There is a positive aspect to that issue, that being at least there’s a level of demand from the rental customer base that has not been seen in some time. A couple of years ago, the cost of equipment was a concern, but the reality of Tier 4 hadn’t hit yet and rental companies weren’t buying much anyway. Now there’s a more pressing need for replacement fleet, obviously because the equipment is a couple of years older, but also because there is more work out there.
This year, for the most part, RER 100 numbers are pretty impressive. The total revenue of the 100 eclipsed the peak years of 2006-2008. Obviously numbers are up because we have turned the corner on the recession and overall demand is on the upswing, albeit rather tentatively in many quarters. More importantly, however, it’s the adjustments rental companies made that deserve the credit. After those strong peak years, when the downturn hit with surprisingly devastating swiftness, rental companies recognized the changing realities quickly and responded by aging their fleets, and selling off excess fleet. Many companies were forced to make painful decisions, in many cases having to cut staff. By making tough decisions, and doing it quickly, rental companies weathered the recession’s storm — which turned out to be far more serious than most expected — in far better shape than would have been likely in the past.
With the collapse of residential and non-residential construction markets, rental companies diversified extremely well, with so many companies finding a reasonable degree of success in industrial and municipal marketplaces, and those that were geographically located to benefit from energy markets did so. So this year while interviewing many of the RER 100 executives, the diversification of their marketing efforts was another recurring theme that will have long-term implications for the equipment rental industry.
The issue of rental penetration has become a popular topic and many RER 100 executives referred to it having a growing effect on their business in 2012 and going forward. They are definitely finding a higher percentage of customers choosing to rent more than before, so while the construction pie has been sliced into, the percentage of that pie that is renting is clearly larger. And by concentrating less on construction and seeking to find business elsewhere, new markets continue to be opening up for rental and the growing of those markets will expand the rental market long-term.
I also sense a greater willingness to be aggressive and change as the market changes. Quite a few RER 100 executives told me they intend to expand outside sales efforts this year, not taking for granted that an improving economy will continue to send business pouring in their doors just because they are there. They know very well they have to go out and get that business. And hopefully the Tier 4 issue will inspire those rental companies to train this new sales staff to sell rental based on quality and not on price, to use their more sophisticated systems to put controls in place to keep rental rates rising. Because the sticker shock of rising equipment costs is not going to go away. And while fuel prices may fluctuate, the arc is far more likely to continue to rise than start to fall.
Social media is grabbing the attention of the RER 100 as well, and efforts to communicate with their customers via Facebook, Twitter, LinkedIn and other sites are increasing.
Yes, rate wars will probably always be around to a degree and no matter how much we all rant and rave about it, there will always be companies looking to grab market share through price. But another recurring theme in my conversations with RER 100 executives is that they need to keep their fingers on the pulse of their businesses all the time, to watch rental rates and utilization and margins constantly because manufacturers can only do so much to keep equipment affordable. Enhanced efficiencies and higher rates are essential.
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I hope to see you all tuning in to our webinar on rental penetration on May 29, featuring Dan Kaplan, Chuck Yengst, John McClelland and a possible surprise guest. Visit www.rermag.com for details.
