The uncertainty surrounding the federal budget last year resulted in a delay in hiring and large capital equipment purchases among many middle market companies, according to Vince Belcastro, Managing Director and Group Head of CIT Capital Equipment Finance at CIT Group Inc. As a result of these delays, Belcastro says, the large capital equipment financing sector may see steady growth as companies look to replace their obsolete equipment. Belcastro provides additional insight into this market in the “2014 Large Capital Equipment Outlook”, the latest in a series of in-depth executive Q&As featured in CIT’s Executive Spotlight series.
The Demand for Large Capital Equipment
Certain sectors, such as the automotive industry, are seeing a demand for new equipment. “With continued demand for automobiles improving, this market will remain strong over the next few years,” says Belcastro. He adds that the energy sector will also see heightened demand for new equipment to support the exploration and production of natural gas and petroleum. “As a result, the transportation of energy related and petrochemical products and the equipment used in the manufacturing of these products should also see continued and growing demand.”
Belcastro also notes a rise in demand for general industrial manufacturing equipment. The homebuilding sector should also continue to show moderate signs of growth in line with the overall economy, and transportation and trucking will continue to go through a replacement cycle as operators modernize and update their fleets.
Regulatory Environment Could Impact Equipment Purchases
For companies looking to capture favorable tax treatment on equipment purchases, regulatory changes to tax codes regarding equipment markets could impact demand. “Expired tax breaks have impacted bonus depreciation and other Section 179-related deductions and credits those companies would otherwise enjoy,” said Belcastro. “Although, while this provision was not passed as part of the current budget, the ‘extender package’ that is currently being considered may have retroactive patch treatment, which could be an excellent savings for business.”
Steady Growth Expected for 2014
According to Belcastro, the large capital equipment financing sector should experience continued, steady growth in 2014. “For some companies, the growth will be opportunistic, and for others, forced, as companies will have no choice but to continue to invest in replacing their old, outdated equipment.”
To read the full CIT 2014 Large Equipment Oulook, click here.