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Tough Outlook for Construction Machinery Manufacturers

November 19, 2008

The survey conducted by the Association of Equipment Manufacturers (AEM) forecasts a hard time for manufacturers of construction machinery through 2009, sees infrastructure investment as a key U.S., global economic stimulus.


MILWAUKEE, WI -- The construction equipment manufacturing industry expects continued business declines in the United States through year-end 2008 of 8.6%, followed by flat growth in 2009 of 0.04%, according to the annual "outlook" survey of the Association of Equipment Manufacturers (AEM).

The AEM survey provides a snapshot of construction machinery manufacturers' predictions for overall year-end 2008 and 2009 business in the U.S., Canada and worldwide.

Canada is predicted to fare better, with business stabilizing at minus 1.7% for 2008, followed by 2.2% growth in 2009. Sales to worldwide markets are anticipated to increase 8.5% by year-end 2008 and gain 5.4% in 2009.

AEM is the North-American based international trade group representing the off-road equipment manufacturing industry. Each year it surveys its construction equipment manufacturer members about expected sales of the machines that build and repair roads, bridges, houses, offices, schools and other infrastructure in America and worldwide.

The AEM annual outlook forecast covers 72 different whole machine product types and 19 types of attachments and components, grouped into seven broad categories: earthmoving, lifting, bituminous, concrete and aggregate, light equipment, attachments and components, and miscellaneous equipment.

AEM consolidates manufacturers' estimates of overall business activity. Each forecast in the survey is the average of responses from companies in each product line, predicting industry wide expectations rather than individual company performance, and unit sales rather than company profitability. The survey was conducted in third quarter 2008 with many of the responses prior to the U.S. financial market collapse.

"The overall slowdown of the past year or so, after record expansion, accelerated this fall with a worsening housing market and collapse of major financial institutions in the U.S. The continued financial turmoil is affecting commercial projects as well. While the strength of the global economy has spurred equipment export growth, we now face a slowdown here as well," stated AEM President Dennis Slater.

"This is certainly a challenging and unpredictable time. But we have learned from previous downturns how to operate more efficiently, and we are positioned for a rebound, hopefully as 2009 progresses, and into 2010," he added. "Government measures to boost infrastructure investment will play a critical role in our industry's recovery as well as strengthening the U.S. economy overall."

Economic and Industry Trends Affecting Growth
The AEM outlook survey asked respondents to rank the influence of several factors on future construction equipment sales.

Not surprisingly, the state of the general economy was cited as a key factor affecting future industry growth. Specifically, the level of housing starts and highway funding will be a major influence on construction equipment business volume. Continued export demand, and the relative strength of the U.S. dollar, will also affect sales, and the price of steel and other commodities continue to be a concern.

AEM President Dennis Slater provided additional commentary: "We need to get dollars into the construction pipeline. An immediate increase in public works funding will help jumpstart the U.S. economy. Construction projects are being deferred and our customers are looking for work. It's estimated that there are currently 3,000 projects that could begin work within 30 to 90 days of a governmental funding commitment.

"Our aging roads, bridges and highways need repair and upgrades. Committing funds to infrastructure renewal not only provides manufacturing and construction jobs, but also helps ensure we have safe and efficient movement of goods and people. An adequate transportation network is essential to commerce and maintaining U.S. competitiveness in global markets.

"We also need a proper investment in our water infrastructure to replace an aging and inefficient system. Here too, more jobs are created at the same time that the public benefits.

"Exports are critical to our industry's ability to remain in business, providing jobs and contributing to local and national tax bases. Passage of pending free trade agreements will have a positive effect on American manufacturing. Eliminating high tariffs provides greater market access and a more level playing field, thus increasing our competitiveness in the global marketplace.

"Extending the capital investment incentives in the 2008 economic stimulus legislation will also boost the strength of our industry. Rather than deferring purchases, our customers will be able to gain immediate access to technologically advanced machines that enhance productivity.

"The rental market is a significant source of business for equipment manufacturers. After a few years of solid growth, this segment is undergoing a correction. Expected cuts in rental company capital spending will adversely affect equipment sales.

Sales Forecasts by Major Product Lines
Earthmoving Equipment: Year-end 2008 business for earthmoving equipment is expected to decrease 15.8% for the U.S. and 6.8 % for Canada, while increasing 6.0% in worldwide markets. Business volume in 2009 is anticipated to decline 3.3% in the U.S., remain flat (down 0.6%) for Canada and gain 4.8% worldwide.

