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The rental landscape

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Three manufacturers discuss today’s equipment industry and factors influencing the decision for landscapers to purchase or rent.

Mike Crummy | January 20, 2014

From housing market issues to green initiatives, several challenges and changes have presented themselves to landscape contractors and equipment manufacturers in recent years. What hasn’t changed is that contractors need equipment – but is it better to rent or buy?

Three equipment manufacturers – BOMAG, General Equipment and Jenny Products – offered their viewpoints on the equipment industry and discussed key considerations in the rent or buy decision.

State of the Industry
“Many contractors say they’re better off renting, and our business through rental keeps growing,” said Bert DeJong, vice president of sales for light equipment and rental for BOMAG Americas, a compaction equipment manufacturer. “That’s partly economics, but also rental’s slice of the pie is growing. Contractors created higher demand for rental equipment, and rental companies are growing supply to meet demand.”

“The recession put greater emphasis on managing cash flow dynamics,” added Dennis Von Ruden, president of General Equipment Co., a family-owned manufacturer of earth augers and surface preparation equipment. “Five years ago, contractors considered utilization rates the determining factor when deciding to purchase or rent. Now more importance is placed on balancing cash flow and maintaining cash reserves.”

Dan Leiss is the president of Jenny Products, a manufacturer of air compressors and Steam Jenny pressure washers. Leiss says contractors evaluate equipment needs differently than other expenses. “Vehicles and cell phones are deemed necessary, and they cost what they cost,” said Leiss. “With equipment, people want to negotiate price. They figure they have more spending control, and will decide to rent or buy accordingly.”

Utilization rates. Clearly, economic challenges have influenced purchase versus rental choices, but tried-and-true principles haven’t changed. Most contractors still look at utilization rates to determine when ownership cost might become less than rental cost.

“Contractors should consider expected short-term or long-term demand,” said Von Ruden. “Is the equipment for a unique job, or will future opportunities justify a purchase? We’ve seen significantly increased rental demand for our hole digging products. It’s more cost-effective for contractors with specific needs to supplement with rental. They also might consider purchasing used equipment inventory.”

Variation By Equipment Type
Von Ruden sees also rental as a good option when great effort is required to maintain or replace specialized replacement parts. “High-maintenance tools might be more efficiently utilized through a rental center,” he said. “The dealer can supply the correct configuration for a specific application. And, by renting, you’re effectively eliminating maintenance costs.”

While avoiding maintenance concerns through rental can be advantageous, operator familiarity – and, ultimately, better performance – could be more desirable.

Light compaction products have been prime rental items for years, while other BOMAG lines are typically purchased. “Certain jobs can be done much more effectively if operators are more familiar with the machines,” said DeJong. “They can have greater confidence they’re achieving the correct end result.”

Rental Availability
As the demand for rental equipment has grown, rental centers have increased their equipment supply for certain product lines.

“Rental companies have had to keep up with growth and replace outdated equipment,” DeJong said. “The average age of equipment is lower than it was five years ago, and equipment is more readily available through rental. Centers have also enhanced service and delivery. It’s easier for contractors to rent now.”

DeJong added, however, that specialized equipment isn’t universally available. “Rental companies in certain areas may not have what you need,” he said. “That’s a risk of relying strictly on rental.”

Von Ruden noted that even if a location has correct equipment, contractors may not be able to get it when most convenient. “Convenience and access are important,” he said. “Contractors can usually increase productivity by owning a product since it’s available on their own schedules. This can lower project costs, especially if the product is paid off.”

Though the condition of rental equipment overall has improved, Von Ruden and Leiss each cautioned that the fleet condition at individual centers could be lacking. “All equipment requires a degree of maintenance,”  Leiss said. “If products haven’t been adequately maintained or have aged past useful service life, they may not perform properly.”

Is The Price Right?
The final decision to rent or buy usually comes down to the bottom line. “The thing that really matters is price,”  Leiss said. “Many factors are involved, but the question always becomes what it will cost to buy or rent a product, or complete a given project.”

One wrinkle in the financial calculation, however, is when contractors make decisions with the immediate future in mind. “Some contractors often worry about getting the next job over what equipment will be required,” said Von Ruden. “Maybe a job warrants purchasing a specific product, but cash flow doesn’t allow it. Spot economics may force contractors into poor decisions, since things like truck payments are prioritized.”

Von Ruden and DeJong cited the importance of analyzing financial information appropriate to the purchase versus rental debate, such as:
• Section 179 depreciation considerations; other tax ramifications.
• Total cost of ownership, operation, maintenance and personnel.
• Utilization and ROI rates to be profitable.
• Cash flow, financing and terms for acquisitions.

Because rental has been evolving rapidly, DeJong urged contractors to remain vigilant. “Revisit previous research to see if last year’s decision is still valid,” he said. “Availability may have increased, or other variables may now come into play.”

“Focus on sound business decisions,” said Von Ruden. “Contractors who maintain accurate financial cost-to-operate data can define a mechanical process that maximizes their profit potential.”

Get Used To It. Many in the industry feel the current approach to rental will stay for a while. “The only way it would change soon is if tax changes make it more advantageous to buy, or if rental companies fail to supply equipment,” DeJong said.

“Equipment prices have been held artificially low in many cases,” Leiss added. “Manufacturers may have to raise prices in order make money, which could bode well for rental.”

“Future contractor confidence will influence purchase habits,” Von Ruden said. “Until the market achieves sustained growth and stability, the decision will naturally favor rental.”

The author is a writer for The Promersberger Co.
 

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