United Rentals has dramatically transformed the rental industry in less than three years of existence, becoming the first company to top $1 billion in rental revenue for one year. RER spoke with chairman and CEO Brad Jacobs.
RER: What kind of economic conditions do you expect for the rental industry as a whole over the next few years?
Jacobs: We continue to be bullish on the outlook for the industry. We're in regular contact with more than a million customers a year, and they're telling us that their business activity looks strong over the next 12 to 18 months. What that means is a continuing increase in demand for rental equipment all across North America.
RER: You've spoken about size making your company more efficient at serving customers. Can you give some examples?
Jacobs: We're buying equipment for 10 to 15 percent less than we did 12 months ago, and 20 to 30 percent less than many small rental companies. We'll save between $100 million and $150 million on purchase costs this year alone, and get advantageous terms such as transferable warranties. These advantages can be passed on to our customers in the form of a newer and bI
One of the major priorities we have at United Rentals is incentivizing and empowering our branches to share equipment to drive utilization. Three factors make it work for us: linking our branches together through a state-of-the-art computer system, grouping our branches in geographic clusters and getting a return on our asset-based profit-sharing compensation plan. Our efforts paid off in 1999 because about 9.4 percent of our rental revenues were derived from shared equipment. This represented roughly $150 million of revenues we would not have captured without this focus on sharing equipment.
RER: You've stated that United will focus more on internal growth and less on acquisitions. Are you confident you can achieve consistent internal growth?
Jacobs: We've now had nine consecutive quarters where same-store revenues for branches that we've owned for at least a year have grown at a pace of roughly 20 percent annually. This strong internal growth is being driven by two overriding factors: increasing demand as more and more equipment users choose to rent equipment rather than buy it, and the investment we've made in expanding the fleet at these locations.
RER: You've stated a commitment to raising rental rates. How can this be achieved in the current environment?
Jacobs: Rates are highly variable because this industry is so fragmented. We believe that most customers put a higher value on equipment that is modern and reliable, and on companies that can offer a broad and deep inventory and 24/7 emergency service. So we'd like our branch managers to pursue their market opportunities balancing value and price.
In the end, it comes down to sales training and support, and we've committed significant resources to this in order to try to keep rental rates in step with the added services and benefits we are providing to our customers. The customer you make on price is the same customer you'll lose on price someday.
RER: Will you continue to pursue specialty rental segments such as traffic safety rental companies?
Jacobs: Quite a few specialty rental sectors hold great promise for our industry. In particular, we've pursued areas like traffic control and trench safety because of strong underlying growth and high returns on invested capital. Traffic control clearly stands to benefit from the $210 billion TEA-21 program passed by Congress that is being phased in over the next few years to rebuild the transportation infrastructure in the United States. And trench safety is getting a strong push from OSHA to protect workers in excavation projects. You can expect to see United Rentals pursue other specialty rental sectors going forward.
RER: Do you feel that a wide customer base will help protect the company in the event of an economic downturn?
Jacobs: We've been building the company with an eye on diversification. That doesn't mean just geographic diversity, but customer diversity too. Besides the construction industry, we now serve oil refineries, chemical plants, shipbuilders, pulp and paper mills, utilities, the sports and entertainment industry, steel mills, schools, highway contractors, municipalities, homeowners, and many others.-MR
