The rental market has been a bright spot on the economic horizon since the Great Recession. During the downturn, contractors turned to rental out of necessity when they needed to acquire equipment but lacked the resources to invest in new machines. By the time things began to improve, those contractors had realized the many benefits of renting: a cleaner balance sheet, no maintenance or repair costs, no transportation challenges and no insurance expenses. Many have been calling this a paradigm shift in the way equipment users view ownership, and some industry analysts believe this shift is permanent.
Evidence of this belief can be seen in the way that equipment manufacturers have responded with new models designed specifically for rental. Over the past two years, more and more machines are being designed for rental with fewer bells and whistles, creature comforts and high-tech features. Instead they're built for simplicity, durability and a faster return on investment.
Meeting the demand
"Customers have become more value-conscious than ever," says Mark Luttmann, dealer development and marketing manager at Terex Construction Americas. "Rental has become a more popular option for many Terex customers because it allows them to only pay for the equipment they need, when they need it most. This has required that we at Terex focus on giving these customers a more immediate return on investment in our equipment offering without sacrificing performance and quality.
"Over the past few years, we've seen a dramatic shift in our customer base from owner/operators and a more traditional distribution base to the rental market, and indicators point to this trend continuing in North America for at least the next few years. We realized that in order to play in this market, we needed to position our products for it."
To that end, Terex introduced its GEN2 line of skid-steer and compact track loaders in the fall of 2014 with the goal of offering rental companies machines that could satisfy the end user while earning a competitive and profitable rental rate. They did this by offering Tier 4-compliant machines without the maintenance hassles and fewer premium features, while keeping the focus on reliability and durability. They followed this up with the introduction of the TLB840R backhoe-loader in February.
But Terex isn't the only manufacturer capitalizing on this trend. Case designed its new 580N EP backhoe-loader specifically for rental because they also saw a need for a durable machine that can stand up to the rigors of rental. They too had heard from customers frustrated with the demands of Tier 4 technology.
"We stripped away all the bells and whistles that are more popular with the owning and operating crowd, and provided a machine that retained the core operating characteristics of the CASE N Series," says Katie Pullen, brand marketing manager, CASE Construction Equipment. "It also helped us demystify Tier 4 Final regulations a bit for rental houses and customers. By working with a 74-horsepower FPT engine with a particulate matter catalyst – already proven in our skid steer, CTL and compact wheel loader lines – we were able to eliminate maintenance-related activities that go along with more advanced systems found in machines rated higher than 75 horsepower. At its core, the 580N EP has nothing built into it that the operator doesn’t need, and it’s easy to own and maintain.”
Vermeer has been active in building equipment for the rental market for many years and they know the scope of potential customers ranges from the experienced professional to the weekend warrior. As such, equipment is designed with that in mind.
"We also understand that one of the most influential people in a rental operation is the person in the shop turning the wrench. These folks generally have the ear of the owner and guess what — if your piece of equipment is a pain in the neck to work on, you can bet they will let their boss know," says Jay Sunderman, strategic business unit manager, Tree Care/Rental & Landscape, Vermeer.
Access to all service points is a key design feature to increase ease of serviceability. "I’ve seen competitive designs where you couldn’t access batteries unless loader arms were lifted," Sunderman says. "It’s kind of hard to lift the arms if you can’t access the battery to start the machine."
Customer feedback drives design process
Making machines with the rental market in mind has required manufacturers to start by asking rental companies what's important to them, where their pain points are and what's on their wish list.
"A focus on providing ‘rental ready’ equipment has required us to be more customer-focused and agile," says Luttmann. "In designing the TLB840R backhoe-loader, for example, we began by polling customers in the rental community to get a better understanding of what they really need in a backhoe-loader product. Since rental rates are driven by acquisition costs and utilization, we worked with our factory to design and develop a product that was competitively priced without sacrificing the quality and features that customers expect from us. As for agility, we went from identifying customer needs to introducing a finished product is less than 12 months."
With the launch of the Terex GEN2 loaders, Luttmann says Terex adopted a new nomenclature system to make it easier for rental customers to select the right size machine for the job. This new naming scheme is based on the loader’s rated operating capacity (ROC). Because most renters evaluate skid-steer loaders and compact track loaders based on ROC, the Terex GEN2 loaders are engineered to more accurately reflect this commonly used specification, which makes it easier for equipment distributors, rental dealers and contractors to best identify the machine needed to get the job done.
The next step was finding a way to produce machines efficiently, while keeping costs down at every turn. The answer: keep it simple and maximize economies of scale whenever possible.
