current Trends

  • Although down by 0.7% over May, total U.S. construction spending for June 2020 increased just slightly at 0.1% over 2019.
  • Based on the Monthly Confidence Index for the Equipment Finance industry, confidence in the equipment finance market was 45.3, or relatively flat in July versus June; however, it was up significantly when compared to the historic low of 22.3 hit in April. The increase was driven by an improving equipment market, as economies have reopened.
  • As pandemic pressures ease, recent auction data suggests a slow uptick in auction sale prices for standard yellow iron and construction machinery.

By the numbers


COVID-19 Impacts the Construction Industry: In mid-March, as states across the country initiated stay-at-home mandates, many companies halted ongoing or soon-to-start construction projects to mitigate the spread of coronavirus among workers and others. As of early June, most states had restarted construction in progress prior to the pandemic, or broken ground on new projects with few restrictions. Some states still have tighter restrictions in place in certain counties, but this is not widespread across the U.S. As a general trend, although total construction spending had declined by 6.0 percent through June as compared to February on a seasonally adjusted annual rate, construction spending has been more resilient than most other types of commercial activity throughout the pandemic. Construction activities related to public spending have increased over the pandemic period by 0.3 percent since February and, compared to the prior-year period, were up 6.2 percent in June. Private construction spending has been the hardest hit by the pandemic and, as of June, was 8.0 percent below February spending levels and 1.9 percent below June 2019 levels. Although public spending was strong through May and June, public construction spending declined by 0.7 percent driven primarily by large cuts in education-related projects as well as highway and street construction.

Efforts to continue projects that were slowed or stalled as a result of the pandemic have been largely dependent on the stage of the construction process at the time of the shutdown, according to Gordon Brothers’ discussions with local construction and engineering firms. For projects that had broken ground and were actively being built, there have been some delays; however, these projects have mostly commenced unhindered since mid-June unless they experienced county-level restrictions or issues related to building material delivery. New projects are still being planned, bid out and started; however, new job activity has slowed and will most likely continue to be soft for the coming months.

In terms of equipment value trends, prior to the COVID-19 pandemic, projections for 2020 were strong for construction machinery sales and general market activity after multiple impressive auction results in 2019. Short-term expectations changed drastically post COVID-19. After the initial shock to the economy and associated equipment markets, secondary-market equipment demand and sales have begun to show signs of recovery and stabilization. Recent auction data suggests a slow uptick in auction sale prices for standard yellow iron and construction machinery. The available supply of equipment should, in many cases, allow buyers previously in the market for new assets the opportunity to opt for used equipment as a cost-saving measure.

However, there has been a growing trend of firms controlling operating expenses by renting or leasing major assets, as opposed to buying new machinery outright. This trend is expected to continue, but likely at a much lower rate than pre-COVID-19. So far in the COVID-19-impacted period, both rental revenues and sales have been negatively impacted. United Rentals, the largest rental company operator in North America, reported a decline in total revenues for the quarter ended June 30 of 16.2 percent versus the comparable prior-year period. Sales of new and used equipment at United Rentals were off 10.7 and 11.7 percent, respectively, indicating that the decline in demand for rental units exceeded sales declines by a measurable margin. Sales results for major equipment manufacturer Deere & Co. also saw major declines indicating softness in the marketplace. For May, Deere reported decreases of 10 percent to 15 percent and 30 to 40 percent in global net sales for its agricultural and construction/forestry divisions, respectively. More broadly, industry economists had been predicting a roughly 20 percent reduction in new equipment sales for 2020 compared to 2018-2019 levels. With the impact of COVID-19 factored in, it seems certain that, despite a strong first quarter, sales will decline in 2020. However, the strength of the second-half recovery - if the COVID-19-related economic impacts begin to diminish - will likely determine the final level. As of mid-August, several states including California, Texas, Arizona and Florida are showing increasing levels of coronavirus infection rates. To the extent that this trend continues or broadens to additional states, the risk of another shutdown could increase, potentially bringing with it another setback for the industry.

