In its What's Hot/What's Not: Equipment Market Forecast 2024, the Equipment Leasing and Finance Association once again listed construction equipment as the portfolio preference winner for the 11th year in a row.[1] In the view of PNC Vendor Finance, this positive trend is likely to continue in the coming year, as the construction segment returns to sustained stability.

In this 2025 outlook, PNC Vendor Finance will explore the reasons for the likelihood of a continued affinity for construction assets; what factors are driving the construction industry today; what product improvements and enhancements manufacturers are making to generate customer demand; and how manufacturers, dealers, and their customers are likely to rely on financing to sustain their business.

Moving Forward After the COVID Pandemic

Emerging from the COVID era, manufacturers have moved from an environment of pent-up demand, limited product availability, and rising costs, to an environment where some markets have softened, and dealers need help reducing their inventories by finding creative ways for customers to continue to buy their products. Manufacturing subsidies and customer incentives are back to pre-pandemic levels and that is what is keeping this industry growing. However, there are challenges, according to Richard Karich, construction managing director for PNC Vendor Finance.

"Today the industry remains hesitant, but moving toward sustained stability with caution," said Karich. "Some manufacturers have experienced cutbacks in production, dealers are beginning to sell in-place inventory, and their customers are more cautious and restrained waiting for major construction projects to kick in. This means that the work is there, but contractors remain concerned about maintaining cash reserves and holding onto cash for operating expenses. They're less likely to invest cash in new equipment and more likely to finance equipment acquisition."

Total U.S. construction momentum had slowed slightly but remains up on a year­ over-year basis. And the outlook remains bright. According to IBISWorld, the value of private nonresidential construction in the U.S. will grow from 2024's anticipated $597.84 billion to $716.36 billion in 2030. And the value of residential construction will increase from $766.08 billion in 2024 to $868.79 billion in the same period.[2]

What Is Driving the Construction Industry Today?

In PNC Vendor Finance's view, construction equipment sales are likely to increase with anticipated drops in interest rates, and growing construction starts. The demand for new housing for first-time homeowners will likely be a driver, as will shortages of housing caused by extreme weather and environmental disasters, and the implementation of federal and state construction assistance programs.

Non-residential construction and infrastructure projects in the U.S. will likely continue to be intensified at the federal level by the Infrastructure Investment and Jobs Act and the Inflation Reduction Act.

Why Are Construction Assets Viewed So Positively?

Construction equipment has historically maintained high resale value, making it exceptionally good collateral for banks and finance companies. From mini excavators and skid steers to articulated trucks, most equipment is similar, with long useful lives. There is domestic and global demand, and a strong secondary market. Additionally, the original sellers often acquire equipment at term-end to add to lucrative rental fleets.

Most importantly, the demand for construction equipment for highway, commercial, and civil projects is strong.

How Are Construction Equipment Manufactures Meeting Customer Demands?

Manufacturers have made construction equipment smarter, safer, and more productive. And they are working with finance partners to make acquisition easier. Undoubtedly, these enhancements mean higher initial acquisition investments but result in more effective fleet management, more efficient operation, and increased productivity.

  • Smarter Equipment. Digitization, telematics, and sometimes AI come together to make construction equipment smarter. Digitization of analogue data delivers greater capacity, accessibility, and security. When combined with telematics, the use of telecommunications and IT to transmit and store data immediately helps operators increase productivity and efficiency. An AI-powered telematics platform can spot irregularities and help operators and businesses meet maximum potential. The result is more accurate grading and faster digging.
  • Safer Equipment. Construction equipment manufacturers have continued to focus on operator and worker safety with cameras and optical detection systems. Built-in coaching technology helps operators, both visibly and audibly, work more safely and accurately. And remote-control technology means operators can avoid working in high-risk situations and delivers the ability to operate multiple machines on different jobsites.
  • Sustainable Power. Currently, alternative fuels like biodiesel and natural gas may be the best solutions for the environment, but equipment manufacturers continue to evaluate options and invest in battery-electric and even hydrogen fuel cells. But the biggest challenge, as with automobiles, is adequate infrastructure.
  • Finance Program Support. To boost sales during challenging economic times, introduce new products, or reduce excess inventory, manufacturers often work with their finance program partners to introduce promotions. These often are limited-time, subsidized financing specials (for example, 0% interest), with manufacturers cutting into their profit margins to buy rates down in order to make acquisition attractive to their customers.

Dealers and Their Customers Rely on Financing to Meet Business Needs

Equipment dealers often rely on manufacturers' vendor finance programs to expand their own inventory and make acquisition easier and more affordable for their customers.

"Savvy dealers are utilizing inventory finance lines of credit to assure sufficient inventory levels to meet customer demands, while giving them the opportunity to pay these lines over time," said Dennis Williams, construction national sales manager for PNC Vendor Finance.

"Their customers are evaluating different types of finance structures. Instead of simply relying on a loan product, many are turning to a Fair Market Value lease alternative, which creates lower monthly payments than a traditional loan and provides flexibility on the back end by giving the customer walk away, continued rental, and purchase options."

Seasonal leases and flexible payment plan options also help end-user customers with unique needs. In the northern tier, when work slows down in winter and increases in warmer months, payments can be structured to match predictable cash flow. If a contractor needs four excavators for a specific project, payments can increase annually to match the project's anticipated revenue stream.

Navigating the Construction Environment

As construction equipment manufacturers, dealers, and their customer continue to navigate often complex marketplace challenges, they often benefit from turning to experienced program partners for advice.

“There is no doubt the construction industry is moving toward sustainable stability, regaining its footing – in part driven by infrastructure projects in the U.S.,” said Richard Karich. “The PNC Vendor Finance team can work with entities across all construction sub-sectors to find opportunities for success.”

Brilliant Begins Here

PNC can help develop strategies and solutions for growth and stability for manufacturers, dealers, and their customers in the construction industry. For more information, reach out to your PNC Relationship Manager, or visit pnc.com/vendorfinance.