By Benjamin Duyck, AEM Market Intelligence Director
The teacher became the student when I had the pleasure to attend the first-ever AED / AEM equipment economic forum recently in Chicago. For a brief moment, the Hilton Rosemont Hotel near Chicago O’Hare became the epicenter of economic foresight as dealers and manufacturers came together to discuss the industry trends and latest issues facing the heavy equipment industry.
Throughout the economic forum, it became very clear why it was important for manufacturers and dealers to attend. Manufacturers and dealers cannot make informed decisions to guide their organizations’ strategies if they do not know where the industry is going, where it has been and what headwinds we will be facing. And a lot of headwinds are expected as the world continues to grow smaller and smaller.
Among the talking points raised during the forum was slow economic growth, issues facing construction, oil prices, the Chinese economy, the presidential elections, the Federal Reserve, forex exchange issues, Brexit, geo-political issues in the South China Sea, ISIS, refugee crisis, terrorist threats in Europe, Russian destabilization of Ukraine and economic and political turbulence in Latin America. One member indicated that with all these headwinds, the current situation should be considered more as a global whirlwind!
While companies can hire outside consultants to lift the veil on some of these topics, it seems more efficient to sit back and download all this information in an action-packed two day period. Here's a recap of several key presentations:
- KT McFarland started with a blast and dove in deep, exploring what needs to be done to usher in the dawn of a new American economic revival spurred by cheap energy, new transformative technologies and much needed corporate tax cuts. She highlighted rethinking American global policy through the process of untethering ourselves from the Middle East, combined with the utilization of new cyber technologies to transform oppressive regimes.
- Mark Vitner from Wells Fargo talked about the overall economy and the impact of current supply and costs of crude oil and gas on equipment industries. According to Vitner, U.S. growth is solid, albeit unspectacular, while global growth has suffered up to a point where Argentina has become the bright spot abroad.
- Ken Simonson from the Associated General Contractors of America expertly highlighted the importance of the residential industry and the expected shift towards single family housing from multi-family housing, as well as the expected growth in the commercial, office and lodging segment.
- Will Brown - Finally, before the break there was some time to discuss some infrastructure issues key to our economy. In the past AEM had highlighted the importance of investment in our water infrastructure. This stance was driven home by Will Brown from NUCA, who flew in from DC to reveal the state and federal bills ready to provide some much-needed funding relief.
- Nicolas Clerc - In the afternoon, the tempo switched from large scale trends and drivers to a finer look at the commodity cycles that are plaguing our industry. While arguments around faltering Chinese demand are often center stage in these discussions, Nicolas Clerc, chief economist at Caterpillar, indicating that today’s low commodity prices result from a correction in the oversupply following a correction of the undersupply in 2006.
- Luke Chandler, Deere and Company, added that the delays in the adjustments of the overproduction is most likely related to the strong dollar, making it still profitable for international players to keep producing. These insights tied nicely to Mark Vitner’s comments on the effects of the current supply and cost of crude oil and natural gas on the equipment industries. He linked the high production levels in the U.S. to a technology shock, increasing efficiency and lowering the U.S. breakeven price. In a sense, profitability-delaying production adjustments is exactly what was covered by Chandler and Clerc.
- Michael Roth - The first day’s session was concluded by Michael Roth, Rental Equipment Register, who spoke on the current state of the rental industry. While manufacturers and dealers certainly did not have to attend this economic forum to realize that the fabric of their industry is changing and that a shift to rental is underway, it might have come as a bit of a shock to be told rental penetration in 2015 reached 50 percent.
- Rob Ceribelli - Having covered market trends and directional indicators on the first day, we started off the second day with a presentation given by Rob Ceribelli from DLL on sustainable business models and how equipment manufacturers are at the center of this new circular economy. The ethics of creating a refurbished and recycling market and the desires of the customer matched up for a great discussion on how manufacturers could increase the product life cycle, re-use or refurb their equipment and reduce the environmental impact of their business.
- Nick Yaksich and Christian Klein - This was followed by a second session consisting of various manufacturers discussing the political landscape, cybersecurity and the new challenges OEM leadership has to face. Their discussion on infrastructure development was a perfect lead in for the third event, where Nick Yaksich, AEM, and Christian Klein, AED, both spoke on government and industry regulations. We had come full circle.
Finally, sending us off contemplating how our companies and the nation can prepare for the next economic headwinds, the representatives from the Federal Reserve Bank of Chicago and the Canadian Chamber of Commerce presented on how monetary policies and interest rates affect the U.S. economy.
While not everyone present agreed necessarily on all topics or forecasts, one thing we all agreed on and KT Farland said it best: “American Exceptionalism is real and tangible.” As long as we adhere to this exceptionalism and as long as we continue to come together to discuss our issues, whether they are economic, social or political in nature, no economic challenge will be too large.
What a great thing to take away from an even greater event.