In his annual predictions for RER, rental industry consultant Dan Kaplan talks about what to expect in what he calls the most difficult year in the past 50 years of the rental industry.

RER: What are your expectations for the rental market in 2009?

Kaplan: I expect 2009 to be the most difficult year in the last 50 years of the rental industry. Fleet sizes will decline from 5 to 10 percent; rental rates will decline 3 to 5 percent; capex spending will be slashed and the size of the rental industry in North America will decline in excess of 5 percent. Everyone will feel the effects — independents, the large rental companies and the manufacturers. The pain will be disproportionate. The manufacturers will experience the most pain; they have capacity to serve a rental industry that has purchased significant quantities of equipment these past four years. Second in line to feel the pain are the top rentals companies; their fleets are at record levels, capable of supporting an economy that enjoyed record non-residential spending. Last in line are the independents; they will feel the pain but to a much lesser extent than the top rental companies or the manufacturers; their fleets have grown minimally.

How should rental companies manage their fleet during times of decreased demand?

There are two answers to this question: Independent rental companies or top 10 rental companies. The key in both cases is to maximize time utilization and eliminate under-performing fleet.

Top 10 rental companies enjoy time utilizations that range from percentages in the low 60s to the low 70s, with dollar utilizations ranging from the mid-40s to the low 60s. Independents experience time utilizations below 50 percent with dollar utilizations ranging from the low 70s to well over 100 percent.

The fundamentals of managing a rental fleet are the same for good times or bad times. Rental-specific software is critical to managing a fleet. Fleet must be managed asset by asset. Broadly speaking, I recommend utilizing the ROI grid below. If you follow these recommendations, you will be utilizing the fundamentals of good fleet and rate management.

ROI Grid
High time utilization; high ROI
Strategy: Raise rental rates. Buy more equipment.

Low time utilization; high ROI
Maintain or raise rental rates incrementally. Do not buy any more assets; transfer or delete.

High time utilization; low ROI
Strategy: Look for repair problem; if not a repair problem, buy more equipment and raise rental rates.

Low time utilization; low ROI
Strategy: Lower rental rates; transfer or delete equipment.

What are some of the ways you would suggest rental companies improve efficiencies during the coming month? For example, centralized or otherwise improved dispatch systems; improved buying practices; more sophisticated software? Obviously every company is different but what are some of your suggestions?

Every expenditure must make a contribution — equipment, people, branches, districts, regions, as well as corporate overhead support staff — or be eliminated. Rental software is critical to manage and evaluate the fleet. What I am saying is unemotionally evaluate every aspect of the business and take actions to reduce costs where indicated.

Managing labor is a bit of a vicious circle for rental companies. During boom times, good people are hard to find. Then, companies finally find the professional-level help they need and when a downturn comes they downsize staff and let go some of the very people they searched so hard for. What are some of your suggestions about how to deal with this problem?

This is perhaps the most difficult issue for a rental company, or for any company. People are the critical factor for any company. Survival is also critical. I cannot offer any suggestions that are rental specific. Good business sense must be followed. Minimize overtime, freeze salaries, eliminate 401K matches, reduce the work week and if necessary reduce staffing. These are the most difficult times that will require the most difficult decisions.

Most rental companies are aging their fleets at this time. For those that have real replacement needs, what do you suggest to them? For those that will shop at the ARA convention, what are some of the thoughts you suggest they keep in mind?

There are two different paths here. The large rental companies with fleet levels above $300 million and the independents with fleet levels below $1 million. The top rental company’s fleet age has gone dramatically up and down over the past eight years. From the high twenties (months) to the high forties (months) and back down again. 2009 will see significant aging of the larger fleets. In 2009 we will see some maintenance capex; but at a reduced level versus prior years. Large rental companies compete against each other on fleet age. So, fleet age is important from a competition point of view aside from maintenance costs.