Late Afternoon in an Unnamed Bar

June 1, 2004
The two men sat in a bar going back and forth over a rental rate as the afternoon turned to the dark of night. Repeatedly the rental company salesman

The two men sat in a bar going back and forth over a rental rate as the afternoon turned to the dark of night. Repeatedly the rental company salesman explained the service his company offered and how much better it was than the company that had offered the contractor a 15-percent rate reduction. He pointed out that all it took was one or two breakdowns that weren't repaired in a timely fashion, wasting time while laborers stood around waiting for a replacement machine, and whatever money the contractor saved would be gone.

The rental developer, who we'll call Joe, had been admonished by the owner of his company not to go lower than a certain minimum on the rental of this particular machine, even if that meant losing A-list clients that had done business with them for years. The salesman had tried every conceivable angle to convince this particular subcontractor to accept the higher rate, repeatedly citing past examples of his company's service. The subcontractor had nodded and agreed but stood his ground. Finally Joe threw his keys down on the table in disgust.

“All right, here's my last pitch,” Joe said. “You need two compact excavators, right? You rent one from XYZ at $1,400. You rent one from me at $1,800. The difference is $400 a month. If you get the same amount of uptime from their machine, I'll refund you the $400 difference out of my pocket.”

“What do I have to give you in return if the uptime isn't the same?” the subcontractor asked.

The salesman didn't hesitate. “Your business' next job. At my price.” The handshake agreement was sealed with another tall cold one and they went home into the night. The next day Joe's company delivered an excavator at 7 a.m. as promised. The rival outfit delivered shortly after 8.

The subcontractor kept a chart. When Joe's company had the first breakdown — and it was a small item, quickly repaired — he privately questioned whether he'd made a smart move. But he had confidence in his company's service staff, and was sure his competition couldn't match it.

Two months later the subcontractor called Joe back. “Joe, we need another excavator. How soon can you get one here?”

“Do we need to go over the service records?” Joe asked playfully. The answer was no. Superior service won out, and the higher rate that went with it.

While this story is true, and I've been pledged to secrecy not to reveal the participants, we all know life doesn't always work that way in the rental business. Some well-meaning rental developers don't work for companies that can back up promises with performance, a point I've made more than once in the past and won't belabor again.

In the case of Joe's company, the important point was that management finally had had enough discounting and drew a line in the sand. That didn't preclude all concessions to favored clients, but it established minimums sales staff was not allowed to exceed without permission from the owner; permission, Joe told me, he was not granting frequently.

During our recent survey of RER 100 owners and executives, we found that two thirds of those we interviewed said rental rates were improving, either beginning in late 2003 or in the first quarter of 2004. About half of those who noted improvement took credit themselves — not to say other companies hadn't also improved, but that they themselves had instituted some kind of measure to make sure rates improved. They weren't going to wait for some dramatic change in the marketplace. They came to the conclusion that rental rates would not improve unless they themselves raised them.

While the company Joe works for is not an RER 100 company, it is one of substantial size and the company drew a line on rental rates because return on investment had become unacceptable, too low for this company to make the profit it needed to stay in business. The owner had basically told his sales staff that these were the new rules and if they weren't adhered to, they might all find themselves out of work, not because he would fire everybody, but because he'd have no choice but to close the company.

Sometimes it takes having one's back to the wall to take needed action, sometimes it just takes good business sense. But the recovery in the rental market is partly based on better economic conditions and partly based on better business practices that can carry through all economic conditions.