Stimulus Spending, Inflation Affect Fleet Plans

    May 7, 2024
    Wells Fargo report highlights rent v. buy factors.
    Photo 11613590 © Laurie Rossin | Dreamstime.com
    Road building stimulus will spur equipment investment.
    Road building stimulus will spur equipment investment.

    Stimulus spending will drive demand for construction equipment over the next several years, affecting not only new-equipment sales and availability but also the rental market, according to Wells Fargo.

    Stimulus spending

    • IIJA: $1.2 trillion includes $550 billion in net new funding on projects, with projected outlays peaking in 2026-27. Spending should stimulate equipment sales well into the 2030s.
    • CSA: $250 billion for the semiconductor sector, funding projects started before the end of 2026.
    • IRA: $370 billion for clean energy production and manufacturing incentives, including factories producing electric vehicles and batteries.

    Read also: IIJA Funding Could Be Reduced as Inflation Rises

    In its first-quarter analysis of the North American market, the financial institution noted the Infrastructure Investment and Jobs Act (IIJA), Chips and Science Act (CSA), and Inflation Reduction Act (IRA) as the fuel for infrastructure and mega project spending. The federal dollars will spur the demand for equipment in 2023 “and beyond,” according to the report.

    Equipment supply meets demand

    Wells Fargo cited data from Rouse Services to suggest that dealer inventories are finally improving as supply chain issues have eased backlogs on manufacturers. According to Rouse data, average dealer sales prices have softened as availability has improved.

    New-equipment availability will enable equipment users to move from rental, both short- and long-term, according to the report. On the other hand, higher interest rates and equipment prices may force equipment users to consider rental as a way to manage fleet costs rather than financing a purchase of new equipment. Another factor affecting the rent-buy decision, according to the report, is project backlog. If backlogs weaken enough to undercut confidence, fleets will shift to rental.

    ID 163043103 © Rosshelen | Dreamstime.com
    Equipment prices and availability will affect acquisition strategies.
    Equipment prices and availability will affect acquisition strategies.

    The report suggests the equipment users keep tabs on rental rates and the cost of new equipment.

    “Currently, as many dealers (and rental companies) have aged fleets given the lack of new equipment, rental rates have not increased at the same rate as new equipment coming from the OEMs,” the report states. “However, the combination of strong demand and aged equipment has resulted in dealers achieving a very high return on investment in their rental fleets. With inventory availability improving and dealers beginning to refresh their rental fleets, there will need to be significant appreciation in rental rates to support the higher acquisition cost of new equipment being added to rental fleets.”

    About the Author

    Rod Sutton

    Sutton has served as the editorial lead of Construction Equipment magazine and ConstructionEquipment.com since 2001. 

    Our mission is to help managers of heavy equipment and trucks to improve their performance in acquiring and managing their fleets. One way we do that is with our Executive Institute, where experts share information and ideas that will enable equipment managers to accurately manage equipment costs so that they can deliver the optimum financial benefits to their organizations.

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