Why did some contractors suffer from the decrease during the coronavirus crisis, and others experienced the growth of their business?

COVID SURVEY by CECE, ERA and LECTURA:

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Covid Special, part 3

Surprisingly, some respondents who participated in the COVID survey claimed the coronavirus crisis had no impact on their business. Moreover, a small proportion of them reported an increase due to the crisis. Therefore, this article aims to focus on what factors differentiate the group of respondents (especially contractors) who reported an increase from respondents who were not lucky enough and suffered from a decrease. It is widely claimed that the crisis affected almost every field of business negatively. However, because of the COVID survey results, we can question this univariate claim and focus on possible more positive aspects the crisis can bring to a business. Furthermore, the in-depth analyses of differences between these groups may help to understand protective factors against loss/decline and provide direction to design further interventions.

Compared to other fields of business, how did the coronavirus crisis impact contractors?

Firstly, we focus on differences between respondents from different fields of business groups and ways of dealing with the crisis. The current article focuses mainly on contractors of whom, as seen in the chart – 4,2% experienced an increase, 61,2% no change, and 34,5% no change. For your interest, as presented in the chart below, the equipment rental companies compared to other groups experienced higher percentages of changes followed by dealers. On the other hand, the group of machine owners experienced both levels of change least.

The contractors of our survey were asked several questions focusing on their market behavior and ways of dealing with the crisis. All presented results are statistically significant (p < 0.001) which indicates the results found in our sample age generalizable for the overall population of contractors in the heavy machinery industry. Unfortunately, the research was cross-sectional (data was collected from many different individuals at a single point in time). Therefore, we are not able to provide you with causal reasoning (what was the cause and what was the result). We present information about found relationships between the impact of the crisis and contractors´ behavior. Moreover, because of the lack of information for causal reasoning, possible and alternative explanations are presented.

Did you have to sell part of your fleet to improve liquidity? 

The first question focused on differences in crisis impact and strategies to improve liquidity – more specifically, selling part of the fleet. Even though we realized most of the respondents did not have to sell part of the fleet, there were still some specifics. 4,2% of contractors who reported an increase sold up to 10% of their fleet compared to 10,2% of contractors who reported a decrease. 6,3% reported that they sold between 10% and 30% of their fleet, 2,1% sold between 30% and 50% of the fleet, and 4,2% sold more than 50% of their fleet. 83,3% of contractors experiencing increase did not sell any part of their fleet. To compare these measures with contractors who experienced a decrease, overall, they more frequently reported they had to sell any part of their fleet, as opposed to the contractors who experienced no change. It seems that the key to overcoming the crisis with the increase is to make slightly balanced interventions - to sell part of the fleet, but only a small one. In this case, however, the alternative explanation seems more logical – therefore, contractors who suffered from a decrease were forced to sell part of their fleet to improve liquidity. 

Are you planning to reduce your CAPEX? 

The next question focused on whether the contractors plan to reduce their capital investments. The contractors who reported an increase during the crisis somewhat tended to change their CAPEX (20,8%). However, people experiencing decreases have twice as much higher tendency to reduce their capital investments (43,6%). Therefore, on the one hand, we can say people suffering from decrease make hasty decisions about changes and large changes lead them actually to even higher decline. On the other hand, they may feel forced to reduce their CAPEX because they undergo a decrease and unfavorable changes in their business. As previously mentioned, expressing the causal relationship is not possible at all. However, In our opinion, the second/alternative explanation seems more logical. 

Did the crisis impact your investments in more green equipment? 

Next, we observed differences in contractors´ intentions to change minds in order to invest in green equipment (more environmentally sustainable equipment/machinery). The explanation of the current question may be considered clear (and consistent with our alternative explanations) because the question is stated as the consequence of the crisis. It is obvious that most of all the contractors who had experienced a decrease were prone to change their minds in investment in green equipment (55,6%). Compared to other groups of contractors, the people who experienced no change were least willing to make changes in their investments in green equipment (19,4%), followed by respondents who experienced an increase (22,1%).

What would help you to invest in your fleet?

Furthermore, we focused on questions about, let's say, help-seeking strategies of our respondents. Firstly, we compared what would help contractors to invest in their fleet according to the way they dealt with the crisis. Interestingly contractors who reported an increase compared to other groups mostly preferred rent to buy options (24,1%) and delayed payment (24,1%). On the one hand, it may indicate they are proactive and try to seek ways of changing their business instead of relying on help from institutions or external sources – therefore, they experienced an increase. On the other hand, the way they experienced the crisis led them to decide about a preferred way that would help them invest in their fleet. 

What is the most urgent support your business would need?

When comparing groups of contractors who experienced the impact of the crisis and the type of support they consider the most urgent, logically, the contractors suffering from decrease most frequently (compared to other groups of respondents) reported they consider the help from national (25,8%) and European institutions (10,1%), and banks most urgent (26,1%). What is interesting is the contractors from the “increase” group would be compared to other groups, “other” types of change. Naturally, contractors who reported no change most often claimed they see no type of help urgent enough (67%). We may explain these findings as follows – the people from decreasing groups were forced to seek help from authorities or banks. However, compared to the no change group, the people from the increased group were, in some cases proactive, and sought help. 

Would you like to know more about the impact of COVID pandemic on the construction industry? Click here for the full report by LECTURA, ERA and CECE!

or continue reading the Covid Special ==> Part 1: The case study on German and British machine owners: similarities and differences in the coronavirus crisis management

==> Part 2: Differences between the coronavirus crisis impact according to the company size