Heavy Equipment Sticker Shock? What Can Contractors Do?

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By Dennis Howard | Originally posted on forconstructionpros.com

This column offers advice about adjusting to higher sticker prices on most types of equipment.

Whether you’re browsing construction equipment on the lot or food in your local grocery store, there’s a good chance you’ve done a double-take at prices within the last year. Unfortunately, construction equipment has not been immune to the heavy toll of inflation. Overall, equipment prices are up as much as 30% when compared to 2020 according to Associated Builders and Contractors.

With prices across the U.S. increasing, the risk of sticker shock is running rampant. Industry veterans like me have experienced price increases but nothing like this. We are accustomed to the ups and downs of the market, and in times like this, we need to lean on tried-and-true tactics to pad against the sting of higher prices.

Before we go on the defensive against rising prices, keep in mind that there’s a silver lining in all of this. According to the Association of General Contractors, construction demand continues to be strong in infrastructure and power projects. Other private sector construction is rising with more new homes and large commercial buildings like hospitals and data centers being built.

However, more demand and increasing equipment and input costs can still make for a balance sheet full of snarls. Contractors and equipment professionals must remove their rose-colored glasses and return to basic practices to protect profit and keep their business in the black. One of your biggest allies with things getting tricky is always going to be your equipment dealer. This installment of “Dennis in the Dirt” examines a few ways you and they can partner to navigate this season’s higher prices.

Extend Existing Equipment’s Lifespan

It’s simple: a regular service schedule protects investments. Fleet managers need to understand each machine’s average number of production hours daily. This is the simplest reflection of wear and tear on a machine. To make it easy, many managers connect machines to fleet management software (FMS) to sync their fleet’s usage reports, which can include idle time and fuel usage, and better understand the work’s exertion on a particular machine. Understanding your machine’s production hour limit and monitoring its efficiency daily is a must.

When fleet managers see their team’s work in real-time, they can share that information with their trusted service partner to optimize preventive maintenance plans. With preplanned appointments, fleet managers ensure that each machine working on a jobsite is in the best possible condition.

Efficiency is key to equipment longevity, so fleet managers are wise to reduce the likelihood of excessive wear and tear with machine control technology. Machine control can help boost productivity and efficiency even for less experienced operators, meaning it’s not just your veteran employees who can help you get the most out of your fleet. Through automated machine control technology, fleet managers safeguard the machine and the operator from unnecessary work.

Consider Purchasing Alternatives

With prices up, you’ll realize that if you traditionally prefer that shiny, new model straight off the lot, you may need to be open to considering different acquisition options from your dealer. Because suddenly, a machine once priced at $100,000 might now be priced at $130,000 or more. You’ll need to ask yourself if you’re willing to buy the machine at that price or if you have a hard line that you and your accountant will not cross. If it’s the latter, your equipment partner can help you understand other acquisition strategies to consider.

An easy first option is to investigate used equipment in your market. To prepare for that, determine your threshold of machine production hours for a used piece of equipment. The number of acceptable hours for used machinery is subjective based on personal preference, machine type, machine history and more. For example, excavators that have been on an optimized maintenance schedule can last up to 10,000 hours, meaning you can probably still get a great amount of production out of a used one that’s been taken care of. Take into account these factors and the work you’ll need to accomplish in the next six months as you explore used equipment options.

Talk to your dealer about your fleet’s budget. When you can’t budge on the machine type, and you know you prefer the newest model, that partner may be able to offer rental purchase options that allow you to ease into an equipment investment with few strings attached before you know it’s the right fit.

Fill Gaps in Your Fleet with Rental Equipment

Speaking of rental, most equipment inventories have returned to prepandemic health, so machines with low production hours are readily available in most rental fleets. At times, renting equipment is the right decision. If you find yourself needing a machine for just a few months or a specialized machine for a one-off job, you may want to fill the gap by renting from a familiar equipment expert.

Most of a dealer’s rental equipment fleet will also be under warranty, which is beneficial to you because you can rest assured that, should that machine stop working, your rental team will be able to source a backup from the manufacturer.

In addition to the peace of mind that a rental machine under warranty provides, some dealers connect their rental fleet to an FMS where they have a connected support team to monitor and dispatch a field technician if a machine requires parts or services. With this rental partnership, as well as the right machine for the job, a fleet manager acquires the service expertise to keep that machine operating with as little downtime as possible.

Need a Warranty? You Bet

Warranties provide peace of mind for rental fleets, and the same is true if you’re purchasing that machine. At a high level, warranties are an essential business tactic to consider to protect equipment investments, but they come in many different levels and options.

Your equipment partner should be able to help you understand if a warranty makes sense for your business. If so, they can also help you understand the right level of coverage to pursue. Simply put, warranties protect against unforeseen hazards, and that’s important because, even with today’s incredible machine monitoring capabilities, equipment sometimes goes down for one reason or another. Your equipment partner should be able to share warranty options—whether based on production hours, years or both—to cover your back.

Guidance When Managing Pricing

Sticker shock happens. As I work with contractors to update outstanding bids for projects they have been planning for months, we are all taken aback as we realize the way increased prices can drain the budget compared to last year’s bids. When talking with contractors, I encourage revising bids to consider inflation’s effects to protect profitability.

Despite the sometimes sudden and piercing sting of increasing prices, contractors can still win by following established guidelines. With this information and the partnership of an experienced equipment dealer, any contractor can find opportunities to take advantage of high demand through technology, dependable service and expert guidance.