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Rental market: enjoys rebound in underground sector.

At midyear, the rental market is rebounding from the economic slow down that has affected most segments of the nation's economy.

Increasing rental demand for construction equipment--including in some areas machines used for underground construction--is generating sales to rental centers for manufacturers who have suffered through consecutive lean years and is a good indicator that construction activity is increasing.

"The rental industry is growing and very healthy," says Christine Wehrman, executive vice president and CEO of the American Rental Association (ARA).

ARA's annual rental trade show earlier this year in Atlanta seems to have been a focal point for the optimism of rental store owners. Buying there was heavy.

Says Wehrman: "Many manufacturers and suppliers increased their sales from 2003's rental show, with several reporting that sales more than doubled from last year."

Even better, rental stores continue to buy equipment. "This buying surge has continued through the second quarter of this year," Wehrman continues.

Purchases rebounding

According to a May 2004 ARA Rental Outlook Survey, nearly 80 percent of rental businesses responding have purchased new equipment this year. "And," Wehrman says, "ARA anticipates an improving trend in construction due to the expanding economy and the passage or extension of the Transportation Equity Act. Housing starts, while not quite at last year's record levels, are still strong."

United Rentals, the nations largest rental company, reported its 2004 first-quarter up 8.9 percent over the same period last year, and the increase in the general rental segment was even higher at 11.2 percent.

"After seeing a steep decline in private, nun-residential construction for several years, our first quarter activity suggests that demand is starting to stabilize," comments Wayland Hicks, United Rentals CEO. "Equally as important, we're beginning to sense more optimism from our customers that their own businesses have turned the corner. While it's impossible to speak definitively for the year, we have seen sonic encouraging up-ticks in the demand for general construction equipment. The exception to that, in terms of our own fleet, has been traffic control equipment, which remains weak."

Hicks says that United Rentals has not experienced a significant demand in equipment used specifically for under ground construction work, but that the company is increasing the amount of equipment purchased in anticipation of recovery in this sector.

Adds Hicks: "The trench safety business is a real growth business, having grown by 22 percent last year, and is an area where we are making investments in fleet, personnel and new branches."

Hicks says United Rentals' plan for 2004 calls for spending $425 to $450 million in replacement capital for its rental fleet and another $100 to $200 million in growth capital.

"With this modest expansion in our fleet in 2004," he says, "we will be reducing the age of our fleet below the 40 months it reached at year-end 2003."

Independents bullish

Owners of independent rental centers, contacted last month in an unscientific telephone poll, were unanimously enthusiastic about the current business climate and prospects for the immediate future. All cited the upbeat atmosphere at the 2004 rental show.

"I was very impressed with the amount of buying I saw at the show in February," says Ed Detrich, Wesco Rental Businesses Inc., Torrance, CA. "There were so many rental people buying and exhibits were so crowded, we didn't finalize as many purchases as we planned. Our business is so strong, we've added nearly $1.5 million in equipment and have projected another $3.4 million in the next few months."

Detrich says Wesco is adding trenchers, excavators, vacuum trucks for sewer cleaning, pumps, compressors and generators. lie adds that much of the underground work in the market area of Wesco's three Southern California stores is for municipalities with contractors taking out machines to do city projects.

Across the country in Atlanta, Jeffery Wearing, president of Ready Rent-All Inc., says equipment rental demands are growing.

"In Atlanta, construction activity is very heavy," he continues. "New sewer lines are being installed, and trenches are being dug for other projects. Underground construction rentals are picking up, and we are adding to our fleets. Everything is positive ... as positive as you can get."

Construction equipment rentals also are good in the Midwest. "Demand for equipment is up, very up," says Roger Vajgrt, owner of Home Rental Center & Sales, Marshalltown, IA.

Vajgrt also believes February's rental show indicates economic improvement. As chairman of ARA's Special Interest Group for Construction and Industrial Services, one of his duties at the show was to get input from exhibitors.

"It was extremely upbeat," he says, "a big difference hi what we've seen the last. three or four years. Everyone I talked to was very enthusiastic. They reported heavy sales, some said sales were the best that they ever have had at a rental show. Equipment that we bought at the show already is turning revenue."

Stable market

ARA's Wehrman believes the rental industry is stable and prepared to serve the needs of its equipment rental customers in all expanding economy.

"ARA is consistently adding members who are new to the rental industry, thereby strengthening the pool of independent operators," he concludes. "The current slowdown in consolidation has resulted in a very stable rental market for independents and non-independents alike."

Summarizes Hicks: "Renting remains a fundamentally healthy concept in all economies. Although construction equipment needs declined overall in the downturn, the percentage of equipment rented has remained fairly constant. Some industry data even suggest that certain equipment categories have seen an increase in rental share. This bodes well for us in a recovery, when an upswing in construction activity should improve equipment demand and, consequently, rental demand."

Rental Rates Going Up

For equipment users, the low, stable rental rates of the past few years have been an added incentive to rent. However, for the rental industry, what is perceived as unrealistically low rates are a serious and continuing problem.

For customers who haven't already noticed, rental rates are rising. The American Rental Association's Christine Wehrman says the 2004 outlook survey previously cited found that 46 percent of the rental stares responding have raised rates from those in effect last year.

"The potential for rate increases is on everybody's radar screen," she says. "Rental operators are evaluating their local economic climates and making the decision to raise rates--or not to--based an what makes sense for their market and, as the survey indicates, many have already raised rates."

United Rentals rotes bottomed out in 2003, says United Rentals CEO Wayland Hicks.

"Some of the price decline," he says, "was driven by severely depressed demand--a combination of a falloff in construction activity and a glut of used equipment on the market. We stated in our first quarter earnings conference call that we expect our rental rates to increase two to three percent for the full year 2004, but the future pace of rate increases depends on end market demand as well as the competitive environment."

Hicks points out that the equipment rental business essentially is a service business and that to be successful, it is necessary to provide customers with reliable equipment when they need it and support that equipment with excellent service.

"Although we believe we have weathered the economic downturn belier than the industry as a whole," he stressed, "our 2003 financial results, excluding charges, were down from the prior two years.

"We view increasing rates as critical to the restoration of on adequate return on capital and on improvement in profitability for our company, which is needed in order to continue to meet customer needs."

FOR MORE INFORMATION:

Rental companies:

United Rentals, 203.622.3131, or circle reader service number 219.

Wesco Rental Businesses Inc., 310.972.3617, or circle reader service number 220

Ready Rent-All Inc., 770.987.5500, or circle reader service number 221

Home Rental Center & Sales, 641.752.3388, or circle reader service number 222

Association:

American Rental Association, 800.334.2177, or circle reader service number 223
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Author:Griffin, Jeff
Publication:Underground Construction
Date:Jul 1, 2004
Words:1324
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