Introduction

2004 election mania is behind us. This time there is no wake of doubt and uncertainty. We are plowing ahead while a new administrative agenda is unrolled and new players are being appointed to new roles while others are being assigned different duties.

Politics currently dominate our world but the one element that is and has been missing from all of the political discussion is the Highway Trust Fund, or at this point the lack of this bill. At a recent TRIP board meeting there was considerable discussion over what will happen now that the election is over. Guests from the "Hill" told us that the reasons TEA-21 was still lying lost in legislative limbo was because it not high on the list of issues that are troubling Mr. and Mrs. America. Current concerns are health care, social security, terrorism, and war, not necessarily in this order. Since these are the hot spots with voters these are the issues that are getting congressional attention.

It is imperative that everyone who is concerned about our continued economic growth get on the phone or Internet and let their representatives in Washington know that as voters they want a strong highway bill, a bill with substance and purpose, a bill that will carry the economy forward. Speculation is that the best that can be hoped for is $299 billion over a six-year program. The Senate has statistical data that state we need a minimum of $318 billion to maintain the status quo.

Our highway system is a national resource that supports commerce and economic growth. It is the arteries that move materials and supplies to manufacturers and goods to consumers. It is not a renewable resource and is quickly approaching a condition that could put it on the endangered species list. We can't afford for this to happen. While we should be concerned about the deficit and excessive spending, about the war and terrorism, about social security and health care, we need to remember and remind Congress and the administration that the Highway Trust Fund is a self-funding venture paid for by user taxes.

During this TRIP board meeting several contractor members expressed the fact that while they needed to buy new equipment they are having problems securing financing because when they submit their business plans the lending institutions want to know from where the funding is coming. States are having the same problems — you can't plan if there is no basis for supporting the plans. Without the Highway Bill, transportation construction is being done but the future remains very uncertain. Let's face it. This bill is important to all aspects of construction. There is little or nothing that happens in America that doesn't involve the use of our roads.

What will next year look like economically? Economists are saying that the overall U.S. economy will end up ahead of 2003 by 4 percent and that 2005 will be up about the same or close to it. Several construction economists are saying that construction this year will end up higher then last year by about the same percentage and that next year will be a repeat. The difference being that in 2004 residential construction carried the industry while in 2005 residential construction is expected to be down while industrial, commercial and institutional will be the market segments providing the volume.

Our annual Buyers' Intentions Study looks at what you think of the construction market as it affects you and how it influences your plans to purchase equipment and other related products that help you function as a contractor. As you read through the analysis of the survey results you will see some changes over last year and some shifts. One of the most notable is the percentage of respondents who believe the economy will remain strong and will continue to grow.

Equipment ownership versus rental is the same as last year and indicates that maybe this is the level at which this comparison will remain. New equipment purchases versus used equipment has made an interesting shift. There are other changes over last year and preceding years and then there are some things that remain the same... How far do you work from home? The response to this question has been very similar for many years. When it changes the most is during years when the construction market is seriously depressed then you tend to go greater distances for your jobs.

The equipment-to-be-acquired list has new products on it this year and of course the old standbys. The hottest rental machine looks like the backhoe loader followed by hydraulic excavators. On the purchase side, computers and computer software top the charts followed by light to medium trucks (to 26,000 GVW). The trucking industry is once again on a growth curve after being down for the last several years.

Other interesting changes are occurring. As you read through the questions and the analysis of the responses you will recognize many of these trends as they affect you and your business. New technology is changing the way we do the job and the way we buy our equipment. A few years ago GPS was technology used for navigation. Today it's becoming the way we lay out and manage a job. Let's go through this year's Buyers' Intentions Study.

Survey Methodology

The survey was conducted using subscriber e-mail addresses from the circulation of all 14 Associated Construction Publications (ACP) magazines in addition to respondents in the construction industry accessing the survey online. The survey was promoted in e-newsletters that were sent to ACP subscribers and Reed Construction Data (parent company) subscribers. Surveys were completed online as hosted by the regional publications' website, www.acppubs.com. The responses were exported into a Microsoft Excel spreadsheet and tabulations were performed using Excel's data analysis tools. These results were used to report the percentages in the following charts. For the purpose of this study, all responses are reported as a national aggregate.

Survey Results

As stated earlier, all e-newsletter subscribers were eligible to participate, opening this year's survey to a population of 30,906 construction professionals. In all, 351 subscribers completed the survey, a 45-percent increase from last year.

