Rental Equipment Register

A lot of people were taken by surprise recently waking up to the news that United Rentals was acquiring RSC. In a conceptual sense, it wasn’t surprising. People in the rental industry have expected some degree of consolidation at the top among major rental companies for a while. If you’ve been backpacking in the Himalayas and somehow missed this news, check it out at: http://rermag.com/trends_analysis/headlinenews/united-rentals-buys-rsc-industrys-largest-merger-121611/.

Names and rumors are bandied about periodically. I’ll occasionally get a call from a Wall Street type analyst asking me something to the effect of “Do you think Sunbelt is going to buy Hertz?” No, I’m not starting a rumor here, I just picked those names out of the air. You could insert any name of a major player: Neff, Ahern, NES, pick it, the rumors fly when they fly.

But there wasn’t any buzz about United/RSC, at least nothing came across my radar screen and nobody I spoke with afterwards had heard rumors about it either. So maybe the “if there’s smoke there’s fire” cliché is outdated. Maybe if you don’t hear any rumors, there’s really something to think about.

In some ways this merger is good news for the smaller independent rental companies. In many markets there will now be one less competitor. For example, in a particular market, perhaps United and RSC each have two branches and the new merged company now determines they don’t need that many. We will undoubtedly see some closing branches, perhaps fewer locations out there, one less major competitor in some markets.

Inevitably some people will lose their positions and I’m certainly not touting that as something to celebrate. The up side is that some independents and smaller companies may soon find some pretty good mechanics, branch managers, sales people and others looking for work, so keep your eyes open.

One person e-mailed me concerned about United Rentals becoming too big and I pointed out what analyst Dan Kaplan said, that United has about 7 percent of the market and RSC about 4 percent. That adds up to 11 percent, so obviously this industry is still very fragmented with plenty of room for independents.

Another December surprise was Volvo Rents acquisition of Midwest Aerials & Equipment, a four-location primarily aerial rental company run by a team of the most dynamic entrepreneurs and managers in the business – Dan Tumminello, Keith Morrell, Dan Martino and Al Alonzo. Volvo Rents has made a spate of acquisitions in 2011, some their own franchises, some independent companies, but few, if any, with the size and scope of Midwest. It’s also the first primarily aerial company Volvo Rents has acquired, so it will be very interesting to see how they integrate. For more information about this acquisition, see http://rermag.com/trends_analysis/headlinenews/volvo-rents-acquires-midwest-aerials-121211/index.html

The Lift and Access Showcase event, held recently in Scottsdale, Ariz., was essentially the first trade show in North America exclusively devoted to aerial equipment. I don’t know if event organizer Guy Ramsey and his staff necessarily thought of it in those terms, but it was really unlike any event I’ve ever been to and fills a unique market niche.

For two days a couple of dozen aerial equipment manufacturers exhibited their equipment, ranging from the leading players such as JLG and Genie, to Skyjack and Snorkel and Haulotte, and smaller niche manufacturers as well. Also present were telehandler manufacturers such as Gehl and Manitou. For two days there were equipment “walkarounds” where the manufacturers would present their equipment with detailed overviews, about 15 minutes at a time for the benefit of the attendees. Various sizes of booms and scissors, compact telehandlers, track-mounted lifts, boom trucks and mini-cranes were presented in fascinating detail and there was plenty of time for attendees to walk around the exhibit area for private demos. A variety of exhibitors that supply the aerial industry with batteries, hydraulic systems, software and other services also had booths, and several interesting symposiums were held.

The Showcase has been held for years, always in November in the Phoenix area. In the past generally the primary attendees were the Lift & Access staff, who had the opportunity to take a look at the equipment and compare it and expand in depth about the various units. In recent years, other members of the media, such as myself with RER, attended as well. This was the first year the event was open to the public, which, in this case, primarily represented rental companies, mostly national rental companies and aerial equipment specialists. I would think any rental company or distributor interested in aerial equipment would enjoy attending this event, presented in a casual, collegial friendly atmosphere.

Since Europe has an aerial show held in The Netherlands every fall, I’m glad to see an aerial equipment-related show develop here in the U.S., even though the format is a bit different.

Next year the Showcase will move to Orlando where it will be held at the Ritchie Bros. Auctioneers permanent auction site, co-located with the auction.

