After years of struggling with supply chain turbulence—first with COVID-related shortages, then with surplus inventory after manufacturers got caught up on deliveries—heavy equipment dealers may finally be getting some relief.
“Dealers are still working through an excess supply of inventory and are having to support a large amount of interest expense at the same time,” said Darren Grahsl, director of Dealer Financial Services at BOK Financial®. “But I believe we are finally starting to see some light at the end of the tunnel.”
Grahsl discussed multiple reasons why 2025 could be the year the heavy equipment industry finally finds the supply/demand equilibrium that has been so elusive recently.
Manufacturers slowing production
Recognizing the oversupply problem, heavy equipment manufacturers have curtailed production in various ways.
“Some plants are reducing the number of shifts or disallowing overtime, while others have implemented temporary plant closures and layoffs,” said Grahsl. The goal, he said, is to slow production to allow the market some time to absorb current inventory levels, enabling dealers to clear out the excess inventory they already have.
Interest rates starting to drop
In response to cooling inflation indicators, in September the Federal Reserve issued its first interest rate cut since 2020. More rate cuts followed in November and December. While recent news suggests further rate cuts in 2025 may be modest, any dip will be welcomed by equipment dealers, Grahsl said, as a reduction in carrying cost will take pressure off of earnings across the industry as a whole.
Demand remains strong
And that’s on top of demand that has proven to be fairly stable over the past couple of years. Even as interest rates soared in recent years, demand for heavy equipment remained mostly steady, thanks in part to the Infrastructure Investment and Jobs Act (IIJA), passed in 2021. The deal authorized $550 billion of federal spending on new projects and programs, and a large percentage of those funds have yet to be deployed.
The authorization period runs through 2026, creating myriad opportunities for federally funded construction contracts in civic infrastructure and transportation systems, among other areas. As a result, even if the economy were to slow down a bit, the IIJA will help to insulate the heavy equipment industry, Grahsl noted.
Election implications mostly positive for construction
Beyond continuing to administer the bipartisan IIJA, President-elect Trump—whose background is in real estate development—will likely push to enact policies designed to enhance economic growth. This could lead to an even more robust sales environment for heavy equipment dealers.
“Some of these factors will take time to play out, but it seems as if conditions are starting to look up for the equipment distribution industry,” said Grahsl. “Dealers have been laser focused on managing through this oversupply situation. As long as demand stays intact, we should start to see a leveling out by mid-to-late 2025.”
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