Business conditions in the rental industry as well as rental rates are deteriorating, according to a recent survey by UBS Investment Research. UBS’ recent rental equipment branch manager survey indicated a recent drop in rental rates as well as overall business.
Based on 156 responses, 59 percent of branch managers said business conditions were worse in June than they were last year, while 21 percent said business conditions were better. About 20 percent said business conditions were about the same as last year. Forty-five percent of respondents said rental rates deteriorated in June compared to May, while 12 percent said rates had improved. The remaining 43 percent said rental rates stayed about the same in June as in May.
Fifty-five percent of respondents said they expected their companies’ capital expenditures to decrease during the next 18 months, while 17 percent said they expected it to increase. The remaining 28 percent of respondents expect total capital spending to be roughly flat during the next 18 months. However, this response is less pessimistic than a similar question asked by UBS in its November 2007 survey when 72 percent indicated the expectation of lower capital spending in 2008 versus 2007, with only 11 percent expecting to increase capital spending in 2008 compared to 2007.
In regard to spending on aerial work platforms, based on 124 responses, with 32 branch managers saying the question did not apply to their businesses, 46 percent responded that capital spending on aerial work platforms is likely to decrease during the next 18 months, versus 22 percent of respondents who indicated they expect increased spending on aerials. The remaining 31 percent expect capital spending on aerial work platforms to be flat.
Most branch managers say manufacturers are raising equipment prices, with 64 percent responding that equipment prices were higher, with only 8 percent saying equipment prices had dropped in recent months. Twenty-seven percent said prices were stable. UBS asked the same question in a February 2008 survey, at which time 45 percent of respondents said pricing on equipment purchases from manufacturers was higher with 12 percent saying prices had dropped.
UBS said the pricing increases are probably the result of manufacturers attempting to pass on higher input costs to their customers. However, UBS said, “we continue to believe capacity additions at the construction equipment manufacturers, coupled with slackening global demand, could lead to a supply/demand imbalance and result in limited pricing power, all of which could be exacerbated by a deteriorating global macroeconomic environment.”