The American Rental Association unveiled its ARA Equipment Rental Penetration Index at The Rental Show this week, the organization's latest effort toward measuring and analyzing the equipment rental industry.
At the request of ARA members, ARA convened a workgroup in September of 2012 to develop a plan of work for estimating an appropriate measure of equipment rental penetration for the equipment rental industry. The workgroup built upon ARA’s development of rental-specific performance metrics to determine a way to calculate rental penetration that combines several factors to result in the ARA Equipment Rental Penetration Index.
The ARA Equipment Rental Penetration Index provides the industry with a new method for measuring and forecasting equipment rental penetration and leverages the ARA Rental Market Monitor and the expertise of the association’s industry research partner, IHS Global Insight, as the foundation.
The ARA Equipment Rental Penetration Index is designed to create a way for rental companies to measure how much potential market exists versus the current market as well as for manufacturers to project demand for machines, and investors and analysts to consistently measure trends about equipment rental in construction.
“The basic concept of the ARA Equipment Rental Penetration Index is to measure the amount of equipment that is rented as a percentage of total construction equipment,” says Christine Wehrman, ARA’s executive vice president and CEO.
“Rental firms tend to measure their performance on a cost basis and the most often used cost base for rental equipment is original equipment cost (OEC),” says John McClelland, Ph.D., ARA’s vice president for government affairs, who helped lead ARA’s rental penetration index workgroup. “The OEC-weighted approach allows the ability to derive several components of the equipment rental penetration calculation using well-established data and techniques.”
He adds, "It will help rental companies tell a better story to the people who might lend them money to help them build their business."
U.S. Census data is used to calculate a value-based measure of the construction fleet. Using this value as the denominator and rental fleet OEC as the numerator, ARA can estimate an equipment rental penetration index that is value-based and accounts for flows of equipment into and out of the fleet and for the stock of equipment in the rental and total construction fleets.
ARA used its new approach to analyze results covering 2003-2011, which shows rental penetration for construction machines was in the range of 40 percent at the beginning of the analysis to just above 50 percent in 2010 and 2011. The result is consistent with the expectation that in recent years the size of the rental fleet has increased relative to the construction fleet.