Glimpsing a Silver Lining

Uless you've been living under a rock for the past year, you've probably resolved yourself to the fact we are in the thick of an economic recession. And while there is no avoiding the ups and down of the economic cycle, some say the current downturn is unique, unlike any

in recent history.

"It's a financing situation right now," says Phil Hobson, senior vice president of RSC. "It is completely different than it has been in the last three recessions. The financial crisis is much stronger than it has been."

Tom Smart, RSC vice president of sales, adds, "This market is hard to read because we haven't been in this type of situation before, so we don't know how it will turn out."

The one bright spot in the picture has been industrial construction, which has been holding up segments such as aerial work platforms and telescopic handlers. Within the industrial sector, studies show institutional building is up 7 percent in 2008, manufacturing building is up by 69 percent and electric utility building is up by 55 percent. It is not expected to last, however, as sources predict non-residential construction will take a turn for the negative in 2009. This anticipated decline, coupled with the abysmal state of residential construction, is causing rental companies to focus on cash flow by reducing capital expenditures and aging their fleets.

Still, the outlook for the rental industry is better than for others associated with construction. "Unfortunately, the manufacturers who sell the equipment are the first ones to suffer," says Hobson. "That's one of the benefits of being a rental company. We have a base of equipment already. It is a utilization game for us, not a new sale. It's a very scalable business."

Hobson goes on to say that the rental industry stands to benefit when budgets are tight because contractors look more closely at rental. "There's a natural shift there," he says. "If you look at the downturn in '01 and the equipment rental industry, while non-residential spending went down double digits, according to industry sources, the total industry basically went sideways." We can attribute this to increased renting over buying.

The guarded optimism of RSC's top management is encouraging and should be taken to heart by all rental business managers who are trying to see the silver lining on the stormy clouds that loom on the current economic horizon. Smart says he sees the shift from rental to buying extending well beyond where the economy turns around, sometime in 2010. "Coming out of recessions, contractors are reluctant to buy again until they know that it is real,"he states. "So we think that benefits the rental market."