I. Introduction
Pioneers and Martyrs
People pay high tribute to the pioneers who have made various contributions to mankind, especially the martyrs who have dedicated their lives for this purpose, and make them live forever. However, it seems a little different for the business field under the market economy. The success of business requires the right time and right people. No matter how perfect the business model is, even if the pioneers make great efforts, as long as they become the martyrs at the wrong time, they will be regarded as losers. They may also be regarded as losers in some industries. "Stink for thousands of years." The essence is that most of the martyrs in the commercial field will waste huge manpower, material and financial resources, and even exert a negative impact on certain industries or commercial fields.
The suspense that the author raised a year ago
Aerial work platform (AWP, aerialwork platform) was originally a small sub-industry in construction machinery, but in recent years, the market for AWP leasing has rapidly changed from a blue ocean to a red ocean, and it is also a hot spot in the construction machinery industry.
More than a year ago, the author discussed macro topics such as the supply-demand relationship of the AWP China market in the article "Fake Tuyere-The Market Demand for Aerial Work Platforms Is Overestimated", as well as the possible misjudgment of the demand for the Chinese AWP market, etc. A point of view and a clear prediction: "The rental price continues to decline and the rental rate continues to decline. This is a high probability event. It is also expected that the profitability of related AWP leasing companies will continue to decline. Market competition will become more intense." At the same time, he also raised a suspense: "The fight for elephants to dominate the king, and the one who has the king must have its loser. Who can be the first martyr to dedicate his life for the development of the industry?"
The purpose of this article
Taking the current AWP leasing market environment, several hot topics related to the AWP leasing market and the impact on the decline in leasing prices, taking leasing elephants (large-scale enterprises) and rabbit ants (small, medium and micro enterprises) as examples, discussed in recent years Possible changes in the AWP industry. The author's own opinion, I hope it has some reference value for related parties.
2. Several controversial judgments
1. Supply exceeds demand, or supply exceeds demand?
In recent years, the demand for AWP in the Chinese market has increased significantly. As shown in Figure 1 (compilation of market public data), from 2016 to 2020, the annual growth rate of market sales is greater than 60%. Based on the actual market situation, the market Demand should be in short supply, at least not in excess of demand.
From the perspective of the rental price of AWP, from 2016 to 2020, the rental price of AWP has fallen all the way, dropping by about 50%-80% (Figure 2 shows the changes in the rental prices of two commonly used AWP products, which are self-supported by the author. And the market to collect data). Such a drop is rare in the same industry globally. The market demand seems to be oversupply, at least not in short supply.
So, is the market demand in short supply or oversupply?
2. How much does China's AWP market demand?
Judging and forecasting the market demand for AWP in China, in the past few years, the market share, per capita share, and total national economic GDP of developed countries in Europe, America and Japan have been popular. According to this prediction, China's share in recent years is already one million. Above the platform, obviously this is somewhat different from the reality of the Chinese market (see the author's article "Fake Tuyere-Market Demand for Aerial Work Platforms Is Overestimated" for details).
There is no doubt that the demand for AWP in the Chinese market is definitely on the rise, and it is also the fastest growing market in the world. If the actual growth rate of 60%-100% in the past few years can be maintained, based on the number of 250,000 units at the end of 2020, the number of units in the market will be at least about 600,000 units after two years.
However, if the corresponding rental price falls at a rate of more than 20% per year, the rental price two years later will be about 60% of the current price, which is about 80%-90% lower than the price in 2016. The rate of price drop, may it continue to support an annual growth rate of 60%-100%?
3. Disagreement and the only consensus
Regarding the above uncertainties, the relevant parties have the following main views:
The rent of AWP has dropped sharply because the original rent was too high. The sharp drop is completely a normal market regulation phenomenon. It will not affect the market sales to continue to increase sharply. It is expected that the number of holdings of 600,000 in two years, or even more...
The substantial increase in market ownership in recent years was driven by the high rents in previous years, and the sharp drop in rents will inevitably lead to a sharp drop in market demand...
