Rental business booming in America

News February 22, 2001
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The construction equipment rental industry is racing to catch up with its counterparts in Europe and Japan

The construction equipment rental industry is racing to catch up with its counterparts in Europe and Japan. Roughly one in five pieces of construction equipment in the United States is rented instead of bought. Rentals’ share of the market in Japan is around 50%. In the U.K. it is closer to 70%.

The U.S. rental market is growing, though. The consensus is that the boom in the U.S. rental business was set off by a change in tax laws in the early 1980s, while Ronald Reagan was president. "At the time, rentals in the construction industry hadn’t really started that much," said Jerome Meier, president and chief executive officer of Rentmaker Inc. The investment tax credit had made it advantageous to own equipment–or at least it had hidden the real cost.

"There were tax advantages for people to own equipment that didn’t exist in other countries," explained Bob Miner, vice president of strategic planning at United Rentals, Greenwhich, Conn. "So the economic advantages of renting over owning for people who are not using equipment full-time were less apparent here than they were in other countries. When the investment tax credit laws were taken off the books in the ’80s here, that’s really when you started to see the growth of rentals, so we’re several decades behind but we’ll get there eventually."

Meier noticed the growth in rentals (about 24% per year, he said) and that the U.S. market was still underpenetrated. He decided that the World Wide Web was the perfect place to bring together contractors and rental houses and then let them work out the details.

Meier’s web-based service (www.rentmaker.com) bills itself as "the leading online marketplace that bridges the gap between renters and rental centers." It was launched in February 2000.

Companies in the pulp and paper, chemical and oil industries used to have large fleets of aerial lifts and other kinds of mobile equipment, Meier said. When the investment tax credit was cut, those companies started selling off their equipment and looking for rental opportunities.

For a contractor, the big disincentive to owning is the cost of buying, maintaining, storing and insuring a piece of equipment. The big incentive to renting is getting a bargain price. And the economic force that drives the dealmaking is a characteristic that equipment rental has in common with the airline industry–perishability. "If when the plane took off they didn’t sell that seat, that revenue’s gone forever," explained Meier. "It’s the same in rental equipment. At the end of the day, if they didn’t rent out that equipment, that’s it. That revenue’s gone forever." A perishable service is a strong incentive for making a deal to move the equipment out the door.

For more on the story, read the March issue of ROADS & BRIDGES magazine.


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