Equipment Manufacturers Struggle As More Companies Choose To Rent

Manufacturers of large industrial and agricultural equipment are under assault on a number of economic fronts, analysts told The Wall Street Journal this week.

The paper reported that low prices for a wide variety of commodities crimped the bottom lines of companies in those sectors — and prompted them to rent or lease new machines rather than buy them outright.

That trend fueled lower inventory levels at equipment dealerships and hurt sales at large manufacturers such as Caterpillar — the world's leading construction and mining equipment producer — and agricultural equipment giant John Deere.

In addition, the increasing amount of rented or leased machines created an excess supply of used equipment on the second-hand market — at the same time that a strong dollar impacted purchases of used U.S. equipment by companies in developing nations.

The Journal reported that auction sales of excavators and wheel-loaders were up sharply between the first six months of 2015 and 2016, while Caterpillar indicated that prices for used machinery were off 10 percent since this point last year.

The market, meanwhile, appears unlikely to bust out of the slump anytime soon. Equipment surpluses can last for decades, the paper noted, and forecasts anticipate that the already-high level of rentals will climb as a percentage of overall new equipment sales over the next several years.

"It’s as bad as it’s been in my 30 years," Bill Yurkovic of Caterpillar dealer Cleveland Brothers Equipment told the Journal.