There is no denying that the past few years in our industry have been a proverbial roller coaster. The housing crisis, the highway bill extensions, the recession, bank bailouts, Main Street vs. Wall Street—all of these scenarios have changed the way we do business in our industry. Savvy contractors, dealers and manufacturers had to come up with creative ways to weather the storm, and those that made it through the maelstrom are positioned to enjoy the benefits of a recovering economy and a thriving rental industry.
Current Trends
Since February, there have been signs of recovery in the rental industry, especially in the construction realm. The American Rental Association’s Rental Market Monitor is a subscription-based service for ARA members that partners with IHS Global Insight to provide market data and analysis, and according to the latest report from May, the equipment rental industry is forecasted to top $33 billion in the U.S. in 2013. This equates to a 7.3-percent year-over-year increase from 2012.
Furthermore, the construction market is expected to be one of the most important drivers of growth for the equipment rental market in 2013, with economic projections showing significant increases through 2017. This is pleasant news to everyone involved in the rental industry.
One of the main circumstances that accounts for the rise of rental is the lack of confidence in our economy. When there is uncertainty in the market, contractors do not want to risk the capital investment, so they make the decision to rent. Furthermore, unemployment is still hovering at about 7.5 percent, and that figure isn’t exactly a beacon of hope for the economy. We are headed in the right direction, but until the economy makes a full recovery, we can expect to see rental continue to grow substantially. The recovery process promises to be a long one before contractors are confident enough to make large-scale equipment investments.
Another huge contributor to the uptick in rental involves actions by lenders. Banks have had to take a hard look at their contributions to the crisis and have reassessed their lending practices. For that reason, financing has been a challenge for some contractors. Since many contractors can’t guarantee when the next job is coming in, banks aren’t going to take risks they might have taken in a pre-crisis world.
Aside from external factors that have contributed to the current situation, there are intrinsic benefits to the rental model. Some contractors do not have a service division in their organization; they rely heavily on the service from the rental house or dealer. It’s an added expense when they invest in those business units, and some small- to medium-scale contractors can’t justify the expense.
Consider the boom in pipeline work in the Bakken Shale Formation of North Dakota. There were plenty of contractors who couldn’t make ends meet after the housing market collapsed, and they were forced to diversify their services. They shifted into mining, utility and pipeline contracting and went to North Dakota with a vision for the direction of their companies. These contractors rent a myriad of machines, and they count on dealers and rental stores to service the equipment. Instead of shelling out a quarter of a million dollars to own, maintain and store the equipment, they rent it for $20,000 and continue to build their business.
Another benefit is that often it’s simply more convenient to rent than to purchase equipment. Many rental houses and dealers have massive inventories and practically instant availability with online catalogs featuring item numbers, prices and descriptions. Contractors can simply call or place their orders online and expect the equipment onsite within a few days. A good rental house or dealer can have a hydraulic breaker ready to go and on a truck in an hour. In contrast, if contractors are buying the equipment, they need to be prepared to wait for the purchase to arrive. When the contractor’s application is a short-term, one-off project, it often doesn’t make sense to purchase.
A Prime Climate for Contractors
Contractors who have survived the recession have most likely come out stronger than they were before. Many companies were operating comfortably pre-crisis, but comfort and high productivity rarely correspond directly. Organizations that fared well post-crisis had been forced to re-evaluate their business processes to become leaner and more efficient. This introspection process prepares many contractors for growth as the market continues its upward trend. Equipment, like an automobile, depreciates once it is purchased.
Finally, with more liquid assets being freed thanks to lower costs, contractors can make other investments to help grow the company, such as training employees, hiring skilled operators, joining associations and renting additional equipment.
Staying Power
It is important to remember that even as the economy reaches its full stride in the coming years, it doesn’t mean that the rental industry will drop off. Having survived the recession, most contractors will know how to find the proper balance between renting and purchasing construction equipment. Armed with a healthy level of caution and the knowledge of how quickly things can turn around in this industry, contractors can be ready for what the future has in store.
