Rental Giants Vs. Independents.
Drive by most any large utility construction project, and count the pieces of equipment. Odds are that two of every five machines are rental units.
Contractors, utility providers and government agencies all recognize the benefits and value of renting, and the practice of renting construction equipment has grown steadily since the mid-1980s when tax laws eliminated investment tax credits and reduced depreciation allowances for capital equipment, making rental and leasing attractive alternatives to ownership.
The rental industry has been around for more than 50 years and, for most of that time, it has been dominated by independent businesses, many of them small family-owned companies.
However, in the past four-to-five years, the industry has undergone dramatic changes. With the emergence of half a dozen rental giants, rental suddenly became big business.
For example, United Rentals - the largest of the giants - operates more than 700 stores coast to coast and across Canada. Offering more than 600 types of tools and equipment, the company has a rental fleet valued at more than $3 billion.
United Rentals and other big chains are aggressively using mass-marketing techniques to capture a share of a big rental pie. At the same time, successful independents are determined to keep their long-time customers while attracting new business. Many equipment dealerships also maintain active rental operations, and Caterpillar and Komatsu have opened their own rental stores.
What all this means to the renter of equipment is that the selection of rental machines today is the largest ever offered. Competition has kept rates stable. Service - a must for any successful rental operation - is better than ever.
Giants change industry
Although the giants are new to the rental scene, they already have changed the way some equipment users approach renting.
"We work in a lot of different areas, and having a national account with a big rental company makes renting a whole lot easier," says James Ezell of Southern Diversified Technologies, a telecommunications contractor in Loganville, GA. "We don't lose time filling out credit applications every time we go to a new area, and we've found the big companies' prices are very good."
The USI Division of Arguss Communications, Mukilteo, WA, rents a lot of specialized equipment, according to Merle Sorenson. "Basically," he says, "the big chains do a heck of a job. We find equipment fleets are more modern, service is very good, and they are very competitive. They want your business and know how to get it."
KJ Construction in Edmond, OK, rents equipment on an almost-daily basis. Arrival of the chains has changed KJ's rental patterns, says president Jeff Hobgood. "United," he says, "handles equipment that previously only was available from equipment dealers. And they have a lot more inventory than smaller rental stores, so now we have one source to rent everything we need - even trench boxes and shoring - stuff that used to be hard to find. They even have big trenchers."
In fact, says Hobgood, he recently sold a trackhoe and rents one when needed. "It cost a lot to transport our machine," he says. "Now, if I need a trackhoe for four hours, I just call and it's delivered to the job. They take very good care of us."
With all the attention the big new chains are receiving, it is easy to overlook the fact that more than 12,000 independent rental centers still dominate the business, accounting for about 85 percent of rental volume, and many equipment renters continue to do business with the same rental outlets they have used for years.
"I haven't even paid much attention to what the big rental companies are doing," says George Shaffer, president of S&G Construction, Wichita Falls, TX. "We know the local rental stores well, and we have established good relationships with several sources in the Dallas-Fort Worth metroplex when we need to rent equipment for projects there. For specialized underground construction equipment, we go to dealers."
LeRoy Schoon, president of Schoon Construction, Inc., Cherokee, IA, says basically the same thing.
"We rent specialized equipment from dealers and have regular rental stores we do business with for other types of equipment."
Michael Roth, executive editor of RER (Rental Equipment Register) magazine, has covered the rental industry for more than 11 years, sees a trend for larger equipment users to move their rental business to the chains.
"The value that chain operations can give is the ability to be present in a variety of markets," says Roth. "Consolidation is occurring among contractors and industrial firms just as it is taking place in the rental industry. So if a customer has jobs in different markets, that company can get its needs taken care of without having to look in the yellow pages in different cities or ask around to find a good rental company to work with. The customer can go directly to the branch of United or RSC, NES or NationsRent, Hertz, etc., where he has an open account and be confident that he can get the same equipment and have his needs taken care of essentially the same way."