The following results in both text and graphic format highlight the issues from the survey. The early questions ask about the demographic profile of the individual respondents and the firms for which they work. This information will provide a solid overview of the respondents who participated in the survey. The middle section of the questionnaire asks about equipment buying decisions, both present and future. From this section, next year's forecasts regarding equipment — from types of equipment desired to means of acquiring the equipment — are generated. Finally, the last section of the survey asks comprehensive questions surrounding the use of the Internet for business purposes. With the growing ease of using the Internet, knowledge about how other construction industry professionals are using this additional research and purchasing tool is summarized. Together, the three sections combine to provide a profile of construction industry professionals throughout the country who are making decisions about equipment purchases with varying levels of information technology assistance via the Internet.

As indicated in the chart, almost all respondents (86.2 percent) can replace their construction equipment for less than $5 million. Once again, the single greatest category of responses represents the smallest in terms of financial investment — under $500,000. Nationally, 55.4 percent of respondents could replace their equipment for under $500,000. The smaller-inventory firms have increased significantly from last year (39.3 percent). These results are important in recognizing that the vast majority of respondents have a small (dollar-value) inventory of construction equipment and that the volume of respondents' equipment has significantly decreased from last year. 2004 saw a greater number of smaller-inventory firms participating in the survey than in previous years.

Presidents and owners of firms are likely respondents to the survey; their combined responses equal 53.1 percent of the total, remaining constant in comparison to last year's 55 percent of respondents. As was the case last year, this year managers throughout the organizations are responding to the survey. Instead of the responses to the survey representing only the views of top management, the 2005 survey presents organization-wide viewpoints of the coming year as managers throughout the organizations participate in the survey.

With the shift in management levels of the respondents the last two years, there are the expected changes in purchasing authority levels. Nationally, 41.4 percent of respondents have sole approval authority to purchase equipment, consistent with last year's 41.3 percent. Another 43.4 percent participate in the approval process. Most notable is the request new/replacement category and the do not participate category, now at 15.3 percent of respondents. This shift is not unusual based upon the change in job titles represented by the survey respondent population and it serves to illustrate that equipment purchasing is more than one person's decision.

Unlike prior years where responses clustered — for example the largest-response category last year was over $10 million in contract volume, garnering 31.8 percent of responses — this year's respondent pool is more evenly distributed. The top three responses varied by only two responses (out of 351 survey responses). Annual contract volume in the under $500,000 category received 24.1 percent of responses; $1 million to $5 million, 24.6 percent of responses; and over $10 million, 24.4 percent of responses.

The trend toward smaller contract volume overall has remained stable from last year after a five-year gradual growth. For contract volume under $500,000, five years ago it was 11.3 percent nationally, four years ago it increased to 18.1 percent, three years ago it increased to 19 percent, two years ago it had stabilized at 19.1 percent, and last year it grew to 25.2 percent.

The $500,000-to-$1-million category has increased from 13.7 percent five years ago to 20.1 percent four years ago and then again three years ago to 20.6 percent. Two years ago it decreased to 17.9 percent and that decline continued for last year, 10.7 percent. This year, however, there has been a slight growth in this category to 15.6 percent of respondents.

The category for contract volume between $1 million and $5 million had shown signs of gradual decline until last year when there was a more significant decline and now the percentage has risen slightly (36.1 percent five years ago, 34.4 percent four years ago, 33.5 percent three years ago, 32.8 two years ago, 21.5 percent last year, and now 24.6 percent of respondents).

Five years ago, the percentage of responses estimating annual contract volume to be between $5 million and $10 million was 14.2 percent, four years ago it was 10.9 percent, three years ago it was 11.5 percent, two years ago it was 11.3 percent, last year it was 10.7 percent, and this year it has remained fairly constant with an 11.3-percent response rate. This has been the category with the least amount of year-to-year fluctuation.

In the over-$10-million category, five years ago had 23.8 percent of responses in that bracket, four years ago only had 14.7 percent of respondents reporting annual contract volume of that magnitude, three years ago there was a slight increase to 15.3 percent of respondents, two years ago there was another slight increase to 18.8 percent, last year there was a significant increase to 31.8 percent, and this year the number has decreased to 24.4 percent of respondents.