The substantial increase in sales in the Chinese AWP market and the sharp decline in rents are all due to the vicious cycle of price wars in which the leasing elephant is the king of the king. It is not the reality of the market...
In China, the manufacturers of AWP were originally just a few of Gini, Jieerjie, Dingli, and Xingbang, but now many famous overseas players continue to flood in, and domestic construction machinery giants have joined one after another, which has rapidly doubled production capacity and triggered prices. War, coupled with the financial leverage of financial leasing companies and the expansion needs of leasing elephants, the combined effect of course is a substantial increase in increments and a sharp decline in rental prices.
In the author’s opinion, the relationship between supply and demand in the AWP market and the prediction of the market prospects. Chinese and foreign manufacturers, investors in leasing companies, investors in secondary market stocks, leasing elephants and rabbit ants have different interests. "The butt determines the brain." Of course, the perception of the current market and the expectation of the future market are of course different and understandable.
However, all parties concerned have to admit one fact: AWP leasing companies, whether they are elephants or rabbits and ants, have greatly reduced their profitability.
3. AWP scale operation and competitiveness
1. Comparing the expansion of the scale of AWP leasing elephant equipment
In recent years, especially in 2020, the domestic AWP leasing elephants have all tested relatively high in terms of equipment scale. According to public media information:
Horizon signed an annual purchase agreement with Dingli and Genie in 2020. As the industry leader for many years, AWP has exceeded 50,000 units.
Zhongneng United announced twice in 2019 that the financing reached 1.5 billion yuan. In 2020, there are still capital parties to continue to invest, and AWP equipment has exceeded 30,000 units.
China Railway announced twice in 2019 to raise RMB 2 billion to invest in AWP projects, and the current status is about 23,000 units.
Xu Guanglian also has nearly 15,000 AWP equipment.
The publicity materials of various elephants are proud of the large-scale quantity of equipment and the speed of the increase of equipment.
2. A lean camel is bigger than a horse
This is a proverb that is widely circulated on our grassland. From the comparison of the absolute value of the volume, "a lean camel is bigger than a horse", it is true. However, its theme has weakened an important fact: camel, it is dead!
On May 22 last year, the American car rental giant Hertz filed for bankruptcy. When he was about to die, he still had $1 billion in cash, 568,000 leased vehicles and 12,400 operating points. Is it big? Big! But it's still going to die.
Experts from all walks of life in the world believe that the collapse of Hertz's car rental was only a cause of the epidemic. At the time of bankruptcy, the debt was 19 billion U.S. dollars (about 135 billion yuan). The freezing of three feet is not a day's cold. In fact, it is not easy to run a big business for several years. According to European and American industry media reports, in order to liquidate, including nearly 700,000 used cars in inventory, it is necessary to quickly sell at ultra-low prices! The scale is bigger, this way of death is different!
3. Non-linear relationship between operating scale and profit of a single AWP
Marginal cost and marginal revenue are important concepts for the profitability of business scale operations. For construction machinery leasing companies, the scale and type of equipment held is one of the core elements (for details, please refer to the article "Will the U.S. "Joint Leasing" Big Mac appear in China?"). This is especially true for AWP single lease operation, which involves the country's macroeconomic and industry market environment, corporate management level, and also reflects the business operators' concept of measuring benefits and costs. But one thing is certain. The scale of equipment is not directly proportional to profit. The inappropriate selection of equipment scale may result in zero marginal profit and loss of the company.
4. Inefficiency in the entire life cycle of AWP scale operations
So far, the general rule of large-scale construction machinery and equipment leasing companies in the world, including AWP leasing companies, is that large-scale integrated operation efficiency is not as high as that of small and medium-sized leasing companies. The average rental price and average rental rate of Elephant Leasing Company are 10%-15% lower than that of Rabbit Ant, the average selling price of second mobile phones is 10%-20% lower, and the maintenance cost of old equipment is also much higher. Self-operated and market-collected data for the year). This is determined by the nature of the leasing business, especially in the Chinese market. The scale advantage of the elephant leasing company can only be highlighted under the combination of multiple varieties and types of equipment.