The earthmoving segment includes crawler and wheeled excavators; rear dump and articulated haulers; motor graders; backhoe, crawler, wheeled, compact and skid-steer loaders; crawler tractors; trenchers and ditchers; wheeled log skidders; and scrapers.

Lifting Equipment: Sales of lifting equipment are anticipated to decrease 7.4% in the U.S. by year-end 2008, remain flat (up 0.9%) for Canada, and show gains of 4.2% for worldwide markets. Market predictions for 2009 are growth of 2.4% in the U.S., gains of 5.6% for Canada and increases of 8.2% in worldwide markets.

Lifting equipment includes knuckle and telescopic boom truck cranes; all terrain, hydraulic truck, rough terrain and tower cranes; lattice boom cranes; rough terrain and truck-mounted forklifts; and telescopic handlers.

Bituminous Equipment: For year-end 2008, bituminous equipment sales are anticipated to decrease 8.8% in the U.S and 2.8 % for Canada. The worldwide market for bituminous equipment is predicted to gain 16.4% in 2008. For 2009, bituminous equipment sales are expected to decline 3.3% for the U.S., remain flat (down 0.6%) for Canada and gain 7.8% for worldwide markets.

Bituminous equipment includes asphalt plants, screeds and pavers; cold planers; pneumatic, static and vibratory rollers; soil stabilizers; melter/applicators; slurry pavers; and road wideners.

Concrete and Aggregate Equipment: Sales of concrete and aggregate equipment by year-end 2008 are predicted to decline 8.6% for the U.S. and 5.3% for Canada, while increasing 20.4% for worldwide markets. For 2009, sales are expected to increase 4.6% in the U.S., anticipated to grow 2.0% for Canada and predicted to gain 3.9% for worldwide markets.

Machines in this category include concrete pavers; concrete batch plants; mobile concrete breakers; crushers; screens; feeders; conveyors; washing equipment; classifying tanks; and rock drills.

Light Equipment: Year-end 2008 business for light equipment is expected to decrease 10.7% for the U.S., while increasing 1.1% for Canada and 5.0% for worldwide markets. Light equipment business for 2009 is predicted to decline 1.9% for the U.S., increase 3.0% for Canada and gain 3.1% for worldwide markets.

The light equipment market includes machines such as hydraulic and pneumatic breakers; vibratory plate compactors; concrete screeds, saws, vibrators and trowels; generators; light towers; towable mixers; contractor pumps; power buggies; vibratory walk-behind rollers; air compressors; lasers; and truck-mounted air compressors.

Miscellaneous Equipment: Sales of miscellaneous equipment for year-end 2008 are anticipated to decrease 11.2% for the U.S. and 1.6% in Canada, while increasing 16.5% in worldwide markets. For 2009, U.S. sales are expected to rise 9.5%, sales in Canada are predicted to increase 11.1%, and worldwide sales are forecast to grow by 9.3%.

Equipment in this category includes heavy-duty and light to medium trucks; earth drills (augers); landfill/refuse compactors; side dump, live bottom and flatbed trailers; sewer vacs; environmental grinders; equipment washers; sweepers; and trenchless equipment.

Attachments and Components: The business volume for attachments and components is predicted to show year-end 2008 gains of 3.3% in the U.S., 2.6% for Canada and 6.9% for worldwide markets. Sales in 2009 are expected to grow by 3.4% in the U.S., 2.6% for Canada and 5.4% for worldwide markets.

The attachments and components category includes buckets; quick couplers; augers; demolition shears; pulverizers/crushers; hydraulic components; rippers/scarifiers; compactors; grapples; blades; rakes; forks; snow blowers; powertrains; engines; asphalt cutters; hooks; bearings; and brake systems.

AEM Outlook Survey Results
Overall Average % Changes Predicted for Unit Sales

 United States
%
Canada
%
Other Worldwide
%
Equipment Type2007/20082008/20092007/20082008/20092007/20082008/2009
Earthmoving–15.8–3.3–6.8–0.66.04.8
Lifting–7.42.40.95.64.28.2
Bituminous–8.8–3.3–2.8–0.616.47.8
Concrete/
Aggregate
–8.64.6–5.32.020.43.9
Light–10.7–1.91.13.05.03.1
Attach/
Components
3.33.42.62.66.95.4
Miscellaneous–11.29.5–1.611.116.59.3
Industry Wide Totals–8.60.04–1.72.28.55.4
© 2008, Copyright, Association of Equipment Manufacturers


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