The Rental Game is Now a Match of Wits
32 Construction Equipment Distribution www.cedmag.com December 2009 Once called recession-proof, the heavy equipment rental market has succumbed to the economic downturn, proving that old norms and conventional wisdom do not really apply anymore. One needs to look no further than the earnings statements from a few publicly held firms for the evidence. At H&E Equipment Services, a diversified dealer with 63 full-service facilities operating in many regions of the U.S., gross margin on rentals decreased to 30.6 percent from 50.3 percent in the third quarter of 2008. In the company's third-quarter earn-ings report, it was reported that rental rates were down 19.1 percent and rental revenues were down 42 percent, versus the third quarter of 2008. At Sunbelt Rentals, with locations in 34 states, rental revenue was down 29 percent through July 2008. There's no doubt many more dealers are experiencing these same difficulties with the rental side of the business. You are competing with your customer, says Dale Vaughn, president of Oklahoma City-based OCT Equipment. Your customer may have some number of crews working and he's down to one. He needs one [machine]; he pulls one out of his back yard. Meanwhile, an oversupply of equipment has further diminished the value of the dealer's rental fleet. Gary McArdle of Rouse Asset Services tracks a number of metrics for the rental industry, including the value of their fleets. The value is down 20 percent on used machinery specific to the general rental equipment market versus 2008, said McArdle. Peak to trough, 29 or 30 percent. Rental Plays Well to Market Uncertainty Still, there are some signs that the market may be improving, if ever so slightly. According to McArdle, the value of the rental equipment inventory has flat-tened in the past few months. Looking to a recovery, tight credit markets and market uncer-tainty are two reasons why rental should play well with contractors wanting to outsource capital and logistics. And until credit flows more freely, there may be a The Rental Game is Now a Match of Wits ...and a measure of good old fashioned beating the bushes. In this altered market, it's time to re-examine your strategy and plot your next move. By jOanne cOstin