Aftermarket Dave Baiocchi
2019 awaits! This is the time of year when we turn our thoughts and efforts to trying to forecast what will happen in the upcoming year. 2018 brought this industry a lot of opportunity. Both OEM’s and dealers alike posted some record performances.
funds, or participate in a rate swap, in order to lock in lower rates on longer term financial obligations, instead of using short term operating capital that may be affordable today, but will no doubt get much more expensive in the future.
Will the ground in 2019 be just as fertile? We are all cognizant of recent political and economic developments that have had both positive and negative effects on our businesses. I want to take a minute and discuss some of the recent events and trends that should be on our radar as we attempt to develop our forecasting for 2019. Some of these are positive, some are negative, all need consideration.
4.) Section 179 accelerated depreciation! In recent years, the section 179 bonus depreciation provisions helped dealers and customers alike. The only downside was that the depreciation value was capped at $500K. These accelerated depreciation allowances were reinstituted by the government with the passage of the Tax Cut and Jobs Act in December of 2017. The new law increases the cap to $1M, and also widens the range of equipment that qualifies. These provisions have also been extended through the year 2022. The effect of the new law should provide ample incentive to lift truck customers to update their rolling stock as they look for ways to curb their tax obligation in an improving economy. The law also makes it more attractive for dealers to expand both their short and long-term rental fleets.
Geopolitical and Economic Events and Trends 1.) 2018 Tax Break! There isn’t a dealership in the country that wasn’t affected by the fact that the IRS will only require 20% of your hard-earned net profit in 2018! Many dealerships in expectation of this windfall reinvested in their businesses, improving facilities, updating rolling stock, and hiring additional team members to take advantage of a surging economy. Will this continue? It’s hard to say. By the time this column is published the mid-term elections will be upon us. Political power could swing one way or the other, with tax consequences surely hanging in the balance. 2.) GDP Growth! Without regard to the political outcomes, our economy has not seen this type of growth in a long time. Long term predictions of 3 to as much as 4% growth will continue to stoke the fire that drives our industry. 3. ) Interest Rates! The federal reserve will no doubt continue their 2018 trend by trying to control an overheated economy with multiple raises in interest rates. Many dealers have reaped the benefits of low interest rates for more than a decade. In doing so, we have grown accustomed to having plentiful inventory of both parts and machinery. It seems logical to me that the increasing cost of funds will lead to adjustments in OEM incentives and flooring programs. When formulating a forecast, adjusting your inventory expectations will be a key component of maintaining profitability. Now, may actually be the time to borrow 10
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November 2018
5.) Tariffs! The 2018 tariffs on foreign steel and aluminum had a direct (and some would say devastating) effect on our industry. It still remains to be seen how all of this will play out. Existing inventories may give some OEM’s a short-term advantage, but the bottom line will most likely be an increase in price for all OEM’s, which subsequently will mean a larger than normal year over year increase in retail pricing. Both parts and machines will be affected. When forecasting for 2019, it makes sense to formulate a pricing policy that accounts for the effect rising prices will have on your inventory as a whole. It pays to remember that tariffs are a tool being used by the government to evoke a particular result. The short-term pain we may feel as a result of the tariff may in fact lead to a solution that serves us well in the years to come. It is however a reality to be dealt with. Proper inventory control and consistent pricing policies are the keys to success in this regard. Remember that EVERYONE in this industry is facing the same problem. Industry Specific Events and Trends 6.) Evolution of Lithium Ion technology! I’ve seen this coming for some time now. Lithium Ion is
