TRENDLINES
CHARLES YENGST
www.yengstassociates.com — cyengst@yengstassociates.com
Lack Of Road Spending
A Problem For Graders
CHARLES R. YENGST IS
PRESIDENT OF
YENGST ASSOCIATES,
WILTON, CONN.
Anyone driving a car these days knows the sorry state of our highways and streets. Unfortunately, local communities are filling in
street potholes and severe cracks with
temporary fill material, tapping it down
with small compactors (and sometimes
workers’ feet) and hoping more money
will be available for road repair next year.
Highway departments at the state
level are in a similar budget situation,
repairing only the worst road problems,
and the feds are limping along with their
billions in borrowed funds and Highway
Trust Funds that seem to be more of
a dream than a real steady source of
money to keep our highways and bridges. It’s a mess from top to bottom.
We have a serious problem. Congress does not appear to be dealing
with it and the states and local communities have their hands tied because
of declining gasoline tax revenues and
the need to fund other higher priorities,
be it unemployment problems, floods,
tornadoes, fires and hurricanes — you
name it. Furthermore, we have a weak
economy across most states.
Beyond its impact on people at large,
the situation is also affecting the motor
grader market, which is largely driven
by federal, state and local spending on
high way maintenance and construction.
Normally this is one arena that always
has money, and highway contractors
and those tending our streets usually
have funds to replace old equipment
as needed.
Graders are a replacement market,
not a growth-driven demand market like it
was when interstate highways were being
built in the 1960s and ’70s. Motor graders
have a life of at least 15 years, and many
last a lot longer than that. The big buyers
are, of course, highway contractors and
government agencies, including state and
city highway and road departments (in
Canada, the provincial highway departments and metro areas where grading
and snow plowing are necessities).
The field population in North America
ranges near 57,000 motor graders, with
replacement needs of roughly 3500 to
4000 units every year. The market is cyclical, like all machinery markets, so in
good years when money is flowing, sales
of graders can hit the top of the range
at about 4800 units, whereas in tough
years (like recession times), the flow of
machines drops to about 3300 units.
Since 2000, the average annual sales
have been 3800 units per year in North
America. When we hit sales of approximately 2600 units in 2009, we knew we
had been through a really bad year, in
fact the worst year in probably 40 to 50
years. Last year was better, but still on
the low side as sales of these machines
popped back to about 3200 units.
Looking ahead, we are headed in
the upward direction in terms of sales.
Sales this year should be up roughly
10% over the numbers we had for 2010,
as the front half of this year has been
strong for suppliers and all looks well for
the near-term future. The problem we
have, however, is that demand is lacking and machines have been purchased
with the idea that the economy was
picking up and that business was slowly
getting back to normal.
The motor grader players affected
by these changing times in the market-
place are Caterpillar, John Deere and
Volvo, along with several smaller sup-
pliers such as Komatsu, VT Leeboy,
CNH, Champion Industries, Mauldin,
Basic Equipment and several Chinese
grader suppliers hoping to gain some
market penetration. Deere and Cat hold
the top two slots, with Deere the big-
gest producer in North America. The top
three suppliers account for 90% of the
total business in today’s market.
