Low oil prices affecting heavy equipment industry

Podcast: Play in new window | Download | Embed

Oil prices have a huge impact on the construction industry as well as on the heavy equipment industry. In the last few years, we have seen the oil price were at its peak and were expecting it to come down. Not only the big industrialists but also the common man was getting badly bruised by the increase in the oil price. But how far the reductions in the oil price will help the heavy equipment companies has become the topic of concern. To put it in other words, does the reduction in oil price really make the business profitable for the heavy equipment industry or is it otherwise. Well, it can have a 2 way effect on the heavy equipment manufacturing companies.

Since for the last many years, oil prices were not ready to come down, which is why heavy equipment manufacturing companies were unanimously were of the opinion to manufacture equipment that will consume less fuel and will be high on productivity. This means that the machines which consume more fuel will slowly and steadily go extinct. Simultaneously, the new technology machine will also cost more to the buyers. This has put the heavy equipment manufacturing companies in a win-win situation as they can make good profits by selling low fuel consumption machines to big construction houses and can make good money out of it. Their plan was solid and also seemed to be fool proof as no one had anticipated that the oil prices can also take a dip in the near future.

Now when the price has come down, the construction houses are not showing much interest in buying machines that consumes less fuel. They are of the belief that since the oil prices are down, it is profitable to buy machines that eats more fuel as they will not cost them a fortune, use it for some years and then if there is an increase in the oil price which they expect would be in a gradual way, they will start looking for buyers. Small time contractors or small construction companies will not mind in buying those used machines at a lower rate. Therefore, the big companies will get their work done and when they see the oil prices are rising, they will get rid of those machines and then probably buy the ones that consumes less fuel.

If things go according to the construction companies wishes, they will be the one who will make the most out of it. However, things may not be as merrier as there is a possibility that the heavy equipment companies may stop manufacturing equipment that consumes more fuel which means the construction companies may have no option other than to buy those expensive machines. In other words, fall in oil prices will not have any positive impact in their company’s balance sheet. It is pretty obvious that the heavy equipment industry will not take a financial hit to please the construction companies and therefore will stick to producing machines with low fuel consumption.