Heavy Vehicle Manufacturing
machinery manufacturing industry. In an effort to achieve better production and efficiency, CNH has invested about $24 million to expand its production facility in Iowa. In line with its expan- sion into new markets, CNH has been involved in a number of joint ventures angling to enter developing markets, includ- ing the company’s 60% share in South Africa-based Larimar Group. Similar to Caterpillar, CNH experienced a decline in con- struction equipment revenue during 2013, though it was offset by strong growth in the company’s agricultural equipment and power train business segments. In fact, construction equipment revenue declined 13.6% in 2013, a steeper decline in revenue than Caterpillar experienced.
Over the past three years, US-based Deere & Company’s domestic construction operations segment has outperformed Caterpillar and CNH. Despite the steep declines the com- pany and the overall market experienced in 2013, revenue for Deere’s construction equipment segment declined only 8% in 2013 as compared to Caterpillar and CNH Global. Additionally, Deere expects construction equipment revenue to rebound an estimated 10% in fiscal 2014. Adhering to the market trend of merger and acquisition activity, Deere acquired Bauer Built Manufacturing Inc., a manufacturing plant based in Iowa, for about $84 million in 2013. Mean- while, the company divested 60% of a noncore business unit John Deere Landscapes LLC in an effort to streamline its operations and focus on its manufacturing activities. These efforts combined with the company’s strong brand equity will ensure Deere remains a formidable player in the construc- tion machinery industry. Japan’s Komastu Ltd. rounds out the top four vendors that supply construction machinery for the domestic market. The company’s US facilities are located in Tennessee, South Carolina, Illinois and Texas. Similar to the other major players, Komastu’s revenue slipped in 2013 by about 4.9%, due to de- clining demand for construction equipment in China and In- donesia. But where Komatsu differed from other major players
is the 21.9% revenue growth it experienced thanks to demand from US buyers. This growth was primarily due to the yen’s depreciation, which made Komatsu’s construction machinery more attractive in the domestic market. Further supporting the company’s growth in the United States is its commitment to developing technologically advanced machinery that boosts efficiency and productivity. For example, in 2014 Komatsu released a new wheel loader, which replaces two older models and boasts greater efficiency and lower fuel consumption.
Construction Machinery Pricing
Domestic prices for graders, front-end loaders and bull- dozers have risen at an estimated annualized rate of 3.4% over the past three years, according to IBISWorld. Strengthen- ing US demand, higher R&D costs and domestic consolida- tion were the major trends driving price growth during the period. High volatility in key material input costs have also influenced pricing. As a share of revenue, steel comprises an estimated 55.9% of the average manufacturer’s total costs in 2014. Although steel prices have declined at an estimated annualized rate of 4.9% during the past three years, the com- modity has displayed high volatility. Consequently, manufac- turers have had difficulty budgeting their expenses accurately, thereby prompting them to keep machinery prices elevated to hedge against unexpected fluctuations in steel costs and protect their relatively thin profit margins.
Considerable overhead costs also influence construction machinery prices, making up about 18.9% of the average manufacturer’s revenue in 2014. Because the cost of produc- tion has become more capital intensive, depreciation as a share of revenue has risen to an estimated 3.5% in 2014. Meanwhile, the remaining 15.4% of overhead costs comprise R&D, administration, rent and utilities, marketing, freight and environmental compliance. R&D expenditure represents a significant portion of overhead costs, especially as suppliers have been ramping up their investment in R&D to ensure
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ManufacturingEngineeringMedia.com | October 2014
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