The Rental Rate Battle

Thompson Pump is a major supplier of pumps to the rental industry, and, at the same time, a rental player with 30 rental centers. CEO Bill Thompson recently took time from a very busy schedule to talk with RER about the business climate, new processes to identify opportunities, the rental rate battle and concerns about inflation.

RER: What are your expectations for business in 2009?

Thompson: We anticipate that the construction-related portion of our business will be somewhat lethargic until the fourth quarter, at which time we should begin to feel some impact from the government’s efforts to stimulate the economy. However, we predict that our activities in the mines, pits and quarries, our sewage by-pass work, as well as our export business, will remain at about the same level as last year. The bottom line is that we are not optimistic about a quick fix to the recession, which is plaguing us on a global scale.

How has the business climate changed in 2008 and how do you expect it to change in 2009?

We felt the downturn in the last quarter of 2006, which was significantly earlier than most businesses. Due primarily to two factors, the decline in new housing construction/subdivision developments and the pervasive drought in much of the Southeast United States, 2007 evidenced a decline in our overall business by about 15 percent. 2008 was a success story for our company in that we maintained the same level of business as the previous year. The current climate as I read it from my customers is one of caution and conservatism with a dose of skepticism. Accordingly, 2009 will start lower but possibly end even with 2008.

Do you have any expectations for when the business climate will improve?

History has shown us that, over time, business performs in cycles. This one is deeper and will probably last longer than most of the previous down cycles. However, like all others, it will eventually produce an upturn. When? 2010 is my best guess as of this morning. Of course, if the portion of the stimulus package allotted to infrastructure improvements and enhancements is adequate, timely and spent wisely, we might experience an earlier impact. The down side of all of this is the debt that will have to be paid by future generations. That one factor alone will alter every aspect of our business and personal lives.

What do you plan to do differently to deal with likely softer demand? What changes have you made to deal with the recession?

These are good questions. As a manufacturer, a specialty equipment rental company and, in many instances, a pumping applications sub-contractor, Thompson Pump Co. is faced with numerous challenges on each front. We have rationalized our workforce, fine-tuned our budgets, enacted new auditing and measuring procedures, emphasized accountability, improved our efficiencies, enhanced our productivity and focused our efforts in areas where they will produce the most benefit. We have broadened our training and staff development programs and have invested more in our product development programs. Thompson Pump is focused on continuing to provide exceptional value and top-quality products and services to our customers to assist them in being profitable on their projects and successful in their endeavors, which include our involvement. By so doing, we intend to be part of the solution to this recession rather than exacerbating the problems.

Have you come up with any new ideas in technology or implemented new programs that have helped you operate more efficiently?

Currently, we have excess manufacturing capacity and we are striving to fill the gaps with increased product development, especially when addressing the concerns of our customers related to costs of ownership and operation and meeting environmental and regulatory issues. Thompson Pump Co. is, and intends to remain, on the forefront of the “Green” movement in our industry. In addition, we have brought back in-house, many of the processes that we subcontracted out during the hectic pace of 2003-2006. New procedures have been instituted that monitor, measure and audit every aspect of our operation in order to identify opportunities for improvement.

What are your customers telling you about their expectations for business over the coming year?

Customers tell me that they have scaled down their businesses to reflect the decreased activity levels but, they, and we, are poised to ramp up on short notice and hit the ground running when the economy improves. The smart business managers are retaining and developing the key producers and top performers who made their companies successful during the “good times.” Then, when those times return, they will be in a position to take advantage of the opportunities without delays or hiccups.

How is the rental rate situation?

Every day is a battle. We refuse to sacrifice quality products and service support and we will not give away our excellent customer base to our competitors. Unfortunately, some of those competitors do not recognize that the value that they must provide to their customers extends far beyond just delivering a piece of machinery. Rental rates are under extreme downward pressure right now and I don’t anticipate any relaxation until the curve starts moving upwards once again. Our customers are seeking every opportunity to maintain profitability on their projects but they have told me that they recognize that the rental rate on a piece of equipment is not the deciding factor. The few dollars per day gained by a cheap rental rate evaporate immediately and are inconsequential if the equipment doesn’t perform efficiently or the service and support are inadequate or non-existent.

Any other concerns on your mind?

We are very concerned about impending inflation. Government mandates, especially related to employee /employee relations, benefit costs, materials sourcing and environmental issues all have the potential to drive costs upward rapidly. This will pose a whole new batch of challenges in the future. All indications are that the new administration in Washington is planning to increase taxes and impose additional regulations and restrictions, which will be added to the already enormous burdens that we in our industry must bear. The apprehension about the unknowns is enough to stifle confidence.

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