Television viewers in the USA will not have missed the ever present adverts for house auctions, or for ‘get rich quick’ schemes offering a surefire way to make a buck from your neighbours’ repossessed homes.
As much as a proof that there’ll always be buyers for snake oil, this is a clear sign of the hard times in the housing market, and for residential construction. Many of these homes were sold on cheap credit offered to unsuitable borrowers, known as sub-prime mortgages.
“There were a lot of lenders out there who qualified buyers to buy more home than they could afford on variable-rate interest loans,” says Randy Robertson, sales director of boom truck manufacturer Manitex. Boom trucks are commonly used on new housing projects to set structural steel and lift and set roof trusses and wall panels.
“Areas like the south east, Arizona, Nevada, the upper midwest, where they couldn’t build homes fast enough, now they are sitting on tons of inventory. Houses have been way overbuilt in different parts of the country,” Robertson says. “Now’s not the time to go out and pour a bunch of concrete. Work smart, and manage your business closely.”
Many people say that the residential construction uncertainty has spread to commercial construction.
“The negative effect on the crane industry of the downturn in residential construction is seeping slowly into the commercial side,” says Steve Freckmann, general manager of Wisconsin-based Dawes Rigging and Crane Rental, which also sells boom trucks and other equipment.
The situation is the same on the USA’s east coast, according to Ray Anthony, owner of Century Steel and Florida’s Ray Anthony International Crane Rental. “Commercial and housing have slowed down very much,” he says. “Some jobs that were started have been stopped; some jobs that were in the planning stage have been put on hold, mostly condominiums and rental high-rises.”
Although Robertson at Manitex says that he has not seen a commercial construction slowdown, he admits that it is probably coming, at least in part. “A lot of commercial construction is retail parks linked to residential: chain restaurants and stores. I haven’t heard of any delay in projects, but we have to expect that has happened a little bit,” he says. “If they keep talking doom and gloom, it will definitely affect commercial construction.”
Small boom trucks are some of the cranes most affected by the slowdown. “The customers for those cranes, such as roofers, framers and other more housing-oriented construction contractors, are suffering from the subprime situation,” says Freckmann at Dawes. The company is a subsidiary of All Erection & Crane Rental. “As a crane retailer, All Erection has seen a decrease in inquiries for both used and new 40-ton (36t) and lower capacity cranes and boom trucks.”
Boom truck manufacturer National is also feeling the pinch, says David Pengelly, Manitowoc Crane Credit director of global trade finance. National is owned by Manitowoc. “I can tell you that the sale of Nationals is down, but only to the extent that they are tied to small commercial and residential construction,” he says.
Ray Anthony argues that rental rates for small hydraulic truck cranes and boom trucks are affected (but not bigger cranes), and that as a result his rental rates are dropping. But not everyone agrees. Robertson at Manitex admits that utilisation of its C-series is down, but says that rental rates are holding their own.
Freckmann argues that he cannot cut rental rates much, because of pressure from the supply side. “We as a company and an industry have had to absorb enormous cost increases resulting from rising steel prices and soaring petroleum (fuel) prices. We’re dealing with the weakness of the US dollar in overseas markets, where many cranes are manufactured. Crane manufacturers have been increasing their prices in the last few years, anywhere from 3%-10% per year, and charging even higher percentage increases on crane parts.”
On the positive side, the slowdown has meant that for the first time in a few years, customers can buy a small boom truck and receive it very quickly. Freckmann says that supply is starting to outpace demand for small equipment.
The situation has filtered back through the dealer channel to manufacturers. “For the first time in two or three years I can deliver a unit or two from stock,” says Manitex’s Randy Robertson. “The [delivery] lead times have gone from 10 months, in mid-2007, to 90 days now.”
Impact on towers
The sub-prime mortgage collapse will delay the introduction of self-erecting tower cranes in the USA, argues Matthias Donn, executive vice president of German tower crane manufacturer Liebherr Biberach, in an interview at ConExpo. “The market was starting to be willing to use self-erectors instead of boom trucks. Now it will take more time to convince construction companies.” He says the company will begin a new marketing approach of roadshows and seminars to promote the small tower cranes, which are popular in Europe, to a customer base that is largely unfamiliar with the technology.
The situation has actually helped the business of Linden-Comansa, according to North America sales manager K. Matt Dobbs, who said that fewer people buying houses meant greater demand for rental condominium properties, which tend to be built by Comansa’s larger top-slewing tower cranes.
Robertson at Manitex is hopeful that the situation will stabilise in late 2008, and turn around in mid-2009. Freckmann at Dawes seems less positive. “The outlook is more of the same for the residential construction market, with commercial vulnerable for a while. We understand that construction is cyclical. Right now, demand is high for the larger equipment, but eventually, there will be a glut of large equipment on the market as well. Supply and demand will equalise, or supply could exceed demand.”
All the companies interviewed said that they were dealing with the slowdown by building up other US crane markets that continue to need cranes. “We are moving more to the industrial and bridge and road work, and some large commercial work is still going on,” Ray Anthony says. Freckmann says Dawes is concentrating on infrastructure and energy, particularly wind power, coal-fired power plants and ethanol/biodiesel construction. Robertson says that Manitex is turning partly to mining, particularly copper. He adds that a couple of models are used power transmission. He forecasts strong outlook for the next several years in new transmission infrastructure construction.
Some large crane projects are created not by the ebb and flow of the private construction market, but by government contracts. In January 2008, the US Association of Equipment Manufacturers (AEM) praised a report that suggests that the US needs to invest a minimum of $225bn over the next 50 years to repair the USA’s highway, transit and passenger rail systems.
“A vital infrastructure is an integral part of our daily lives at work and leisure. It is clear that we have enormous infrastructure repair and maintenance needs,” said AEM 2008 chairman Glen Tellock, chief executive officer of crane manufacturer Manitowoc.
Fellow US construction equipment and crane manufacturer Terex Corp recently supported a conference on US infrastructure projects. In a statement supporting the conference, Terex chairman Ronald DeFeo said, “Around the world, infrastructure building is booming, while many feel that the lack of spending on America’s aging infrastructure is affecting our ability to compete in the global marketplace.”
Everyone in the crane industry-renters, dealers and manufacturers-would benefit if the government decided to allocate more money to roadbuilding. “Hopefully, after the 2008 elections, the new administration will focus and redirect much-needed tax revenues toward our crumbling infrastructure, and that would be a boon to the crane industry,” says Freckmann at Dawes.
A crunch for crane credit?
It remains unclear whether buyers will find it more difficult to find financing for new cranes because of the credit crunch in homebuying.
Randy Robertson at Manitex was the most positive. “A lot of finance companies are not offering mortgages, and are now looking elsewhere. Depending on what you are doing, credit is available.”
Steve Freckmann at Dawes is less positive. “Some jobs are being cancelled due to more stringent requirements on financing,” he says. We know that banks are tightening up on potential equipment buyers by introducing more stringent requirements for credit. Buyers now have to meet more rigorous standards than ever before. This is seemingly a reaction to the subprime mortgage crisis.”
David Pengelly at Manitowoc admits that crane credit might become slightly more difficult in the future. But he says he has not seen any evidence of that happening in the USA. Cranes, particularly large ones, cost a lot, so buyers are typically sophisticated and well-financed: the sort of customer banks want to keep. Secondly, cranes’ high resale value makes them a sound investment, and good collateral if the buyer defaults on the loan.
