Issue link: http://read.dmtmag.com/i/114548
On the Numbers Selling Rental – to Ourselves And selling realistic rates to customers may not be as tough as it's been in recent years. By Garry bartecki Rental is kind of a mysterious business. There are very few sources from which to learn it. You will never find a "rental" course in your business curriculum. I was first exposed to rental through the Clark Equipment lift truck dealers. Clark kind of pioneered lift-truck leasing (as they called it), and they had a menu for short-term rental, long-term rental, long-term rental with maintenance, finance type leases, purchase contracts, etc. No matter how you needed the deal structured they had a program to fill your need. What was interesting was that most of these lift trucks were on the dealer's balance sheet, normally for at least a 60-month schedule and were financed for the same term with either a full pay-out or down to a 20 percent residual. Life was a bit simpler then with the dealer having new and used inventory along with short- and long-term rental fleets. It wasn't unusual then to move retired rental units to used inventory for sale. These dealers fully endorsed internal billing and the negotiating between the rental department and the used equipment department over pricing was always entertaining. Probably the most interesting part of this scenario was how much management protected the rental units from being removed from the rental department to make a sale. I remember a few dealer meetings where CEOs would get up on the podium and demonstrate how "expensive" it was to remove a rental unit to make a sale. They measured the "loss" by the number of months of rental activity they would lose before they could replace the unit, and according to them it was very extensive. Do we have this respect for rental today that they had 30 or 40 years ago? I don't think so. Oh sure, AED members realize that rental has become part of the industry – a big part and getting bigger. But I don't sense a widespread understanding that rental provides margins in excess of what is attainable from both new and used unit sale margins. I know there are a number of AED members that have a lift-truck division and are still running their short- and long-term fleets along with the maintenance. So these dealers know what the profit potential is from rental and how to measure operating results. The construction transactions may take a different form because the long-term rentals are not readily available, but the short-term profits and sales of retired rental units should be similar to the short-term lift-truck rentals. Recent experience is telling me dealers are more interested in selling the unit than renting it. Maybe that is coming from the OEMs and their floor plan options, or the inherent sales roots of the dealer organization. The number of rent-to-sell transactions seems to support this conclusion. Length of time in the fleet also supports the sales mentality. A number of dealers keep units in the fleet for less than two years (which is one issue the IRS has with our rental transactions). My personal opinion is there is more money to be made in the rental business. Getting those profits suggests that rental sales personnel need more education and support to close rental transactions at prices that represent 2013 time and dollar utilization. In other words, how do rental personnel educate customers as to the current state of rental rates, especially after the "discount" mentality of the last four years? We re-educate customers by sharing various publications with them that reflect real and current rental activity. I, for one, like to use the Rouse Report, which reflects the historical time and dollar utilization, as well as changes in historical rental rates. The "Rouse Report" covers most types of construction equipment and is a great publication to share with customers to demonstrate a rental rate increase is in order. There are a ton of rental publications to support a change for higher rates, and I believe contractors know they are coming. Again, my experience is that contractors are asking for the new rates so they can properly bid 2013 work – pretty nice. Where do we go from here? We educate management as to profits available from rental. We educate rental personnel how to measure rental versus sales results. We supply our sales staff with data they can use in the field to generate more profitable business. You'll find this education at AED's CFO Conference in May. Whether you're the CFO, CEO, rental manager or sales manager, this is the equipment rental business course you won't find online, on campus, or in the bookstores. I suggest you sign up early: www.aedu.org. Garry bartecki (gbartecki@ aednet.org) is AED's vice president of Finance. March 2013 | Construction Equipment Distribution | www.cedmag.com | 51 51_On_the_Numbers_KP.indd 51 2/27/13 4:41 PM