Chalk it up to youthful exuberance, but the construction equipment rental industry seems to have set itself up for a fall–with the worst possible economic timing. The days of fast growth, skyrocketing hopes and big multiples are over, and the days of lean economic times are here, though the economy may be already on the road to recovery.
"There’s no question in the past years that rental companies have been growing very rapidly, because we have a general industry trend that more people are renting than buying," Art Droege, president and chief operation officer of Rental Service Corp. (RSC), Scottsdale, Ariz., told Roads & Bridges. "And, of course, the rental companies have built up very large businesses, have been buying fleet from the manufacturers for rental at a very rapid rate and, as a natural result of this, our fleets have been getting younger."
And the rental companies had good reason to buy: there was plenty of demand for their service.
Then the economy took a surprise turn for the worse and the rental companies wanted to reduce their capital spending.
"I think several of the rental companies bought a lot of equipment over the last several years thinking that the economic boom over the last eight to 10 years would continue, and it has slowed down," Jerome Meier, president and CEO of Rentmaker Inc., Waltham, Mass., told Roads & Bridges.
"As a result, as a rental company," he continued, "one of the first things you do in a slowdown is start to either age your fleet or sell some of it off."
Aging the fleet is the rental industry phrase for increasing the average age of the equipment in the fleet, either by buying less new equipment, by selling less used equipment or by standing still and letting time pass.
"It shouldn’t surprise anybody that we took a similar road," commented Droege, "where we had a relatively young fleet and we were going to age it a little bit. I think many of the rental companies have done this, and this has put tremendous pressure on equipment manufacturers."
Droege said he had talked to some suppliers whose sales were off by 50% or more.
The rise of the independent rental company offering short-term rental of equipment has been the phenomenon that has gotten all the press, and the trend is likely to continue, but the manufacturer’s dealer is still a popular go-to guy for renting, according to a recent survey by Equipment World magazine.
The manufacturer’s dealer was the most popular place to rent six of the top 10 most popular equipment categories. A national rental company beat out the dealers for renting construction pumps (the third most popular type of rental equipment), air compressors (8) and telescopic handlers (10).
The other top popular rentals, where renters still go to manufacturers’ dealers, were backhoes (1), skid steers (2), excavators (4), ride-on compactors (5), wheel loaders (6) and dozers (7). In the remaining category, cranes (9), renters prefer to go to a specialized crane rental dealer.
The most popular manufacturers consisted primarily of the "usual suspects": Case, Caterpillar, Deere and JCB for backhoes; Bobcat, Case, Caterpillar and New Holland for skid steers; Case, Caterpillar, Deere and Komatsu for excavators, wheel loaders and dozers; and Bomag, Caterpillar, Dynapac and Ingersoll-Rand for compactors.
Mike Bruch, rental marketing manager for the North American Commercial Division of Caterpillar, told Roads & Bridges that Cat dealers had been renting equipment for 30 years, but those were mostly long-term rentals to heavy construction companies.
"Five years ago, Caterpillar, working in conjunction with our dealers, worked on a strategy to develop what we call the Cat Rental Stores" that would focus on short-term rentals. "We also asked them to expand the products that they’re offering, so not only do they offer the Cat equipment but they also offer what we call allied equipment, which is really a variety of different products, none of which compete with the Cat equipment." Allied equipment might include air compressors, light towers, aerial lift equipment and concrete equipment to fill in the other tools a contractor needs to do a job.
Cat also asked the rental stores to go after a broader customer base than the company traditionally had pursued.
For more on the story, read the February issue of ROADS & BRIDGES.