The Rental Equipment Industry: A Frenzy Changes To Calm

Diesel Progress North American Edition, Jan, 2001 by Charles Yengst

Original equipment manufacturers will have to view the rental equipment market of the future differently than in the past. Most companies may see big orders coming down from the rental equipment giants as blessings, but may curse them eventually because of the demands placed on them and the discounted prices required to get the business. Rental is important, but it only makes up a portion of the total equipment market. There is still lots of business to be had elsewhere and dealers are still needed to get that business and support the machines in the field.

Rental Revenues

After studying the 20 different types of construction equipment found at most every rental equipment yard, rental revenues in North America were found to be in the range of $9.5 billion in 1999. Utilization rates, rental prices, populations of equipment as well as estimated levels of equipment being sold into the rental equipment industry were taken into account to derive this total. For 2000, rental revenues are estimated to be in the range of $10.2 billion, up about 7 percent in real terms.

Hydraulic excavators, for example, accounted for $785 million of rental revenues in 1999, or 8 percent of the total. Aerial work platforms accounted for $998 million, or 10.5 percent, and skid-steer loaders accounted for $1.2 billion, or 12.6 percent. Total revenues were based on a field population of 2.6 million pieces of equipment, 53 percent of which was used in a rental situation of one sort or another.

Bear in mind that not all equipment being rented by rental companies could be included in the analysis of the industry. Light towers, gen-sets, welders, chain saws and many other types of equipment, for example, were not included.

The Outlook

As mentioned, year 2000 rental revenues from the equipment studied was likely to end up 7 percent ahead of the 1999 levels, slowing to a rate of about 5 percent in 2001. In 2002, look for the economy to improve and for rental revenue growth to jump 11 percent. By 2002, rental revenue for the products covered should approach $12 billion.

There is no indication, however, that future growth in the industry will approach the explosive rates of the 1996 to 1999 period. That said, the rental industry is strong and will continue to experience growth through the next five years.

In short, the outlook for the rental is fair for 2001, with improved growth expected in 2002. Economic conditions will definitely have an impact, but the good news is that the economy is not likely to go into a black hole, seriously affecting the bigger players in the industry. A soft landing is more likely this time around. And changes created by a maturing industry in which the biggest will survive and a number of the smaller companies will fall, is still part of the big picture.

The rental equipment market is here to stay, but saturation will be attained during the next 5 to 10 years -- just as in the case of gasoline stations and other ventures where strong growth in the early years gave way to much slower growth as the industry matured. There is just so much demand for equipment, and contractors and many others that use equipment in numerous applications will continue to see benefits in owning a portion of the equipment they use.