Growth Forecast for Rental Equipment: Reopening the economy is contributing to a recovery for the construction industry. The Equipment Leasing & Finance Foundation recently released its July 2020 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI). The Index is based on a survey of 25 members from the $900 billion equipment finance sector, including Bank of America Corp., BB&T Corp., CIT Group Inc. and the financing affiliates or units of Caterpillar Inc., Deere & Co, Volvo AB and others. The index provides qualitative assessments by key executives of both prevailing and expected future business conditions. Overall, confidence in the equipment finance market was relatively flat at 45.3 for July, down just slightly from the June rate of 45.8. However, these figures show significant improvement since the May reading of 25.8, which was preceded by a historic low of 22.3 for April. The Index measures the volume of commercial equipment financed in the U.S. A reading above 50 indicates a positive outlook. Though the index is not yet back to prior-year levels, the recent upturn bodes well for the industry. As a reference, for the month of July 2019, the index was at 57.9.

Additionally, the Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross section of the equipment finance sector, showed that overall new business volume for June 2020 was $8.9 billion, representing a decrease of 10 percent from the new business volume in 2019. On a month-to-month basis, volume was up 33 percent from $6.7 billion in May. Year-to-date, the Index showed cumulative new business volume down 0.5 percent as compared to 2019.

Using rental equipment for construction projects provides many advantages to builders. Purchasing construction equipment often requires significant down payments, diverting large portions of capital from operating expenses. Additional expenses include insurance, taxes, licensing, interest on loans and storage costs. Equipment owners are also responsible for transportation from job site to job site, whereas rental companies can deliver equipment to new work sites quickly and efficiently using computerized maintenance programs and GPS systems to keep tabs on location, status and service needs. Rental companies also upgrade their inventories on a regular basis, offering access to the newest and most advanced equipment. This makes it easier for rental customers to comply with changing EPA emissions standards, including Tier 4, which is the strictest requirement for off-highway diesel engines. In addition, if something goes wrong, rental companies have the tools and expertise to correct issues, with mechanics able to be dispatched promptly to fix malfunctioning equipment on site or to provide replacements. Renting equipment can also enable younger construction companies to better compete for larger contracts.

Anticipated Public Roadway Projects to Drive Future Growth: Heavy equipment serves functions including earthmoving, finishing and material handling, and material transport. Global heavy construction equipment industry growth is directly connected to worldwide infrastructure development and related activities, as well as to worldwide mining operations of natural resources. Large global construction projects have helped bolster growth for construction equipment sales and for the rental market, as economies have continued to reopen.

In a bid to spark grassroots momentum, in February, the American Road and Transportation Builders Association (ARTBA) began a campaign “to increase pressure on Congress and the Trump administration to act in 2020 on a permanent Highway Trust Fund revenue solution and a robust, long-term transportation infrastructure investment package.” Backed by the Transportation Construction Coalition, the ARTBA campaign is looking to achieve a multiyear transportation bill that improves infrastructure and increases construction jobs.

Many industry insiders are looking forward to the full reopening of the nation and the positive sentiment generated by returning to normal course functions. In early April, ARTBA released its seventh annual National Bridge Report from an analysis of the U.S. Transportation Department database. In the report, ARTBA notes that 37 percent of bridges in the U.S., representing nearly 231,000 spans, need repair work. Furthermore, the association rated more than 46,000 bridges as being in “poor condition” and classified them as “structurally deficient,” adding that 81,000 bridges should be replaced. ARTBA officials feel strongly that strategic road and bridge improvements that support direct job creation and retention will aid economic recovery as the nation reopens.

Additionally, growth for the industry is partially dependent upon passage of the “Moving Forward Act,” which is a $1.5 trillion infrastructure and stimulus bill. After House passage on July 1, 2020, the bill moved to the Senate where it faces an uncertain future. The Executive Office of the President’s Office of Management and Budget issued a Statement of Administration Policy on June 29, 2020, asserting that the Trump Administration opposes passage of the bill because it “is heavily biased against rural America,” “appears to be entirely debt-financed,” and “fails to tackle the issue of unnecessary permitting delays, which are one of the most significant impediments to improving our infrastructure.” If passed, it would likely have a positive impact on public construction spending related to roads and bridges, schools, housing, and other public transportation projects.