5. Balance of scale in and out
"If you eat in, you have to pull out." Second, mobile phone sales are an important business link of AWP leasing company. Large-scale "eating" must have a reasonable scale of "excretion". Otherwise, bad equipment rotten in the stomach will occupy cash flow and cause losses. At present, the domestic mobile market and export trade of AWP 2 mobile phones are not yet mature, resulting in low transaction prices and difficulty in transactions. This is the price that Leasing Elephant has to pay to maintain sufficient operating cash flow.
6. The comparative advantage of equipment scale centralized procurement is limited
Large-scale equipment procurement is one of the advantages of Elephant. Manufacturers give Elephant a 15%-25% discount on the price of centralized purchase of equipment, giving Elephant a 75-85% equipment cost advantage in the market price. However, compared with the equipment cost of rabbits and ants, this advantage is also limited.
The following photos are AWP equipment that has been used for nearly 20 years. The cost of the equipment purchased is about 15%-30% of the new machine. The equipment is refurbished as new, and the performance and rental price are very small.
These equipment belong to Shanghai Chengteng Leasing Company (nearly one thousand of its own equipment, the average cost of new and old equipment is only 40%-60% of the new equipment), and there are many rental rabbits with similar equipment cost structure in the country. Theoretically speaking, the maintenance cost of the old machine is higher than that of the new machine, but one of the biggest advantages of China Ant Rabbit is the extremely low maintenance cost and the wisdom and skills of refurbishing as new. In contrast, the comparative advantage of the so-called popular leasing elephant equipment collection is overestimated.
Fourth, a few steps towards the martyrs
Although the background of the elephant, rabbit and ant is quite different from the current situation, the characteristics and steps of becoming a martyr are similar:
1. Ultra-low return on investment
According to the current rental price and occupancy rate, the payback period of AWP investment is about 4-6 years (new equipment). Based on an average of 5 years, the residual value of the re-sale of the equipment is about 25%-60%, and the average annual return on investment is about 5%-12%. Obviously, in the current market environment, the net profit of AWP leasing is very limited. If the market competition becomes more intense, its rate of return will be even lower.
2. Fragmentation of cash flow
Arrears of receivables are a fairly long-term economic phenomenon common in China's infrastructure market. The difficulty in collecting receivables of leasing companies is one of the current operating pain points. The financing and sales cycle of AWP manufacturers is generally 2-4 years. Just like the result of "renting and maintaining houses" in real estate, it is almost impossible to repay equipment loans by relying on AWP leasing income to "rent and maintain machines" in AWP leasing. , This is one of the main reasons for the rupture of cash flow. The more equipment purchased by financial leasing, the greater the absolute value of receivables, and the greater the risk of cash flow rupture.
3. "Chronic suicide" realized by equipment
When the leasing company is short of funds and cannot replenish its own funds, the emergency method is mostly to sell the existing equipment. In this state, the low price of a large number of second-hand equipment is urgently sold, which consumes a large amount of operating profit and operating strength.
4. Insufficient financing
When the above-mentioned various risks arise, if there is no "life-saving money" with sufficient capital reserves and strong financing capabilities, the risks of insolvency and bankruptcy and closure (such as Hertz cars) are extremely high.
5. Several possibilities of AWP scale operation
The birth background and industry foundation of the four major leasing elephants involve financial, state-owned and listed companies and industry rookies. But for the purpose of enterprise development, whether it is to take advantage of the rise of the AWP leasing market to develop into a Chinese version of American joint leasing (for details, please refer to the article "Will there be an American "joint leasing" giant in China?"), or Expanding the scale of operations by increasing equipment and seeking dominance in the AWP leasing industry may be accompanied by the following scenarios:
Guess a. The elephant "kills" the group of rabbits and ants?
Through large-scale operations and cruel price wars, the leasing elephant eliminated most of the ants and rabbits in exchange for an absolute advantage in the market. The elephants stood up to divide the market with majesty, and the rabbits and ants fell "deadly"?
