CED

August 2013

Issue link: http://read.dmtmag.com/i/146868

Contents of this Issue

Navigation

Page 48 of 67

Rental reviewed existing construction equipment sales databases to identify sources of the information they required. Reviewed reports included the "Bureau of Economic Analysis (BEA) Detailed Fixed Asset" tables, "Current Industrial Reports (CIR)," and Rouse Analytics reports. During the process, the group compiled records of construction equipment shipments, imports and exports for the past 20 years. A 12-page detailed report of the process they used is available at ararental.org – click Industry Resources and Rental Market Monitor to access the report as a PDF. The document provides information about each step taken to develop the index. The report also includes the mathematical formulas used to obtain the group's mathematical conclusions. "What we found in using the ARA Equipment Rental Penetration Index is that rentals remained flat during the housing boom," McClelland said. "Contractors had the finances and confidence in future growth to buy equipment themselves. Since that peak, equipment rental penetration has trended upwards, as uncertainty about the future led contractors in need of equipment to favor renting over buying as a risk management strategy." McClelland believes rental companies were able to recover from the 2008 downturn and "de-fleet" more quickly than construction contractors. That provided them opportunity to organize an efficient rental system that effectively met construction equipment needs. "Since then, as evidenced by rising utilization rates in rental fleets even as re-fleeting occurs, demand for equipment rental has increased much more than either the overall equipment stock or the level of construction activity," McClelland said. "Now that the construction market is beginning to look more encouraging, and the level of equipment stock has corrected itself through aging out and export of used equipment, rental penetration has stabilized, but at a higher level." Chuck Yengst, Yengst Associates, Inc. has conducted marketing research primarily in the construction, industrial, agricultural and mining equipment fields as well as in the rental equipment industry for the past 31 years. Yengst explained that his company's statistical research confirms that an increasing percentage of construction equipment sales are going to rental companies. "We track approximately 24 different equipment products including earthmoving , material handling and a category we call other," Yengst said. "Our research shows that in 2010, rental sales of 13 different earthmoving products were about 36 percent of all sales. That percentage jumped to 47 percent in 2011 and roughly 43 percent in 2012. Rental sales figures for material handling equipment show that in 2010, roughly 77 percent of total sales went to rental companies. By 2012 that percentage jumped to 86 percent." Figures illustrating total sales of the 24 products Yengst tracks show that about 50 percent of total sales Rental Vs. Purchase: Is There Really 'No Reason to Own,' as Kaplan Asserts? A case to help dealers explain to their customers the distinct buying benefits that exist right now, but maybe not later. By John Crum Senior Vice President, Wells Fargo Equipment Finance One of the hallmarks of this slow-but-steady recovery in the economy and in the construction industry has been the resurgence of the equipment rental market. For the last few years, equipment distributors and rental companies have expanded their fleets to meet the growing demand for short-term construction equipment rentals. Uncertainty in the future of the construction industry often dissuades would-be buyers from making the long-term commitment associated with buying heavy construction equipment. However, we are now finding an interesting conjunction of trends and conditions that make a compelling case for contractors to think more seriously about buying the equipment they use. Because renters pay a premium for their flexibility, if you are renting a significant portion of the equipment that you use your carrying costs may be more than they should be. Consider for a moment, the reasons why owning a piece of equipment in today's environment might make sense over renting: n Low cost of capital won't last forever. For qualifying customers, interest rates on long-lived, heavy construction equipment continue to hover near record lows. These rates will not last forever. If you can lock in a great rate now, the payment will be predictable for the life of that loan. Given today's low-rate environment it may be time to take advantage of the growing economy and invest in equipment that will help to meet your future project needs. n Used equipment values are holding steady. The recent Rouse Rental Report indicate that used construction equipment generally continues to hold its value. Many types of heavy construction equipment are still in demand and as an owned asset would be a plus on your balance sheet. n Replacement equipment costs are rising. New construction equipment costs are on their way up. Equipment demand remains relatively strong in North America and implementation of Tier-4 standards will only push prices higher. You may want to get into some newer equipment before prices rise much more. n Bonus Depreciation is still available. Equipment buyers are still able to take up to 50 percent in "bonus" depreciation on equipment they put into service in 2013. This may be the last year the industry can count on this added incentive to buy. (continued on page 63) August 2013 | Construction Equipment Distribution | www.cedmag.com | 47 46_Rental_Feature_Index_KP.indd 47 7/25/13 12:52 PM

Articles in this issue

Links on this page

Archives of this issue

view archives of CED - August 2013