Revamping Rental Services
The Changing Landscape of the Rental Industry
By Jason Morgan
In a changing environment, adaptability is the key to survival. The rental industry has seen its fair share of change in the past couple of years, but many rental companies have taken the downturn in stride — tweaking their services to provide their customers with the machines they need with added value.
“The soft economy has negatively affected commercial and residential [contractors], whereas homeowners, landscapers and remodelers have been growing or maintaining throughout the economic downturn,” says Steve Mau, President and Owner of Brainard General Rental. “Last year was the weakest, but it’s rebounding in 2010. Rental is starting to come back sooner than sales. This happens so cash can be freed up — our customers are selling off their used equipment and rent newer equipment as the market turns around. When the market begins to stabilize, they buy again.”
Rental utilization rates diminished with the slowing housing work just before the massive economic fallout, and contractors haven’t rented equipment at the same pre-2008 rate since. The equipment they are renting is shrinking. Downsizing is the name of the equipment fleet game. Contractors are doing more with less to save some green, and that has turned some renters into sellers.
“Right now, rental companies are dealing with aging fleets,” says Scott Ehlers, Rental Channel Manager for Terex Construction Americas. “There has not been much in the way of capital expenditures on new equipment. A trend we see is that rental companies are becoming better at selling used equipment. Some are going so far as to offer low interest rate financing.”
Adaptation has led to a hybrid rent-to-own service offering by many rental companies. Rent-to-own also is a way for contractors to build up a down payment through rental. Renting and applying a portion of that rental toward a down payment is a way to build credit history and to meet obligations. Building credit is especially important in today’s economy.
The rent-to-own process works exactly like it sounds.
A customer is renting a piece of equipment with the intention of owning it after a set number of months. For prospective buyers, Ehlers suggests looking for what percentage of the rental income is applied towards the purchase price. It should be to the high side of 50 percent. Also, customers should check to see if they are tied into a contract or if they can get out of it during the rental period. If they do not convert ownership after the rental period, they will lose those payments made but are not obligated for the full price of the machine. As with all rent-to-own services, a customer should review the length of terms, balloon payments and warranty and service work.
“I believe rent-to-own is going to become more popular as we dig out of this downturn,” says Ehlers. “Contractors are going to be hesitant to buy equipment when business outlooks are marginal. They will prefer to rent first, with the option to buy as business picks up.”
A major strength of rental companies is that they have the ability to deliver what the customer needs, when they need it. To capitalize on that strength, rental companies need to ensure that the equipment is going to perform the way it is supposed to and be responsive if an issue does happen, and they need to be ready to respond with additional equipment.
“A rental company’s priorities should be: 1) Have an inventory of equipment the customer wants; 2) offer competitive price points; and 3) ensure that they respond quickly to any issues,” says Mau. “Ultimately, the key for rental companies is to have what customers want, when they want it.”
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| These days, contractors are downsizing their fleets, making compact excavators like this Terex TC20 a popular choice for contractors who need big productivity out of small machines. |
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The machines the customers want today are smaller and more efficient than the equipment they were renting prior to the downturn. According to Ehlers, the most often-rented equipment is smaller, back-of-the-pickup type equipment. The majority of applications are smaller improvement type jobs, which are starting to pick up, but new construction is still stagnant.
“We see compact track loaders being the most popular rental equipment right now,” says Mau. “Applications are mostly paving, commercial and residential, road construction, septic and sewer. Specifically, our customers prefer renting the Terex PT-60 compact track loader because it is the most versatile for the majority of applications. Utilization with minimal downtime is the key.”
In the way of excavators, the 4-ton class seems to be the most popular, according to Ehlers. These excavators are capable of doing most jobs, with over 10 ft of dig depth, yet small enough to pull behind a pickup truck. The Terex TC35 fits into this 8,000- to 10,000-lb range and typically tackles everything from septic and sewer to ditch and residential work.
As funding for jobs increase and the bid competition gets thicker, it’s clear that rental is still a viable option for many contractors who don’t want to sink money into purchasing new machines.
“Contractors lean toward rental because it gives them the ability to add to their fleet when they need to and return extra equipment when it isn’t needed,” says Mau. “Also, contractors turn to rental as an opportunity to try equipment before they buy it — to put machines on a jobsite and get to know if it’s going to do the job for them. Rental offers our customers the opportunity to try out a machine for a day, weeks or months at a time so our customers know first-hand what it does and what it doesn’t do and whether it is right for them, before committing to owning.”
This downturn has changed the mindset of contractors who have survived it. In Ehlers’ opinion, contractors are going to utilize more rental equipment in their fleets as business picks up and continue to rely on the rental channel as a provider of their equipment demands, minimizing their risk.
Jason Morgan is Associate Editor of Utility Contractor.
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