ForConstructionPros.com

I recently attended the annual AED (Associated Equipment Distributors) Executive Forum held in Chicago . This is a great 1.5-day program for anyone involved in construction, rental and/or equipment dealer activities. We review the industry, the economic outlook, ways to improve profits and cash flow and finally forecast business activity; everything you need to know to plan business activities for the next 12 months or so.

For those in the rental business, the speakers concluded that the housing, industrial and commercial markets should remain robust as long as nothing silly happens in terms of interest rates. In addition, manufacturing and wholesale companies are accumulating free cash flow and again investing in remodeling or new building projects. The speakers also indicated the construction equipment industry is two years into a five- to seven-year positive cycle. The best growth years might be behind us, but growth in some form can be counted on for the next three to five years. All in all, there is a positive outlook.

In terms of your rental fleets it looks like new equipment lead times will remain higher than normal. And for the first time in a lot of years it looks like this equipment will be increasing in price annually for years to come. It’s been tough to pass on price increases the last four or five years, but now with inventories under control and the steel and rubber price increases and other inflationary cost increases, manufacturers can no longer avoid these factors and must start to pass them on. So, expect to see annual increases until the next market correction.

So, how does this affect your rental fleet?

If you are regularly turning over your fleet, it’s going to cost you more in terms of both price and interest rates. It might be prudent to upgrade a little earlier than planned if there are still some units out there available at cheaper prices.

Higher cost for equipment leads to higher dollar utilization requirements if one hopes to maintain gross profit margins. The trick will be to get the prices to stick. Once most of the rental houses in your area upgrade their equipment it will be easier to get the prices you need to maintain margins.