Used Equipment Value and New Equipment Sales in Q2, 2023: An Equipment Appraiser View
By Dian Kohoutek, CPPA
August 18, 2023
From the viewpoint of an equipment appraiser, there has been a notable price increase over the past two years. Used equipment has encountered both fluctuating prices and a shortage of well-maintained machinery since the start of this year. However, the demand for used equipment has been somewhat subdued by the high interest rates.
Simultaneously, the cost of new equipment has seen a substantial rise since 2021, primarily due to disruptions in the supply chain and escalating material expenses. The ongoing surge in interest rates, with no immediate signs of decline, has further cast a shadow over the economic horizon.
Amidst this intricate landscape, a surprising uptick in the demand for new equipment is emerging. The following plausible explanations account for this trend.
Economic Recovery and Infrastructure Resilience
A driver behind the demand for new construction equipment is the pursuit of economic recovery. Governments and private sectors often champion large-scale infrastructure projects during economic downturns to invigorate growth and generate employment. These projects necessitate specialized machinery that adheres to contemporary standards of efficiency, safety, and environmental responsibility. Consequently, the demand for new equipment escalates to fulfill these project-specific requisites.
Technological Progress and Regulatory Alignment
The rapid technological advancements underscore the allure of new equipment. Modern machinery is equipped with cutting-edge features that optimize efficiency, enhance safety, and ensure compliance with evolving industry regulations. As standards become more stringent, the appeal of new equipment heightens. This technological prowess acts as a catalyst, steering companies towards newer machinery even in the face of economic uncertainty.
Financial Incentives and Confidence Boosts
Against a backdrop of economic ambiguity, manufacturers and dealers offer enticing financial incentives to catalyze new equipment sales.
These incentives, including flexible financing options and deferred payment plans, exert a persuasive pull-on business. The allure of potential tax benefits further sweetens the deal, often tilting the scales in favor of investing in new equipment despite concerns of an impending recession.
Resale Value: Looking Ahead
A forward-looking perspective on resale value significantly influences decision-making. Businesses might perceive new equipment as retaining its value better than older counterparts, particularly during economic downturns. This anticipation of better returns on investment serves as a motivating factor, steering companies towards the acquisition of new machinery.
The Backlog Factor: A Catalyst for Q2 Sales Increase
The surge in Q2 sales reported by major players in Canada, despite economic uncertainty, can also be attributed in part to backlogs accumulated over the past year. The disruptions caused by the pandemic and supply chain challenges might have delayed equipment deliveries, creating a pent-up demand. As the situation improves and supply chains stabilize, businesses are fulfilling these delayed orders, leading to the observed spike in Q2 sales figures.
The paradox of heightened demand for new construction equipment during economic uncertainty is a result of multifaceted factors. Economic recovery initiatives, technological leaps, financial incentives, foresight on resale value, and the influence of backlogs intertwine to drive this trend. As Canada’s major players report significant Q2 sales increases, the backlog factor emerges as a catalyst. Understanding this intricate interplay provides valuable insights into the industry’s resilience and adaptability during tumultuous times.
For now, the market appears to have no alternative but to adjust to these increasing prices and the consistently high interest rates.
Sourced:
Market News: Used Construction Equipment Outlook for April 2023
Business Outlook Survey—Second Quarter of 2023
John Deere Announces 30% Sales Increase in Q2
Finning reports Q2 2023 results
Wajax Announces 2023 Second Quarter Results