The unexpected challenges of 2020 have made one thing clear for heavy equipment and machine-centric industries – creative thinking and modified strategies for generating revenue are now more important than ever. Companies that rely on financing heavy machinery, and those that are considering using this beneficial procurement option, should consider the trends expected for 2021.
Before looking ahead to the new year, it’s important to examine where the equipment finance industry stands as we wrap up 2020. One bright spot was that new business volume growth for the equipment and finance industry accelerated by 4.7%, according to the Equipment Leasing and Finance Association (ELFA). Much of this growth was driven by historically low Federal Reserve Interest rates.
Let’s examine what’s in store for 2021 heavy equipment leasing and financing trends.
Equipment leasing and financing trends for 2021
Despite 2020 seeing the steepest and deepest dip in gross domestic product (GDP) since 1946, analysts expect a far more favorable environment in 2021 for equipment finance firms, ELFA reported. While we’re not out of the woods yet, there are several signs that point to a slow but steady recovery.
Construction Equipment Guide reported that since many factories are shut down, it may be difficult to get the equipment and components necessary for projects. This may lead to equipment shortages and will require contractors to get creative in their acquisitions. Company owners now more than ever need their businesses to be agile and responsive to a disruptive economy. Those who can adapt on the fly will be able to take advantage of the new opportunities during this time.
This makes equipment financing a great option. By leasing machinery or obtaining a heavy machinery loan, businesses can free up cash that can be set aside to help the company navigate the tumultuous waters of the post-pandemic market.
Agricultural machinery sector
Low commodity rates, trade disputes and an uptick in inclement weather have all put strains on the agricultural machinery sector in recent years. These challenges are expected to continue into the new year.
However, after the agricultural sector suffered a drop of 12.5% from 2019 to 2020, industry analysts forecast a slight increase of 4.4% projected for 2021, according to Global Data Products, Power Systems Research. While the recovery will take a little time, the analysts anticipate this sector reaching 2016-2017 levels by 2022.
As a heavily fragmented sector, the industrial sector has handled the pandemic differently depending on the market segment.
After a decline of 12.1% from 2019 to 2020, analysts forecast 2021 production to increase to around an estimated 4% for 2020, according to Global Data Products. However, they note that pre-COVID (2019) production levels might not return until 2023.
In many instances, it will take time to rebalance supply chain channels and distribution of market shares. Analysts see the industrial sector mirroring the construction sector, with strong demand for small construction equipment like forklift applications and material handling.
Engineering, Construction and Building Sector
The engineering, construction and building (ECB) sector will need to remain resilient to navigate and thrive in the new normal.
Infrastructure development in urban civil engineering, snow removal, forestry and landscaping is expected to experience increased demand. This, along with a rise in mega construction projects and residential buildings, are all forecast to contribute to growth in the ECB sector in the coming years. Compact and crawler excavators, wheeled loaders and hybrid vehicles, such as dump trucks, are forecast to experience high demand in the next few years.
Management consulting firm, McKinsey and Company, noted that one of its seven actions for success for construction companies is to redeploy capital and resources to remain agile. Equipment financing remains a smart way to accomplish these goals to expand operations in the new year.
Each of the market segments detailed here will need to adjust and evolve to maintain any economic rebound. Although growth might be slow, many opportunities should arise during the protracted recovery period of 2021. One big opportunity will be how low interest rates should help encourage investments in equipment financing.
Since the post-pandemic economy will look significantly different than the one that existed at the beginning of 2020, business owners will need to implement effective strategies to survive in this new environment. Companies worried about the profit potential in the new year can take advantage of the many benefits of equipment leasing to help shore up working capital, upgrade machinery, and deliver project success.
Contact your local Cat dealer to learn more about the financial solutions that are available to you that can help you grow your business.