The author believes that this conjecture is impossible. In the current market environment, even in the cruel price war, despite the fact that a large number of ants and rabbits are "dead", this group will not die out. At most, the individuals in the group have changed a few names (in the United States) And the Japanese rental market, the market share of ants and rabbits is still 60%-70%).
Conjecture b. The industry's vicious price war, the king must die?
The four leasing elephants of AWP, based on the law of scale competition and commercial price wars, are capable and courageous, and can fight brutal price wars for a long time. Most of them are strong bosses and elders. The battle between the elephant and the king, the battle between the king and the two kings, will inevitably have one death?
In my opinion, not necessarily. Both the king and the second king are strong, and the strong are always strong.
Guess c. The third or fourth is out first?
The city gate caught fire, and the pond fish was hit. The battle between the king and the second king will inevitably lead to a vicious price war in the industry, and the profitability of leasing will decline. Perhaps the first sacrifice is the third or fourth?
The author believes that wool comes out of pigs and dogs pay the bills, which is one of the characteristics of modern market laws. The eldest and the second are the kings, the elders and the elders suffer, the weak and the strong eat, the law of the jungle. The essence is that the eldest and eldest can invest part of the energy price war, or operate with multiple varieties and types of equipment to hedge risks, while the eldest and eldest need to spend most of their energy, even all their belongings, to work hard. This conjecture is likely to occur.
Conjecture d. The "counterattack" of rabbits and ants
The buyer of the elephant's second-hand equipment sales must be the rabbit ant. The rabbit ant obtains these low-cost second-hand equipment, such as fish get water, and enters the market at a lower rental price. The rental market price will be more competitive, and the result is the elephant's Further reduction in profitability?
The author believes that the occurrence of this conjecture is conditional. The formation of China's second-hand AWP market will take time. However, due to the cruel price war, if the martyrs of the elephant’s dominance and hegemony appear or all lose all, as a result, tens of thousands of second-hand mobile phones enter the second-hand equipment market in a short period of time. This conjecture may also happen. .
Six, the fate and opportunity of rabbits and ants
There are hundreds of various types of AWP elephant rabbit ant leasing companies in China. Their background and industry foundation, scale and current situation involve individuals, partnerships, private, state-owned and listed companies, and industry rookies. They are of all kinds, each with its own merits, and more complex.
In the author's opinion, based on the input method of AWP equipment, it can be simplistically classified into the following three types:
Spend other people's money and do things for others.
Spend other people's money for your own business.
Spend your own money for your own survival.
Under the brutal price war in the AWP leasing market, the same harsh market conditions, different funding and equipment investment methods, the correspondence and efforts will be different, and the results will be different. The vast majority of ant rabbits belong to the last type. The driving force for desperation must be infinite, and its operating efficiency is higher than that of leasing elephants. Coupled with the product attributes of AWP, the competitiveness of rabbits and ants still exists. Based on the author's humble opinion of the industry experience in the past 30 years, I have the following suggestions for rabbits and ants to tide over the difficulties:
Seek truth from facts, humbly and clearly recognize the boundaries of one's own abilities and funding, survival first, employment first, career second.
Patience is enough to wait for the "elephant hegemony" of the price war. The death of an elephant still hurts all the elephants. It may be that thousands of low-cost second-hand equipment enter the market. Not only is it a business opportunity to "divide the elephant's corpse (second-hand equipment)", but at this time the price of new equipment from manufacturers is also at a low tide. This is a good opportunity for rabbits and ants to increase their strength and expand.
Give up the "vanity" of scale and do not easily pursue "variation and mutation" (small ants become bigger ants, and ants become rabbits). Profit is far more important than scale. Always pursue profit first.
Seven, conclusion
The large-scale operation of an enterprise is one of the important magic weapons for its rapid development and growth and victory in commercial competition. AWP's large-scale operation not only requires strong capital or abundant resources, but also requires the scale of talents and the accumulation of industry experience. However, even if these conditions are met, it will be time (market demand) to meet the geographical advantages (Chinese characteristics). Regardless of the scale and the amount of huge investment, it should be "the world is booming for profit". If "the world is hustling and bustling and doing nothing for no profit", it will eventually be a cloud of clouds.
