How Low Can You Go?

Feb 1, 2001 12:00 PM, Gretchen Gary (GGary@intertec.com)

National, regional and independent rental companies are bending over backward to win customers and get equipment out of the yard. But the longer the rate limbo contest goes on, the more rates slip and returns slim.

Rate wars always have been part of the rental landscape, but since consolidation appeared on the scene, the consequences have magnified. Because larger companies with buying power are less affected by the short-term effects of lower rates, smaller companies are feeling the impact more than ever before. “We can't negotiate for 20 new backhoes a year and sell off our fleet every two years as some big stores can,” says Melinda West-Miller of West's Rentals & Sales in Pendleton, Ore. That leaves most independents fighting against younger machines going for lower rates.

As president of a large independent company, Bob Kendall of Seattle-based Star Rentals knows the problems of competitive buying. “The equipment never costs any less, and we buy very competitively,” Kendall says. “The bottom line is if you're adding depreciation and the cost(s) of maintenance and direct labor and you're not getting any more for the equipment, you're getting less.”

At the same time, the national rental inventory is at an all-time high. “The market is totally over-saturated — it's the principles of supply and demand,” Kendall says. The increased supply of equipment combined with an economic slowdown has lowered expectations on returns in 2001 and put the pressure on sales reps to earn their commissions.

“Everyone wants their equipment utilized and wants an X amount of market share, and in some mature markets the only way to get market share is to steal it from somebody else,” says Dave Lytle, manager of the Eugene, Ore., branch of Sunbelt Rentals.

But chasing customers with lower rates cuts directly into the vein of investment returns. “Salesmen are out there giving the stuff away or doing whatever it takes to get it out because they work on commissions and they don't make anything unless they rent it for something,” says Jim Pancake of Art Pancake's Rent-All in Nashville, Tenn.