During the 1990s, many rental executives said it was easy to make money in the rental business. If you had decent equipment and reasonable service, demand was so high, it was hard to miss.
The world of rental has changed significantly in the past couple of years and it's clearly a time of adjustment. Three or four years ago rental companies had to adjust to the new reality of consolidation and national competitors with significantly better buying power than they had. Just as many of those companies figured out how they would deal with that reality and where they stood in that new world order, the rental cosmos shifted again.
The economy has gone way south, but more than that, there is a supply-versus-demand issue that people were able to overlook when demand was exceptional.
Gary Bagley, CEO of ICM, said his company began looking at the supply-and-demand question a few years ago, recognizing that they had to get costs down. They decided that to really understand if they were making money, they had to follow the life of a piece of equipment from its purchase until the day it was disposed of, whether it be through auction or wholesale or retail sale.
One of the solutions ICM came up with was developing its own used equipment retail sales division that would focus entirely on used equipment sales, a sales staff completely separate from sales staff that “sell” rentals or sell new equipment. That effort, along with other cost-cutting measures, has helped ICM remain profitable. Which isn't to say that sending equipment to auction can't work for many companies or that a retail sales staff is the solution for every company. Different dynamics govern different companies and marketplaces, and solutions are often uniquely discovered and designed. The important thing was the process they followed, tracking and analyzing costs every step of the way to see if they add up to black on the profit ledger.
Given the importance of that end, I urge readers to take a look at Dan Kaplan's column devoted this month to the issue of appropriate fleet age. Kaplan's thoughts are appropriate for the RER 100 issue, since, as president of HERC for nearly 20 years, his company was No. 1 every single year until United Rentals burst onto the scene. So he learned something about tracking costs. He learned that if you're going to age fleet, you'd better take into consideration what that will cost you in maintenance. It's easy to keep maintenance costs down if you're turning equipment over every 18 months. Keeping equipment major-maintenance free for 36 months or more is quite a different matter.
Of course, the RER 100 measures rental volume, not profitability, and one doesn't necessarily guarantee the other. But most of the companies that have stuck around on the chart for a while are likely to be profitable. And I would bet that the most profitable among them, however they choose to go about measuring them, know their costs from beginning to end and base their business plan accordingly.