It is going to be a new era in equipment with the coming advent of Tier 4 Interim and then Tier 4 final engines, with equipment modified to accommodate those changes. The full effects have yet to be felt, since many manufacturers are really just beginning to get their T4I units to market. A few engine and equipment manufacturers have already announced some price increases, while others are trying to avoid doing so, but presumably will find other ways to deal with the increased costs that they face.

In case you didn’t notice the news – and you can check out our story at http://rermag.com/trends_analysis/headlinenews/komatsu-america-launches-complimentary-maintenance-program-091411/index.html – Komatsu has taken some interesting steps to help ease the transition to Tier 4. The company is offering Komatsu Care a support program that will be standard on all construction size Tier 4 Interim machines, along with two complimentary Komatsu Diesel Particulate Filter exchange units for the first five years, or 9,000 hours, whichever comes first. The KDPF exchange will lower the cost of machine ownership and reduce downtime compared to cleaning the filters.

Komatsu Care and KDPF exchanges are scheduled to occur at a standard maintenance intervals of 4,500 and 9,000 hours. Komatsu Care includes a complimentary maintenance program covering all 500-hour factory-scheduled maintenance intervals on T4I Komatsu construction equipment for the first three years or 2,000 hours, whichever occurs first. The program will cover new T4I equipment whether it is rented, leased or purchased.

Already some customers out there are insisting on T4I machines. Companies with environmental compliance programs and incentives will be requesting T4I machines, as will many industrial facilities and contractors working on government-funded jobs. So while T4I machines may cost a bit more, more opportunities will help make up for additional costs. Whether or not many manufacturers will do what Komatsu is doing remains to be seen, but I wouldn’t be surprised to see some similar incentives as the Tier 4 era becomes reality.

It was 1929. Twelve million people were out of work; 12,000 people became unemployed every day; 20,000 companies had gone bankrupt; 1,616 banks went bankrupt and 23,000 people committed suicide in one year.

We’re not seeing a lot of people jumping out the window on the 6 o’clock news every night this year, but the feeling of mass panic is certainly out there, as evidenced by mass selling of stocks in the days following S&P’s downgrade of the U.S. credit rating.

The economic news that we read every day is not particularly exciting, and if you live in California where I live, with unemployment topping 12 percent still, you can’t help but know people who have been hit hard by economic issues. That said, and while construction is still quite sluggish in much of the country, and the U.S. is hit by incomparable political gridlock — similar to the gridlock I see on the freeways most days as I drive to my office — and several European countries aren’t far away from defaulting on their debts, the resurgence of optimism we felt during the first quarter of 2011 might be a distant memory.

Still, if you look at the quarterly reports from most construction equipment manufacturers and national rental companies that are publicly owned, things are a lot better than they were a year ago. While a lot of people are selling off their stocks — and I will never pretend to be a stock-market analyst — my gut feeling is this is not a time to panic, much less jump out the window.

The economic issues are dire and the problems out there in the rental marketplace might be daunting, especially when the country’s inability to fix its economy and deal with the debt challenge is so disheartening. But those of you who are still involved in the rental industry just came through one of the most challenging recessions in history, probably the toughest in our lifetime, and you’re still here to tell about it. You’ve been through a lot and survived, so I trust you’ll get through this one.

This debt crisis isn’t going away just because they arrived at a deal in Washington and I expect economic and political volatility, as well as some dramatic stock-market fluctuations, will probably be the order of the day for a while, so you might as well get used to it.

One of the keys to survival for many that I talked to these past few years was the refusal to panic. When the phones weren’t ringing, when the phones weren’t being answered on the other end, when customers had no work, you found a way to readjust your business and adapt to changing times. Don’t expect dramatic boom times. Keep a strong balance sheet, keep practicing those business essentials that got you there and don’t stop looking for ways to operate more efficiently. And while there is more acquisition activity than there has been for a while, for most of you a buyer dangling more money than you ever dreamed of is probably not likely to break down your door looking to buy your company.

It’s a crazy thought but when I’ve read about or seen movie images about panicked business executives or brokers jumping out the window and plunging to their deaths from the high stories of buildings, I sometimes imagined that while on their way down something occurred to them to change their mind. Maybe a solution to a problem or the thought of a loved one came to them and they changed their mind thinking, “No, I don’t want to die.”

I don’t think too many of you are contemplating such a thing, but, as a metaphor, I repeat my message of not panicking. Look for the fundamentals that are working and keep building on them. Adjust and change and don’t give up.

