In preparation for the upcoming World of Concrete, RER interviewed several manufacturers of concrete-related equipment. In this exclusive interview with RER’s Michael Roth, Dennis Von Ruden, president of Owatonna, Minn.-based General Equipment, talks about the struggles of concrete contractors, the growth of specialization, the value of the World of Concrete for rental companies, and the keys to equipment replacement.
RER: What kinds of changes, developments and trends have you seen in the past year in concrete equipment and what do you expect to see in the coming year?
Von Ruden: There is uniform agreement that the recession has not been favorable to those directly involved with anything related to concrete in North America. While there might be some bright spots with specific road construction projects, generally speaking the market continues to fall victim from a general lack of direction from Washington, especially in the areas of residential and commercial construction. This has forced huge numbers of small, concrete-related contractors to simply vanish and the corresponding demand for light equipment to become significantly reduced.
If there is any silver lining, it will be in the area of specialization…for both equipment manufacturers and contractors, alike. We believe manufacturers will focus on developing new and innovative solutions to age-old problems. The goal is to allow a contractor to become more productive and efficient as the downward pressure on profit margins becomes even more strained. The key word will be innovation. Old solutions or methods to solving problems no longer offer the same profit margins as when the economy was in a growth mode. The ultimate goal for all members of economic chain is to first maintain…maintain your assets and keep your key employees productive and on the payroll. Then, be in a position for growth when the economy does rebound.
Talk about the World of Concrete and what it means for concrete manufacturers. A lot of our readers in the rental market have never attended that show, what are some of your thoughts about it?
Like every tradeshow, WOC is going through changes in response to the economy. Not only is general attendance down significantly, but the types of attendee have changed. In the growth years, WOC fielded a wide variety of small (in many instances…father and son(s)) contractors from the Southern California, Arizona and Nevada areas. We would even meet with a number of Mexican contractors that ventured across the border to attend the show searching for equipment solutions. That has all changed. The small, U.S.-based contractor segment is almost nonexistent as we once knew it! Last year, we only met with a few, larger, Mexican-based contractors. The complexion of the show has changed.
So, what does WOC offer the equipment rental dealer in terms of opportunities? We believe there are many opportunities for the equipment rental dealer to actually learn from the many concrete-related processes that are on display at WOC. Some might apply. Many will not. One good example is concrete polishing. Yes, there are the large concrete polishing contractors that walk the show floor. But, those same providers typically do not get involved with the smaller-scale, polishing projects that the equipment rental dealer is confronted with. Small contractors and homeowners are intrigued with the concrete-polishing process for basement, garage and even foyer areas, but the option of hiring a large contractor is not a feasible alternative from cost and even electrical power perspectives. WOC presents an opportunity for the equipment rental dealer to learn about new and innovative construction processes — things not found at The Rental Show. It should challenge the dealer to determine if a market does exist for a specific process within its geographical territory. The dealer should ask what is the most cost-effective solution to provide its customer base?
The vast majority of rental dealers will probably not make the decision to purchase $75,000 worth of concrete-polishing equipment as a direct result of attending WOC. But, they might elect to explore feasible solutions that utilize their existing fleet. Good example: polishing attachment kits have been developed to work with the standard single- and dual-head surface grinders found at almost every rental dealer. This solution is not as productive as utilized by professional contractors, but can be a perfect solution for the small contractor or homeowner.
The value of attending WOC or any target-specific tradeshow is to best determine how the rental business envelope can be expanded to increase existing equipment utilization rates. You cannot do that sitting behind a desk. There comes a point when you need to get out and see what the rest of the world is doing.
New advances in technology are of course affecting all kinds of equipment. What kind of technological advances do you see in the equipment you manufacture and concrete equipment in general?
We see a general direction of equipment design with more emphasis placed upon ergonomics and productivity. Unlike the automotive industry, construction equipment is pretty much a static thing. The challenge for manufacturers will be to make their product lines more dynamic…giving the customer more incentive to retire that old machine to the scrap yard and purchase new equipment. If manufacturers fail to take note and accomplish this task, then what is the incentive or motivation for the rental dealer to invest in something new? More band-aids and bailing wire? That works for only so long. It becomes a convenient excuse not to purchase new equipment. As humans, we use this same excuse when making a wide variety of purchasing decisions.
Customer expectations are also increasing and driving these same advancements. Driving our 1955 Dodge pickup truck is a unique experience, but I’ll take my 2011 Ford F150 for any length of drive. I appreciate the advancements in performance, safety and comfort. Our customers expect the same for even something simple as construction equipment.
Has 2011 been a strong year for you? What are your expectations for 2012?
2011 was an excellent year in comparison to 2009, but there is still room for growth to match prerecession levels. Like most proactive manufacturers, the economic conditions were an incentive to expand export programs. One-third of our 2011 sales volume was export related and our goal is to substantially increase that percentage as the North American market continues to search for direction and positive, sustainable growth. We see 2012 domestic market growth to be less than 5 percent. We do not see any real sustainable growth occurring until 2014.
As rental companies replenish their fleets and experience greater demand, are you seeing changes in the kinds of equipment they are looking for? Are they facing changing market needs?
The answer to that question depends upon where the growth comes from and what is fueling it! While real estate sales continue to climb at a very slow rate, property values continue to decline. Where is the balance needed for positive, economic growth? We see the independent equipment dealer facing some serious decisions regarding fleet. Fleets have aged. Maintenance costs are becoming substantial cost factors. The prudent dealer is looking at past demand history to better prioritize new equipment purchases. The real trick for any business is to know what its customers will want going into the future. The kiss of death for any manufacturer is to walk out into a plant full of old, worn-out and obsolete equipment — equipment that will no longer deliver competitive prices. That usually spells eventual ruin. The same thing can be said for an equipment rental dealer. Fleet replacement is a function of utilization rates. The trick is constant evaluation and prioritization.
Are concrete manufacturers facing any significant supply issues — raw materials, components, etc.?
2011 saw a significant increase in raw material costs, especially alloy steel. The majority of manufacturers have only begun to pass these increases along. We anticipate this trend to escalate as the U.S. dollar continues to fall in value. Lead times for specific components such as engines and some hydraulic components are critical factors in product forecasting strategies. We are experiencing up to a six-month lead times for these components. Manufacturers are no longer stockpiling huge inventories just waiting for some future demand. Even in this era of slow economic activity and demand, expect the norm will be longer lead times…along with higher prices.
What are the primary concerns you as a manufacturer are facing in going into 2012?
- Lack of direction and leadership from Washington is creating a culture of indecisiveness in our society. People are scared to act because of uncertainty. This fuels the classic definition of a recession: people afraid to spend money.
- Raw material and critical component price increases even with reduced demand.
- The snowball effect of the European debt crisis and its ultimate effect upon this market…much less the total worldwide demand for construction products in the emerging markets.
- The continuous pressure presented by China on raw materials and critical component costs. We have allowed the United States to become a country of people waiting for the Chinese to do something …rather than restoring our role as the dominant world manufacturing giant it once was.