Rental is On the Rise

Every year, more and more equipment is being sold to rental companies and dealers offering rental services. Does that surprise you? Since 2001, the number of dealers offering rental has increased substantially. Add all the rental companies together and you have a major resource available to help manage your business and profits.

One of the factors behind this sales increase is the fact that contractors are using more rental equipment in their work vs. owned equipment. Rental equipment provides you with options you did not have in the past, including the ability to do varying types of work or specialty work, as well as complete work faster.

The points cited above, along with many other rental facts and statistics, are part of the new AED Rental 2006 report. The Associated Equipment Distributors surveyed dealers, rental companies, manufacturers and end users to obtain the data found in the report. The report is full of information about rental from the standpoint of manufacturers, rental companies, dealers and end users. Members of the construction industry, as well as the financial community that services dealers and the rental industry, should have a copy of this report. AED's web site has the information you need to purchase a copy.
Following are some of the highlights regarding end users.

What's important when renting?

Specifically, end users rent equipment from a vendor because of availability; past experience with the vendor; and the quality of the equipment.

Rental rates were in the middle of the pack. Perhaps today's tight equipment market deflates normal concerns about rates. It appears that having a good piece of equipment to work with, plus a responsive vendor, is worth the little bit extra you might have to pay.

Delivery also wasn't deemed as important as I thought it would be. Users must be picking up equipment with their own vehicles and trailers.

Most vendors charge for delivery and pick-up. Users prefer a flat rate to a zone charge. Users like to know what they are paying for and it makes the accounting process simpler. Who needs to spend time trying to figure out if the zone charge is right?

Location plays a big part in end users' rental decision. If the rental yard is nearby, they will use it. It would be like having a personal rental fleet in your back yard without the note payments that go with it. Nice deal if you can get it.

Do you really care what brand of equipment you rent? Not as much as I thought, with brand being indicated as "very important" only 30% of the time. Is all the equipment out there really that good? From a rental perspective that is probably true. If it gets the job done and your crew knows how to work it, the equipment is probably good enough.

Use of the Internet to get rental information has increased approximately 500% since 2001. Users go to the Internet to get information about rates, availability and schedule. As long as you find the information you get is generally accurate, using the web can save you time while making it easier to schedule your equipment needs. If you are still not using this electronic aid, it's time to do so.

The rental decision

Why are you renting more? The survey says it's because:

  • Your business volume has increased.
  • You have special projects to complete.
  • You need special equipment you don't own.
  • It's a short-term project.
  • You just want to try the equipment.
  • You need to fill peak periods.
  • There is new work you can do if you have the equipment to do it.

It's nice to know you are renting more for the right reasons. You would expect decreases in the size of end-user equipment fleets as a primary reason contractors rent more, but that is not the case. It does come into play, but is really immaterial in the whole scheme of things.

Who makes the rental decision? In most cases it is the boss. I can understand that because it's his/her money and he/she needs to make the decisions on how to spend it. I suspect, however, the decision-making process moves down the ladder into the next layer of management as the size of the company increases.

Larger pieces of equipment are normally rented from dealers, with the balance rented from national and regional rental companies. This is changing somewhat, but very slowly. Dealers seem to feel better renting what they sell, and try to avoid taking on other rent-to-rent equipment.

In the end, it appears end users are renting more than they did five years ago, and they seem to be renting for the right reasons. The only surprise is the lack of increased rental as a result of a decrease in end-user fleets. I suspect contractors invest less heavily in equipment they can rent, but still maintain a minimum level of units to compensate when shortages of rental equipment develop.

Availability and location seem to be the main driving forces that lead a contractor to rent from a certain vendor. Having the ability to work with a vendor who takes care of your needs also adds to the decision-making process. Having all these conditions working for you seems to push the rental rate issue to the back burner. As with most businesses, price is seldom the main issue.

Garry Bartecki is director of dealer/distributor services at BDO Seidman, LLP of Chicago, as well as a consultant to the AED. He has also worked as an independent CPA and consultant to equipment dealers. He can be reached at (312) 616-4677 or gbartecki@bdo.com.

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