Pat Olney once said he gets nervous if he’s in one country longer than a week. The Canadian-born Olney, for those who don’t recognize the name, is the president of Volvo Construction Equipment, and if you take look at what Volvo CE is doing around the world, you’ll understand why the man doesn’t sit still for long.

To start, Volvo has implemented or will be implementing more than SEK 2 billion (more than U.S. $315 million) of investment in the “BRIC” markets. More than half of that investment is in China. Since opening a plant in Shanghai in 2003, Volvo CE has invested more than SEK 260 million (more than $40 million) in the development of that facility, and is currently investing even more to build a Volvo technical center for product development in China. The company has invested comparable quantities to build excavators for the Chinese market and and to build a components facility.

In Brazil, the company has a factory in Pederneiras, and last year announced it would spend SEK 65 million to produce excavators in Brazil, which went into production in the first quarter. Volvo CE is investing SEK 140 million to start production of excavators for the Indian market. Volvo is investing SEK 700 million into the Russian market, especially the expanding of the distribution network in that country.

The component facility in Eskilstuna, Sweden, recently underwent a SEK 1 billion facelift to extend the factory, install modern equipment and new production and assembly methods. The factory manufactures power trains – axles and transmissions – for Volvo CE, and now covers 65,000 square meters. The entire layout of the factory has been adapted to flow-oriented production methods similar to those found in the automobile industry, with a changeover from station assembly to paced line assembly. The company has made considerable investments in training.

The company is investing $100 million into its new U.S. headquarters in Shippensburg, Pa., where it is going to start rolling out product of wheel loaders, excavators and articulated haulers to complement the existing range of road machinery products already being produced there. Volvo will also add a customer demonstration center and training center there.

Olney has fulfilled several roles for Volvo CE, including his most previous role, where he was in charge of global industrial operations, so he got to experience firsthand the topic of our July cover story about the global supply chain (check it out at http://rermag.com/business_technology/business_info_analysis/equipment-straining-global-supply/)

Olney pointed out that within a span of 24 months, Volvo had to deal with a curve that came down 70 percent in demand and is now rising back up and a pretty substantial clip, with a 57-percent year-over-year increase in European revenue in the first quarter, 59 percent in North America and 54 percent in Asia, (70 percent in China). Volvo then posted a 32-percent year-over-year sales jump in the second quarter.

Regarding Volvo Rents, the company’s recent expansion moves, buying independent rental companies as well as some of its own franchises, are an indication of the importance of the rental market. It will be worth watching to see if Volvo Rents will invest enough into its rental program to join the top tier of national rental companies in North America.

In August RER, you’ll have a chance to read my report about my visit to Sweden for Volvo days, when for 24 days Volvo entertained thousands of dealers and customers from around the world and showed off hundreds of products, including a number of world premieres. I was only there a couple of days, but saw dozens of new products as well as Volvo’s impressive components factory and customer center.

The company is certainly not standing still, not that anybody ever suggested it was. As for Olney, I wonder what country he’s in right now? I could ask but by the time I find out, he’ll probably be somewhere else.

Since I live in California and people around the country are always asking me about the California economy, I thought I’d pass along some interesting information from a report issued this week from the Anderson School of Business at UCLA.

The housing boom in the middle of the past decade was very much focused in the “Inland Empire” area of southern California, which is east of Los Angeles, including Riverside and San Bernardino counties, as well as the Central Valley of California. Those areas grew dramatically, houses were built in vast numbers, seemed to sell the second they were finished, and the cost of housing in those areas shot up dramatically, especially the Inland Empire. A few years later, when the bubble burst, the Inland Empire led the way with an extraordinary foreclosure rate.

Now the state’s population is getting younger and the rising cost of fuel is leading more people to live closer to where they work. People are leaning in the direction of apartments, rather than big houses in the suburbs. Many younger people are staying in their parents’ homes longer or moving back into their parents’ homes because they are unemployed. The demand for new homes is therefore shrinking and will continue to be low for the foreseeable future. Construction of single-family dwellings is being outpaced by construction of multi-family dwellings that are less labor-demanding. Currently permits for single-family homes are about 20 percent of peak levels; about 40 percent for multi-family dwellings.

California’s unemployment rate is still higher than 12 percent, higher than most states. And construction will not be leading the way out of the recession any time soon. According to the report, California won’t be adding a significant number of building permits until 2013, nonfarm employment in the state won’t return to pre-recession levels until 2014, and construction employment won’t return to those levels until 2021. No, that’s not a misprint. 2021.

