Highlights from “What’s Hot/What’s Not…” 2021 Report on Equipment Preferences and Covid Impact

Industrial truck loader excavator moving earth and unloading into a dumper truck.

April 19, 2021

Carl Chrappa’s annual research into equipment management trends included questions about the impact of Covid-19 and the majority of respondents reported they don’t envision a long-term negative impact. Nevertheless, the research shows its effect on specific sectors, showing both new highs and new lows in equipment preferences.

Some 72% of survey respondents said Covid-19 would not negatively affect residual values going forward. However, 46% did report equipment sales were affected by the pandemic restrictions. Nevertheless, 54% said 2020 originations exceeded goals. In fact, Chrappa said the economy is already booming, and “this may be our best year ever.” Even aircraft and rail are recovering,“ he said. A rough area will continue to be in oil and gas sectors due to the price of oil and bans on fracking and pipeline challenges.

The Alta Group’s head of asset management who conducts the research for this annual What’s Hot, What’s Not Equipment Market Forecast published by the Equipment Leasing and Finance Association (ELFA), points to several highlights in the 2021 report.

Construction equipment for the eighth year in a row was ranked highest in portfolio preferences with medical as well as trucks/trailers tied for second place. The trucks and trailers category moved from 10th place, representing the greatest upward shift.

One thing the equipment financing industry likes about the construction market is its transparency, said Chrappa, pointing to the available data from dealer, retail and wholesale sources. He said the construction market size was more than $1.5 trillion in volume and is expected to be higher in 2021. The trucks and trailer market showed the biggest improvement year over year. Chrappa said in 2019 there were 275,000 new sales but in 2020 it fell to 190,000.  The forecast  for 2021 is for up to 300,000-plus.

Looking ahead, the Equipment Leasing and Finance/Keybridge Equipment & Software Investment Momentum Monitor suggests optimism about medical equipment in 2021, which is likely to benefit from vaccine distribution and resumption of elective procedures.

Ranking at the bottom in asset preferences were aircraft, furniture, fixtures, and  oil/gas/energy. Printing remains weak. Chrappa said that he does not expect “infrastructure” investment in the U.S.  to have a major impact on equipment demand. And, in the energy sector, Chrappa said increasing regulation of the  carbon output in the power industry will be a negative factor moving forward.

Residual values (RVs) are trending more conservatively; overall 20% to 30% of respondents increased RVs for construction equipment and containers. Chrappa said “it is clear that the industry is becoming more selective in its view of various equipment types as to what is more or less desirable.”  This can be seen in the equipment preferences chart indicating rankings for 2020 vs 2021 within the ELFA report.

When asked if there were any surprises in the data this year, he said seeing rail drop five places from the year before to 10th place was significant when usually  carloads for that sector would increase 1-2% per year but instead fell 7.4% in 2020. It should be noted that “good faith” tank car values have plunged more than 50 percent in just a few years.  “The outlook in this sector remains challenging.”

Categories obviously affected by the pandemic include computer assets which had a banner sales year in 2020 and will again this year. Chrappa said aircraft losses of $119 billion in 2020 due to the pandemic pulled that asset class down. It may be 2023 until that market returns to normal levels, Chrappa said.

While Chrappa had forecasted a V -shaped recovery  late last year when speaking at virtual industry conferences, he didn’t expect the upswing to be as fast and as strong as it has been. He attributes some of that due to federal relief programs in 2020 and Covid-19 vaccinations.

The report reflects “higher highs and lower lows” compared to the prior year as can be seen in the report’s graphs.

Overall, the results of this year’s research show moderate growth in lease/finance volumes as U.S. businesses return to more normal activity.  See the full report for information on 15 equipment categories.  ELFA members use this data to identify developing equipment trends and  potential new business opportunities.

Carl Chrappa is senior managing director of The Alta Group’s asset management practice.

This was the 31st release of the report, which is available in full on the ELFA website and also covered in the association’s trade magazine, Equipment Leasing &. Finance (May/June 2021).

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