"Through our partnership with FPT, the engine technology that makes the Tier 4 Final solution technically 'maintenance free' has already been well established, having been used in our skid steers for more than two years now," Pullen says. "In that sense, there were no significant changes related to engine technology or engineering that we had to figure out. Otherwise, the base of the backhoe – the frame, the hydraulics, the structure, the over-center design – are all retained.
"Eliminating after-treatment and the engineering infrastructure that goes with it helps reduce the cost – both on the price tag and in the lifetime owning and operating costs," she says.
At SDLG North America, a Chinese division of Volvo offering simplified, lower-priced wheel loaders, the design and production process has caused a cultural shift within the parent corporation. "When premium suppliers [like Volvo] add more features to their machines, they try to see if their customers can gain enough value to pay for what they're adding. This causes the technology to move with the top customers and what ends up happening is the technology sometimes gets ahead of what the majority might need," says Al Quinn, director of SDLG North America. "When we started to bring SDLG here, in talking to our dealers, we told them about the difference in specs, such as the use of a powershift transmission and dry disc brakes on some models. The dealers' first reaction was, 'We can't sell that!'"
Eventually, however, the lower cost argument gained ground among the dealers and today, the differentiation is a plus. "Now the first question our dealers ask when we offer a new product is 'How much does it cost'?" Quinn says. "Our philosophy is we're going to cost 35-percent below everyone else. We'll add as many features as we possibly can, but we won't be less than 35-percent lower in price. That's become the driver."
This is not achieved through any trick of the manufacturing process, but primarily through economies of scale. "We're buying a lower-spec component, such as a powershift transmission, but we're also buying a transmission the supplier might be making 100,000 units per year. So we get those economies of scale."
It's all about product support
The most important factor in the profit-generating potential of a rental machine is uptime. When a machine is down, it's losing money, so manufacturers that can minimize the pain and hassles associated with equipment breakdowns are winners.
"Maximizing uptime while optimizing investment has become more critical than ever," Luttman says. "At our Parts Distribution Center in Southaven, MS, we’re investing in processes and systems that better ensure that we have the parts in stock that our customers need, and to get them the products as soon as possible when they need them. We offer a number of shipping options that allow our customer to get their parts when they are needed, and our location just minutes from the nation’s largest air freight hub allows us to accept orders as late as 10 p.m. for next-day delivery."
Pullen adds, "The 'basic' nature of these machines actually means there are fewer features and components to maintain over the life of the machine, so our product support personnel are very comfortable with the 580N EP," Pullen says.
Product support was the single biggest concern of SDLG dealers, Quinn adds. "We spent a lot of time with China working on the manuals and setting up a distribution point for parts in Atlanta. We're tremendously overstocked there and we ship everything overnight to the customers and they get it within a day. It's an Amazon-type model; centralized, using logistics to get the parts where they need to be."
How’s the reception?
Overall, the response from the field to rental-specific models has been very positive, as customers recognize their voices are being heard by equipment suppliers.
"We launched the 580N EP new model at The Rental Show 2015 and we’ve had consistent interest from dealers, rental houses and customers," Pullen says. "We’re also seeing interest from general contractors and companies who are looking for that ‘first backhoe,’ an entry-level machine that performs all of the tasks they need performed, but without the investment and commitment to a larger 90- or 110-horsepower machine. We’re also seeing interest from customers that have not purchased a new backhoe since some of the emission regulations were first implemented."
For its part, Terex says the response from customers to its new TLB840R backhoe-loaders has been very good. "The predecessor model, the TLB840 backhoe loader, is a great machine for owner/operators, but it really wasn’t the right fit for the rental market," Luttmann says. "The rental-ready TLB840R model has helped us reach customers that we had not been able to reach before."
He continues, "Many of the enhancements to our GEN2 compact track and skid-steer loader lines were aimed at increasing machine performance through additional ROC and loader breakout forces, while increasing the machine’s durability and reliability in the field, which reduces the cost of ownership during the life of the loader. These were features that rental customers repeatedly told us were most important to them."
Sunderman says Vermeer customers appreciate that the company is designing with the rental customer and the equipment owner in mind. “It’s this holistic approach that leads to a good experience for all parties," Sunderman says. "Vermeer’s focus on the rental market is unwavering. We will continue to follow and fill market needs with equipment that is purpose-built for the rental industry and its customers."
Fad or trend?
So does the stripped-down, low-cost option have staying power? As the economy gains more strength and stability, will a spartan design approach still resonate with some equipment buyers? Most think so.
"We absolutely see this trend continuing, and we have similar efforts underway to incorporate what we have learned into our other compact construction products," Luttmann says.