The study says California’s unemployment rate will be about 11.7 percent this year and 10.9 percent in 2012, while the national unemployment rate will be about 8.9 percent this year.

So times will continue to be tough in California for a while I suspect.

I anticipate acquisition activity will be strong over the next few months. This week Volvo Rents and Delta Rigging & Tools made acquisitions; a week or two ago it was RSC acquiring another aerial company in the northeast.

Speaking of acquisitions, the king of them all in the history of the rental industry is Brad Jacobs, founder of United Rentals and architect of its dramatic consolidation spree that changed the industry. When Jacobs left United Rentals, he had the intention of finding a new industry to invest in. It took him a number of years, but Jacobs eventually became fascinated with the trucking industry and invested $135 million into Express-1, a third-party logistics transportation services provider.

Jacobs explained to me that there are literally hundreds of thousands of trucking companies in the United States, and when seeking trucking services, companies — such as manufacturers, industrial and retail firms and, indeed, equipment rental companies — can waste a lot of time looking around trying to find good deals with trucking companies. However a breaker can find you the services you need and also arrange freight forwarding, which involves trucking the equipment — or whatever the item that needs to be transported — from Point A to a port or airport and sending it abroad.

I would have guessed that a high percentage of trucking services is done this way but according to Jacobs it’s only about 15 percent. Hence a huge opportunity for further penetration and growth, the same principle that governs the rental industry. If the rental industry provides better and better services, penetration of rental will continue to grow. Clearly Jacobs is banking on the concept that if third-party logistics providers improve the depth and quality of the services they offer, they’ll penetrate that market, which is far more fragmented than the rental industry was when Jacobs entered the industry.

Some might say Jacobs has a Midas touch. Nobody who knows him is likely to bet against his success in his new venture, just as he obviously made significant returns on capital invested in the oil industry, waste management and the rental business. But it bears understanding that the man doesn’t just snap his fingers and come up with brilliant ideas. He spends years researching and preparing before launching a venture and, as he told me, he looked into hundreds, perhaps thousands of industries before deciding on this one.

The RER 100, which will be released next week, showed, to quote RSC’s CEO Erik Olsson — and a nod to Charles Dickens — a tale of two halves. Most of the RER 100 companies spent the first half of 2010 in the doldrums, many feeling as though they had reached bottom. So it was the proverbial “bouncing along the bottom” and that bouncing can be pretty stressful on one’s spinal column, not to mention their company’s bottom lines.

The second half, for most, brought a noticeable change: Far more customer demand and optimism; improved utilization; even rising rental rates, albeit not rising enough. Those developments brought far better margins — and for many, it brought margins back into the black. The margins may not have been much to scream about, but red ink was replaced by black nonetheless.

It’s no secret to anybody that the recession these past few years has been fierce. We’d be talking about a lot more casualties — both among the RER 100 and the industry as a whole — had so many companies not de-fleeted, decreased the size of their staffs, concentrated on paying down debt, and put expansion and growth plans on hold. And for many companies, there were great leaps forward when it came to improving efficiencies with creative technological approaches.

I spoke with or had e-mail dialogs with executives from a majority of the companies on the RER 100, and almost all said 2011 was starting out better than recent years, with more consumer and customer confidence, more demand and utilization. As one CEO, a hands-on guy who loves this industry, said to me, “The business is starting to be fun again. I’d forgotten what that feels like.”

The top 10 of the RER 100 — the big players — were much like the rest of the RER 100 in terms of their overall numbers. The top 10 declined in 2010 less than 1 percent year over year, just like the rest of the 100 companies. For the most part they were flat but are starting 2011 strong.

So enjoy reading the RER 100, soon to be in your mailbox and on our website at www.rermag.com. This is the 25th year of the RER 100, including its first few years when it was the RER 50. Carry it along in your pickup truck or on your computer.

Why should you bother with social media?

One of the first things I suggest is take a look at the habits of teenagers. I have a teenage son and he sometimes can spend five or 10 or more hours a day chatting with his friends on Facebook and laughing at videos on You Tube, and would probably spend more time on these sites if it weren’t for such annoyances as homework and his parents.

My teenage son’s habits are significant because he is much like most teenagers these days, and in a few years they will be adults entering the business world. If he were to come into this industry today, one of the most natural ways he would look to educate himself about it and make contacts would be on social media. To a lot of people in their 20s, this is already true and you don’t have to be that young to be interested in enhancing methods of communication.