...remain stable or increase, as most respondents indicate. The results closely match last year, with a slightly more optimistic outlook. Again this year there is a declining percentage of respondents predicting a decrease in the market. Three years ago, 28.1 percent of respondents predicted a decreasing market for 2002 (that survey immediately followed the events of 9/11), a jump from the 15.6 percent of the respondents nationally who said the market would decrease somewhat in 2001. Two years ago that percent fell to 21.4 percent, perhaps signaling a slow economic rebound for 2003. Last year, the number of respondents believing 2004 held a declining market decreased even further to 14 percent. This year the respondents viewing 2005 as a year of decrease further slipped to 10.7 percent. Offering optimism for 2005 are the 89.3 percent of respondents expecting market stabilization or growth — 35.2 percent believe the market will remain stable, 42.3 percent believe it will increase some and 11.8 percent expect a significant increase.

This year, the survey instrument allowed respondents the freedom of not having their responses equal 100 percent, so there is a slight overstatement of answers. With that said, the trend still exists whereby respondents are increasing their renting of more equipment and owning of less equipment than in years past. Two years ago, respondents reported renting 11 percent of their construction equipment, leasing 8 percent of their equipment and owning 81 percent of their equipment fleet. Last year, 15.1 percent of the fleet was rented, 8.3 percent leased and 76.6 percent owned. This year 21.5 percent of the fleet was rented, 10.0 percent leased and 80.6 percent owned. Given the slight overstatement, these figures are in line with last year's and there seems to be stabilization in the categories' outcomes.

As in the previous question, responses added to slightly more than 100 percent. Increasing slightly from last year's 58.4 percent, this year 63.9 percent of respondents report purchasing equipment new and 42.1 percent report buying used equipment (very close to last year's 41.6 percent). Overall, it is significant that the percentage of equipment purchased new continues to increase, thus indicating that construction companies are experiencing enough growth to afford to purchase a clear majority of new, rather than used, equipment.

Respondents are planning to acquire an assortment of equipment in 2005. Thirty-six pieces of equipment were included in the survey and all pieces were listed as planned acquisitions for 2005. This year respondents were asked to check which pieces of equipment they plan to acquire in 2005 and indicate whether the equipment would be rented or bought. The 18 pieces of equipment listed in the accompanying chart are representative of the top 10 rent and purchase options listed by respondents. There are 18 pieces of equipment listed rather than 10 because not each piece of equipment fell within the top 10 for each category. The list of the equipment includes aerial work platforms, air compressors, backhoe loaders, ride-on compactors*, walk-behind compactors*, computers/software, hydraulic cranes, crawler dozers, hydraulic excavators, high-reach/rough-terrain forklifts, generators, lasers, rubber-tired loaders, pressure washers, flatbed trailers*, heavy-duty trucks (over 26,000 GVW), light to medium trucks (to 26,000 GVW), and welding equipment. Those pieces of equipment followed by an asterisk (*) denote equipment not mentioned in the top 10 lists from last year.

Based on the responses, companies use a wide array of businesses for purchasing equipment. The favorite every year has remained the dealer/distributor with a response of 80.6 percent. The second and third most-mentioned businesses are a used equipment dealer and a rental chain (32.2 percent and 30.5 percent, respectively). Equipment is also purchased from an auction company (27.1 percent), other contractors (19.1 percent), manufacturers' representatives (17.1 percent), and through a reseller (15.7 percent). This list, in order of most responses to least, closely matches the order of response percentages from previous surveys. The only change this year was that rental chain and auction company exchanged rank positions. This consistency through five years of data illustrates a fairly stable and established distribution chain for selling equipment to the construction professional.

Most respondents identified their business as one of three categories — as general building construction (40.8 percent), as highway and heavy construction (19.7 percent), or special trade contractor (19.7 percent). Other industry member (13.0 percent) and other contractor (5.5 percent) help to round out the types of businesses surveyed. Very few respondents (1.4 percent) classify themselves as a construction material producer.

The top 10 responses on a national level represent the key work-related job areas covered by respondents. The primary types of work include commercial building (24.5 percent), excavating/grading (21.9 percent), carpentry (21.7 percent, significantly higher than last year's 9.1 percent), water and/or sewer work (18.2 percent), earthmoving (15.4 percent), concrete building (10.5 percent), demolition (10.0 percent), clearing/grubbing (9.4 percent), landscaping (8.0 percent), and electrical (7.7 percent). These categories coincide with the types of business respondents reported — general building, highway and heavy construction, and special trade contractors. Overall, the type of work done by the responding subscribers is varied and represents all aspects of the construction industry.

