If you're sitting around waiting for the big recovery to come, you're wasting your time. Does that mean there won't be a recovery? I wouldn't say that at all. Many RER 100 executives I spoke with in preparation for this issue believed that the economy has turned the corner, that their customers are more optimistic and likely to be busy and renting more equipment in 2003 than they were in 2002.
But past recessions and what happens after have shown that those companies that perform best during a recovery period are those that planted the seeds through the reforms and changes they made during the recession. What that really tells us is that recoveries don't just happen, but are the result of the adjustments companies make during downturns. And they are forced to make those adjustments because the reality is they might not have survived otherwise.
Consider, for example, the comments of Freek Nijdam, CEO of Rental Service Corp., No. 2 on the RER 100 (see Page 42). When Nijdam came aboard at RSC early last year and noticed the dismal financial situation the company was in, he began trying to figure out how to solve it. Reports told him that utilization was way down, percentage of equipment waiting for repair and therefore unavailable was way up and yet $75 million worth of equipment was about to be ordered.
Nijdam, an Atlas Copco veteran and new to the equipment rental side of the business, asked what seemed quite a logical question. If utilization is down, why do we need more equipment? If 28 percent of the fleet is unavailable and waiting to be repaired, why do we need more equipment?
Perhaps we need to figure out ways to run our shops more efficiently so we don't have so many machines sitting, Nijdam said. Because if they are sitting, not only are they not making money, but they are costing us money. And if utilization is down, we have to raise it, not spend more money buying more equipment to sit alongside other underutilized machines.
Simple logic, no? In his relatively short time at RSC, Nijdam has succeeded in knocking 10 percent off that fleet-unavailable percentage.
Consider also the strategy of Robert Binder, CEO of Binder Machinery, No. 82. Concerned about plummeting rental rates, Binder figured out the minimum rental rate his company would need on each unit in the fleet and determined that those numbers were the absolute bottom line on rates. Of course, Binder had the luxury of being able to do that because his company is a Komatsu dealer that could re-focus on equipment sales, service and parts, where pure rent-to-rent companies are dependent on rentals for survival. But his point was that rentals had to make a profit or he couldn't be in the rental business.
Roger Johnson of Temp-Air, No. 52, summed up his company's approach this way: “We looked internally at the way we do business and found that what we took for granted couldn't be taken for granted any more. We had to be more aggressive in going after business, we couldn't just sit back and wait for business to come to us. We found it came harder than it did in the '90s. We didn't change our core business model, we didn't change lines or our equipment mix, we just realized that we weren't being aggressive enough, that we had to make more calls, to make better calls and we find it's working for us.”
Ultimately every company on the RER 100, just like other rental companies regardless of size, has had to make strategic decisions to help them cope with the economic downturn. As Dennis Turner of PDQ Rentals, No. 94, joked, “the recovery will begin in July, I read it in Time magazine.” Turner, just as I and most everybody who has been paying attention to the economy, has read the same thing for the past two years or so. Every quarter we read that it's all going to begin to turn around next quarter, or the second half of this year, or the first quarter of next year.
Sooner or later those predictions will come true, but the only alternative that makes sense is to plan as though economic conditions will continue just as they are right now. You do have to be prepared to handle an upturn should it occur, but more important is to figure out the ways you can run more efficiently if it doesn't. And if enough people do that, it will turn around a lot faster.