The trend does not necessarily hold true for smaller, independent organizations that operate in one area, says Roth, although some customers go to a national chain because the company they used to do business with has become a part of one of the chains.
"In other words," Roth continues, "`Tony's Rentals,' where he did business for 20 years, now is a United Rentals store, and he just continues there. If that manager keeps the same motivation to service customers, the store can match the independent. Chains need to be able to allow their branches a degree of autonomy, to make decisions on the local level.
"In other cases, rental customers are being wooed by the national chain operators who may be offering lower rates and are, more than likely, able to offer a bigger fleet with newer equipment. But despite the best intentions, each branch of those national chains doesn't necessarily operate the same, and not every branch has the same level of expertise and commitment in the service end.
"For that reason, some customers will prefer to do business with a local company, where there may be more of a one-on-one historical relationship, if that company offers excellent and personalized service."
And, indeed, there are customers who do not welcome the chains.
"The big chains certainly have changed the way we rent, and I like the old way better," says a Midwestern water and sewer contractor, who asked that his name not be published.
"We rent quite a bit of equipment," he continues, "and we had established reliable rental sources. Now, some of them are gone, and others have been purchased by the chains. One equipment dealer no longer rents because he can't compete with prices of the chains. They may have lowered prices, but my concern is service; I don't see them providing the same level of service as we enjoyed in the past."
Personal relationships still are very important in the rental business, says Roth. "One rental store owner recently told me he personally called hundreds of customers on the phone to wish them a happy holiday. His company still has to back it up with service, but customers, especially the smaller contractors, often very much appreciate relationships and loyalty. Corny as it may sound, when the owner is standing behind the counter and greets the customer by name as he walks in the door, or is available when that customer calls on the phone, that still goes a long way in this industry. Independents have to compete by offering strong service. One-on-one personal service is key to the ability of independents to survive."
That means, Roth says, immediate response to equipment breakdowns, the ability to respond quickly in an emergency situation, real attention to detail, understanding the business needs of customers, being able to effectively recommend the best solution for particular applications, and being able to make decisions quickly. "For example, if a customer needs an unusual piece of equipment, or something not in the general inventory, does the rental center just say: `Sorry, we don't have it.' Or are they willing to buy it for them, or take the time to source it somewhere and re-rent it for them? This kind of service is going beyond the ordinary to make sure the customers' needs are taken care of. That's what the independent has to do to compete. Also, additional services such as repairing customer-owned equipment are often appreciated, and 24-hour-a day, 7-day-a-week service - which a few years ago may have been considered a unique, value-added service - now is expected by many customers as part of the ordinary service and, more than ever before, independents must offer it to compete effectively."
Indeed, there are many strong independents who have no doubt that they can out perform chain-store competitors.
Despite the attention the giants have generated, independents - many of them large, effectively run operations at several locations - still dominate the market. Of the 12,000-plus rental centers doing business today, most are independent, and the giants are only responsible for about 15 percent of total rental revenues.
While that figure is expected to increase in the coming years, some industry observers wonder how the giants - publicly-traded companies whose corporate managers are responsible to their shareholders - will fare during an economic downturn or recession.
Independents have weathered such fluctuations in the past, but the giants have grown during an unprecedented construction boom. The slowdown that began in 2000 has continued in the first months of 2001, so the market may soon may learn how the rental giants will react.
Roth points out that the chains have several advantages that can help them. "They have the ability to spot trends quickly," he explains. "If demand in a particular region is slowing, they can spot it very quickly and move machines from one region' to another where there may be more demand.
"Most of the chains have relatively young fleets, so they can afford to age their fleets, thus saving money on capital expenditures, without sacrificing customer service. If a company's average fleet age is 24 months, they can extend it a year or two in most equipment categories without sacrificing quality. Much will depend on the ability of these chains to analyze their costs and manage them effectively."