The topic of rental penetration has been a popular one lately and not many in the rental industry would dispute the accepted view that rental penetration is growing. It seems to be a consensus now that the number is around 50 percent, maybe a bit north. There are various studies that support this view. None are absolutely definitive, since this is an inexact science, but this view is generally accepted.
This month’s cover story by Gary Stansberry approaches the concept of rental penetration from a slightly different angle. He doesn’t dispute this accepted wisdom, but in a way he plays the devil’s advocate. Stansberry supports the estimates and the notion that major factors contributing to the growth of rental penetration are the improved efficiencies of most rental companies — on-time (or at least far more punctual) delivery, greater security of supply, well-maintained late-model equipment and rapid response in case of breakdown. The use of telematics has also reduced the amount of dispute or conflict over billing, and more accurate billing is another service that customers are expecting to see from a professional industry.
All of this is agreed upon. Stansberry nonetheless introduces an interesting caveat to the dialog. Might another contributing factor be the fact that the rental industry undervalues its service? As Stansberry says, what if your local movie theater screened the latest Hollywood releases for what the admission price was about 20 years ago — $4? Do you think that theater would fill up its seats more than its competitors? What if your nearby Ford dealership still sold Ford Explorers for $16,000? Do you think they’d have pretty good market share? You get the picture.
So while rental customers like renting because delivery is on time, they get late-model equipment, they are saved the costs and efforts of storage, maintenance, acquisition and disposal, and instead of having to worry about replacing or fixing a piece of equipment that breaks down they can just make a phone call and get a replacement, might it also be a hell of a lot cheaper to rent equipment than to buy it because the rates are so low? Rental is a great deal for a lot of reasons, and even better when the rates are from 1990.
Stansberry points out that financial utilization rates are down in the industry and with rising equipment costs and fuel prices and increases in the overall cost of doing business, margins are tighter as well. Don’t get me wrong. This is a pretty good time in the industry. We’re on an up-cycle. Most rental companies are saying that volumes as well as profits were up in 2012 and they expect the same in 2013, despite some uncertainty over the economy. Financial utilization also improved for many in 2012.
But the economy is not always on an upswing. We all know that and had it dramatically reinforced in recent years. Most of the companies reporting information for the RER 100 — you’ll read our full report on that next month — say that rental rates improved in 2012. Various other reports out there, such as Rouse Asset Services and others, are saying the same thing. But, as you well know, if they did improve for you —and people in some markets dispute that cheerful news — they improved from very low levels.
We’ve addressed this issue before over the years; what I’m saying isn’t exactly new. We understand it’s hard to raise rates when competitors aren’t. But I reiterate another important point Stansberry makes in his article: Management of your companies’ rates has to be an ongoing process. The marketplace changes daily. Most of you have effective software that can give you up-to-the-minute or at least daily reports on just about any kind of information about your company’s performance you need. So try to find a way to make sure your company is getting the return it deserves for the improving value it is providing your customers.
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As mentioned above, rental penetration is a popular topic these days and we at RER are going to be taking a deeper look at understanding it with some of the brightest minds in the equipment rental industry on a webinar on May 29. We’ll be sending out more information when all the details are finalized. So mark your calendars. All you need is a computer — a laptop, a smartphone, a tablet, whatever device you want — and you’ll be able to listen. You’ll have a chance to ask questions and contribute to the dialog. So check out next month’s issue as soon as it comes, keep tuned to RER’s website and our RER Reports newsletter and e-mail blasts for the details and you’ll learn some facts and figures you can use to remind your customers why rentals is the way to go.