Due to the local nature of the construction industry, it is not surprising that 72.8 percent of respondents work within 90 miles of their home office and another 11.3 percent work between 90 and 140 miles of their home office. Together, 84.1 percent of firms surveyed are working within a 140-mile radius. The remaining 15.9 percent of respondents work over 140 miles from their home office. These numbers are nearly identical to last year's results.

Reasons for the close proximity of firms to the field are diverse. Contractors understand the importance of maintaining and nurturing work relationships with customers, suppliers, dealers, employees, banks, and communities. Effectively maintaining these ties requires a presence close to the home office and most of the firms represented in the survey keep their business close to home.

This year's respondents report great proficiency with computers and the Internet, like respondents last year. Using the computer for business at least once a day are 51.6 percent of respondents. Intermediate use of two to three times a week is reported by 20.6 percent of respondents. Still surprising, 23.2 percent report infrequent use and only 4.6 percent report never using the Internet for business purposes. Since the survey was only available online, it is interesting to note that even though all respondents are Internet equipped and users of the technology, there are still nearly a third of respondents who do not use the Internet regularly for business activity. For those construction professionals for whom the Internet is an integral part of their business, their use of the Internet is only going to grow; however, there continues to be a group for whom the Internet is not a business consideration.

When asked which activities are conducted online, respondents report using the Internet most often for e-mail (75.5 percent). Also of note is 68.9 percent of respondents report using the Internet for researching new equipment. Other activities include research (insurance, 16.8 percent; used equipment, 50.4 percent; financing, 15.1 percent; rental, 26.5 percent; industry news, 43.9 percent; parts, 35.3 percent; suppliers, 39.9 percent; and service, 16.5 percent), visiting websites of other construction-related organizations (dealer websites, 55.6 percent; manufacturer websites, 63.0 percent; association websites, 35.6 percent; and magazine websites, 33.0 percent), checking equipment prices (42.7 percent), checking the weather (67.8 percent), and making travel arrangements (51.6 percent). Again this year, the Internet is used extensively for business and business-related purposes.

Online purchases are beginning to stabilize in terms of percentages. Last year, 22.7 percent reported no purchases; this year that number is 22.2 percent. New and used pieces of equipment are purchased online, but the percentage of respondents who do so has made another small percentage increase this year — 16.0 percent and 17.7 percent, respectively. Still popular are purchases of parts (39.0 percent), supplies (45.6 percent), travel (39.6 percent), books (29.6 percent), and other goods and services (20.2 percent).

Conclusion

This year's survey results indicate an optimistic approach to 2005 with most respondents feeling the market will remain stable or increase. Many companies are still enjoying the benefits of the late 1990s when cash flow allowed equipment to be bought and the current fleets still reflect the signs of ownership. Despite funding uncertainties in 2005, the vast majority of respondents expect 2005 to be a growth year in the construction industry.

The respondents to this year's survey are representative of all business sizes (based on annual contract volume) and levels of management within the firms surveyed. There are equipment purchase plans for 2005 including many of the same machines that were listed in the last two years of survey responses, with the addition of a few new items to the top 10 list. Remaining cognizant of the environment in which construction professionals work, the intent of this survey is to help highlight the changes that are moving the industry so that businesses can react to these influences and focus activities to help them operate profitably. Competitive strategies can then be effectively derived from such market and industry knowledge.

As 2004 ends it leaves everyone wondering about the future. As noted earlier, the reauthorization of TEA-21 hangs in suspension waiting for Congress to act, after extending the deadline several times now. The current bill expired on September 30, 2003, but was extended several times and now expires May 31, 2005. In spite of the fact that the current bill was not adequate to cover the costs of maintaining and improving our transportation infrastructure there are people who would like to cut it. We urge you who are in the construction industry to continue contacting Senators and Representatives and letting them know they should support a strong highway bill.

Your comments and suggestions regarding this Buyers' Intentions Survey are appreciated. You can mail, fax or e-mail us.

Mail:

Associated Construction Publications

30 Technology Parkway South, Suite 100, Norcross, GA 30092

Fax: (770) 417-4138

E-mail: agelaude@reedbusiness.com or gsitek@reedbusiness.com