Only a few years ago when I would ask rental companies if they were going to try to market themselves to contractors on the Internet, or facilitate the possibility of reserving rentals over the Internet, frequently the answer I’d hear would be something to the effect of “I don’t think our customers are riding around in their pickup trucks with a laptop computer.” How many of you feel comfortable making that kind of statement now? And how many of those customers, a few short years ago, had Smartphones with Internet access on them and apps that enable them to do all kinds of things right on their phones — including getting information about where their next equipment rental is going to come from or what kind of telescopic handler might be more effective for their next job?

Just a few months ago, I remember remarking to some colleagues that I thought Twitter was a fad that wouldn’t last. I’m revising that opinion. But while the future of that particular application remains to be seen, I’m convinced that if it doesn’t survive it will be because something more effective will come along, just as early search engines were superseded by Google.

So like it or not, consider it important or don’t, but the reality is, social media is here to stay. But don’t just take it from me. Find out for yourself by going to the Twitter or Facebook sites of other rental companies or equipment manufacturers and see what they are doing. Come to our own RER sites and see what we’re doing — and we’re new at this just like everybody. There’s still a lot of self-serving promotion going on that gets in the way of real communication, but hopefully real value and communication will get through. I suggest you take a look at the cover story in April RER on what rental companies and manufacturers are saying and doing on social media sites. You can read it in our April issue or check it out online at http://rermag.com/business_technology/business_info_analysis/rental-companies-social-media-20110401/.

I also remember a few years back when we were talking about e-commerce, about billing customers online, about ordering equipment or buying parts online, about bidding on jobs through e-mail, and more than one of our readers laughed and said such things were a long way away. Well they got here much quicker than people thought.

It’s to everyone’s benefit to enhance communication with customers and suppliers. So please consider some new methods that shouldn’t be dismissed without thought.

After two very slow years at the Rental Show, it was quite a different story this time around. The attendance numbers have yet to be released as we go to press, but like the old Bob Dylan song that says “you don’t need a weatherman to know which way the wind blows,” you don’t need to know the attendance figures to know this was a significantly different rental trade show than what we saw the past two years. Check out our coverage at http://rermag.com/trends_analysis/headlinenews/strong-buying-marks-the-rental-show-2011-030311

All you had to do was walk the floor. Instead of seeing almost empty aisles this year there were lots of people in the aisles. All you had to do was ask manufacturers at the end of a day how their day went and have them smile and tell you buying was solid and leads were plentiful. The past two years if you closed your eyes, it would be so quiet, you could almost go to sleep. This year, you’d hear the animated buzz of conversation.

Asking rental people at the show how business was, people still sometimes hesitated a bit. “Fantastic” was not exactly the sentiment coming out of peoples’ mouths, but “better than last year” was a common refrain.

During the past couple of years, I heard a number of exhibitors wonder if the trade show era was ending and if the ARA show had outlived its usefulness. They’d say that information about equipment was more accessible, so who needs to walk around a show floor to see it?

I strongly disagreed with that sentiment and disagree with it even more after this year’s show. The shows were down the past two years because of the economy. During the past two years when the rental industry was in a severe downturn, few rental companies were buying equipment. People either didn’t want to spend the money to go to the Rental Show or didn’t want to be away from their businesses during such difficult times. We’ve been through these cycles before.

Is location a big part of it? I’m not so sure. Yes people prefer Las Vegas to Atlanta, but does anybody remember the Atlanta show in the mid-90s after the ’92-’94 recession? It was one of the best ARA shows in history because market conditions were right for it.

There is still something about walking around the show floor and seeing a lot of equipment. While there are people now who buy cars on line, I’m one of the old-fashioned people who like to test drive and see the car I want to buy. I want to feel how it turns the corners and how it feels when I open it up on the freeway. I want to look at it and touch it and smell it. Plenty of rental company owners are the same way about the equipment they buy. And there is still a lot of value in meeting with suppliers, meeting with peers, and learning from the education sessions.

I’m pleased to say this year’s show surpassed my expectations. I expected the show to be better than the past couple of years, but not to the degree that it was. A lot of the demand is pent-up replacement need as opposed to a dramatic sense that business is booming, but nonetheless the signs point upward.

I’m looking forward to next year’s show in New Orleans. Is it because I like hanging out in the French Quarter, drinking hurricanes and eating crawfish etouffee? Partly. But I’m also looking forward to a continuing recovery in the rental market.