Following a year of strong growth, it appears that 2007 won't exactly have a repeat performance. While industry projections are not expected to go through the roof in 2007, there is growth forecasted, albeit moderate growth.
RER conducted a state of the industry survey in November 2006 that was sent out to 6,501 readers. This survey posed questions in topics ranging from volume growth to equipment purchases, and from employee training and benefits to challenges and trends facing the rental industry in 2007. Determine how your business stacks up to others in the industry when compared with the following figures and percentages.
Predicting the future is almost impossible, however, industry experts share their views of what the year has in store by looking at historical data and trends. While some companies had a better year than others, 81 percent of rental dealers responding to the survey reported volume growth from 2005 to 2006, with 11.9 percent as the estimated average growth. Based on this average growth, 83 percent are projecting that 2007 will also show a growth in volume over 2006, with the majority of respondents predicting growth between 6 and 10 percent.
“We're expecting 10-percent volume growth in 2007, but the curve won't be the same as it was in 2006,” says Bob Kendall, president of Seattle, Wash.-based Star Rentals, echoing what the majority of readers reported in the survey. Star Rentals is No. 34 on the RER 100.
A few companies are expecting more volume growth for 2007, including RER 100 No. 68 Diamond Rental, based in Salt Lake City, Utah. “We are expecting 2007 to grow significantly over 2006 because we are continuing to add assets and locations,” says Mark Clawson, president of Diamond Rental. “Our same-store growth should also be good in 2007, perhaps 20 percent.”
Purchasing power
More than half of the survey respondents, about 54 percent, expect to buy more equipment in 2007 than they did in 2006. Most of these rental companies will buy between 6 and 10 percent more equipment. Forty-nine percent of companies looking to make equipment purchases noted aerial work platforms at the top of their lists while forty-six percent of buyers plan to purchase generators this year. More than four in 10 reported they plan to purchase forklifts, telehandlers, compaction equipment and attachments as well.
Kendall states that Star Rentals plans to purchase about the same amount of equipment for 2007 as it did in 2006, which will include a broad range of general equipment for contractors.
Dave Griffith, president and CEO of Bristol, Pa.-based Modern Group No. 38 on the RER 100, says the company plans on fleet replacements for 2007 with additional purchases or additional leases with OEMs.
The daily grind
Rental companies expect to continue with a business-as-usual outlook for 2007, with some potential improvements and additions to the daily operations. These improvements and additions include expanding marketing strategies, opening new branches, adding more capabilities and programs to existing software, and improving employee training programs and benefits packages.
Sixty-two percent of survey respondents plan to increase their marketing strategies. More than four in 10 respondents will introduce new product lines (46 percent) and add more sales staff (41 percent). According to Griffith, Modern Group will be opening or expanding two new rental branches this year. Thirty-three percent of respondents will be following in their footsteps with branch expansions.
“Diamond Rental is planning to do all of the above in 2007,” says Clawson, which includes opening new branches, introducing new product lines, adding more sales staff and increasing marketing efforts.
In terms of software systems, nearly half (48 percent) will not be making any changes. However, 27 percent plan to add additional capabilities and programs to their current systems. “We will be looking at new software and evaluating implementing new capabilities on our system,” says Griffith.
Kendall forecasts that Star Rentals “will be adding capabilities to its existing system which will help fine tune and ‘Star-ize’ things to allow for data retrieval to manage everyday business.”
Star Rentals is also currently in discussions with telematics systems providers and is evaluating adding these systems to equipment in the future, though probably not in 2007. This way of thinking follows the predictions of other rental centers that confirm their companies would not be adding GPS systems this year. Only 16 percent plan on adding this improvement to equipment, while it appears the rest of the rental market will wait for equipment manufacturers to make GPS systems standard on all units.
Aim to please
With service becoming a bigger part of the rental business, almost half (48 percent) will increase the number of service technicians in 2007, while 33 percent are scheduling to increase their rental counter employees and 35 percent will increase the size of their rental outside sales force. Diamond Rental is one such company that will be adding to its employee head count with counter, outside sales and service technicians. Nearly three-fourths of responding dealerships are also increasing head count in 2007.
When it comes to benefits packages, there usually aren't many changes from year to year. However, 64 percent of survey respondents will improve their employee benefits package in 2007. Other companies plan to maintain the status quo. “We're not taking anything away, but we're not adding anything either,” says Kendall. “With health care costs going up, it is getting increasingly more difficult for employers to absorb the costs without asking for more employee participation.”
Employee training is important to every business, not just in the rental community. Fifty-seven percent of rental companies will enhance their training programs in 2007. According to Griffith, Modern Group will run its Modern U program for its employees and plans to add curriculum as well.
“We are developing a much more comprehensive program designed to support the development of entry-level employees into tomorrow's managers,” says Clawson of Diamond Rental.
“Star Rentals is big into safety training and dedicates a lot of time and resources into employee training in all areas, including IT and management training,” says Kendall.
Overcoming challenges, embracing trends and surviving threats
With 2007 up and running, rental dealerships face challenges and obstacles every day, some more tangible than others. According to Kendall, rental companies are always facing challenges as they continue to find ways to be more cost effective and efficient; they are the same challenges in any business. Clawson agrees that managing growth is always difficult.
Many industry trends will impact business this year. “With the industry becoming more sufficient, the trend will be towards more IT and to continue to introduce more technology into business to become more efficient,” says Kendall. For a more in depth report, see the cover story on “35 Trends That Might Come True” on page 32.
Unfortunately, there will always be threats to business, whether it comes in the form of competition, the economy or natural disasters. According to Kendall, inflation is Star Rentals' biggest threat in 2007. “We saw a glimpse of it last year with the price increases for steel and petroleum products,” he says. Because most products are petroleum-based, if that cost goes up, then other costs are affected. “If non-residential construction falls off the face of the earth, then we're all in trouble.” But that doesn't look to happen anytime soon.
Clawson of Diamond Rental sees the biggest threat to the rental industry in the form of price cutting in construction rental markets in the event of a downturn in the economy. “Our exposure is fairly limited, but the industry does not have a good record of weathering storms intelligently,” says Clawson. “Rental service providers tend to drop rental rates to the floor in order to keep their equipment out on rent, even if that means that returns will be horrible. It is a zero-sum game for the large rental companies that provide services primarily to contractors and deal primarily in large equipment.”
According to Griffith, the economy could be a potential threat to rental industry margins, especially if it takes a dive. “Pending trends with medical benefits if they continue could also threaten rental margins,” says Griffith.
As long as the economy holds steady, 2007 looks to be a prosperous year, with moderate growth across the board.
