Issue link: http://read.dmtmag.com/i/255289
38 | www.cedmag.com | Construction Equipment Distribution | February 2014 California Housing, Tier-4 Upgrades Will Contribute to an Improved 2014 RON BARLET AED At-Large Director President, Bejac Corp., Placentia, Calif. In California, "steady as she goes" appears to be the common theme among distributors and custom- ers. With a few exceptions, extreme in one direction or another, most are experiencing stable activity with modest improvements in their businesses with most expecting at least a 5- to 10-percent improvement in 2014. Housing, an extremely important factor to the construction segment, experienced a general sales slowdown as 2013 year-end approached, but overall, improving home prices are supporting both new building and turnover of used inventory. Several markets including the Silicon Valley regions up through San Francisco are extremely active, even resembling 2006-'07 craziness, due to the number of nouveau riche who continue to be born from the social media success. Housing remains the dominant driver in the Southwest, and 2014 should yield improvements for both distributors and contractors. Notably, nonresidential construction, the laggard in the build- ing sector, is starting to show more life, and the forecast for 2014 is positive increases from near stagnant activity during the last few years. The state of California reports a substantial increase in budget reserves due to increasing property tax from the general increase in home values and the capital gains tax derived from the new wealth, along with new taxes on the so-called wealthy. Uncertainty remains as to the practical use of these funds and their effect on our sectors as grossly exceeded High Speed Rail estimates are still being supported, while necessary water works projects that could solve drought issues remain stymied by the lack of funds and environmental issues. Distributors reported a bit of a slowdown in the later months of 2013, but December activity was better than expected with year-end purchases from customers who were finally motivated to buy for tax reasons. The loss of depreciation bonus and reduction in Sec. 179 expensing, while fueling year- end sales in 2013, has many distributors concerned as to the 2014 effects. California Air Resource rules are finally going into "policing" effect in 2014, and customers who found themselves with gains in 2013 from the sale of older equipment, were finally motivated to upgrade to Tier-3 and 4 equipment. It is still difficult to decipher whether impending regulations or tax consequences were the driver, as many contractors are still not that focused on the regulations, but rather rebuilding the strength in their businesses. Mid-range customers are taking a seri- ous look at required upgrades to cleaner technologies that are impacting their onroad, offroad, and portable equip- ment and at least discussing a turnover plan. Distributors expect to start realizing some real improvements in equipment sales in 2014, especially with Tier-4 final on the horizon as customers confused by the regulations can now purchase products that they will no longer need to think about with regard to future emissions-driven replacement. Contractors' sentiment seemed to improve from six months ago, but federal fiscal issues, skyrocketing health care rates, taxation, and regulatory costs are still of major concern. However, with Tier-4 products proving to be reliable, credit lending easing, and custom- ers' financials improving, equipment purchasing and upgrading should lift 2014 distributor sales. (continued on page 40) Three's a Charm: Infrastructure, Energy, Housing Put the Rev in Revenue AED directors opine on what they think will bring growth to regional markets around North America. As rental's fire keeps raging, fleet replacement trends are also expected to fuel 2014 sales.