Back to Double-Digit Rental Growth

Construction equipment rentals are rebounding this year after four years of anemic results. We estimate that the industry grew in 2004 in the low double-digits to at least $26.4 billion in rental revenues. The growth rate between 2002 and 2003 was a lackluster 1 percent. While it's too soon to predict a replay of the go-go growth of the 1990s when annual growth rates regularly exceeded 20 percent, it does appear that the rental industry is in for two or three years of growth from internal initiatives, or in the parlance of Wall Street, organic growth.

During the 1990s much of the growth of the national chains was based on their consolidation strategies that resulted in them buying up small local and regional rental companies. There is still some consolidation by the national rental companies going on, but only in selected markets such as traffic safety and in some regions such as Canada. And, there are a few regional chains, particularly in the Western U.S., that have recently tapped the private debt market and are expanding in that region.

Manfredi & Associates conducted a series of four rental studies for the Associated Equipment Distributors approximately every three years between 1990 and 2001. The last one was published in April of 2001. We have not conducted a full-scale study, but have updated the material presented in the introduction of those studies in which we attempted to measure the size of the equipment rental industry.

Our definition of rentals is very broad. It includes the traditional rent-to-rent activity that is typical of companies such as United Rentals, NationsRent and Rental Service Corp. These companies are primarily in the business of renting equipment. They are motivated to keep their utilization rates as high as possible so they can maximize their cash flow. They are not generally motivated to sell equipment except used machines that are sold when they replace their old fleet. Our definition of rental also includes companies that typically rent-to-sell. These are usually authorized dealers for equipment manufacturers. They are in the business of selling machines, parts and service. They usually are not motivated to invest in a large fleet of equipment and keep it rented. Rent-to-sell is a selling technique that was started in the early 1980s as a means of easing a buyer into a new machine.

The lines of distinction between the rent-to-rent segment of the market and the rent-to-sell segment of the market are blurring. In the future it may not be possible to keep them separate for analysis purposes. For example, NationsRent has declared that it will become more involved in selling and servicing equipment than it has in the past. Las Vegas-based Ahern Rentals has started a for-fee service operation. Volvo has an aggressive program under way to establish rental operations that will support its entry into the compact product markets, and, of course, most Caterpillar dealers have set up separate “Cat Rental Stores” as part of a push by the manufacturer into the small end of the market.

Complicating matters even more is the entry of the so-called “big box” retailers such as The Home Depot and Lowe's that have major efforts underway to expand into the tool and small equipment rental business. In the past there was a large distinction between the two types of business that made it easy to track and measure. Measuring and categorizing the revenues from all of these outlets is and will become more difficult in the future, somewhat of an art rather than a science.

We always look in the rearview mirror and use history as an indicator of the future. Using recent financial results of the major rental companies, Dan Kaplan's Advisor/Rental newsletter from the Association of Equipment Manufacturers, articles from RER and from the American Rental Association as well as holding up a wet thumb in the breeze we developed the following estimate of the 2003 market:

Comparing this table (above) with our Rental 2001 study we have concluded that the quantity of dealer outlets declined from 3,025 in 2000 to 2,700 in 2003. However, the dealers' share of rental revenues remained almost the same, it was 28.9 percent in 2000, versus 28.9 percent in 2003. Caterpillar dealers gained and other authorized dealers declined. The biggest change was from the major rental companies. We estimate that they represented 38.7 percent of total rental revenues in 2003 compared with 31.6 percent in 2000. We believe there has been continuing share erosion of the regional and mom and pop segments.

In total we believe that 2003 U.S. rental revenues were slightly less than $24 billion. Putting our 2003 estimate together with our historic estimates indicated that 2003 grew approximately 1 percent compared with 2002.

The nine-month 2004 public company results were available in time for this article. RSC reported that its third-quarter rental revenues were up 11 percent. Of that amount 7 percent was because of improved rental rates and 4 percent was a volume increase. Same store revenues were up 13 percent. RSC's used equipment sales were up 20 percent, which is caused by the company's fleet replenishment program. United reported that its total nine-month revenues were up 6.8 percent, but that its general rentals were up more than 12 percent in the third quarter. The company also indicated that its same-store general revenues were up 9 percent. United has also been successful in increasing its rental rates, up 8.5 percent in the third quarter.

Our general conclusion is that this will be a very good year for the equipment rental industry and we expect the growth to continue into 2005 and probably 2006. The market exhibits a high growth rate beyond 2006 if the Federal Reserve and government policy makers succeed in repeating their successful management of the economy as they did in the 1990s.

Manfredi & Associates is a market research firm that specializes in the construction, mining, lifting, agricultural and material handling machinery industries. Manfredi publishes a newsletter, Machinery Outlook, on a monthly basis. For further information, visit, or call 847/949-9080.

Estimated U.S. 2003 Equipment Rentals by Type of Outlet
(Number of outlets and millions of dollars includes both rent-to-rent and rent-to-sell)
Estimated number of locations Estimated Rental Revenues per location (millions) Estimated 2003 revenues (millions) Percent of total
Cat dealers 700 $5.10 $3,570 14.9%
Other manufacturer dealers 2,000 $1.60 $3,200 13.4%
Subtotal 2,700 $6,770 28.3%
Major rental centers 2,805 $3.30 $9,257 38.7%
Regional rental centers 1,500 $2.00 $3,000 12.5%
Mom & pops 7,000 $0.70 $4,900 20.5%
Subtotal 11,305 $17,157 71.7%
TOTAL 14,005 $23,927 100%

The Growth of the Rental of Construction Equipment
Year Estimated number of locations (rental centers & dealerships Estimated rent revenue per business (thousands) Estimated CE rentals industry (millions) % Change from previous year
2004 14,667 $1,800 $26,400 10%
2003 14,005 $1,723 $23,927 1%
2002 13,250 $1,790 $23,717 -4%
2001 13,500 $1,837 $24,800 0%
2000 13,932 $1,780 $24,784 3%
1999 13,958 $1,730 $24,159 13%
1998 14,909 $1,500 $21,436 15%
1997 14,338 $1,300 $18,640 15%
1996 14,874 $1,100 $16,209 14%
1995 13,350 $1,075 $14,351 9%
1994 12,550 $1,050 $13,178 18%
1993 11,150 $1,000 $11,150 15%
1992 9,950 $975 $9,701 23%
1991 8,550 $925 $7,909 21%
1990 7,325 $896 $6,563 13%
1989 6,783 $853 $5,786 -2%
1988 6,325 $937 $5,927 45%
1987 5,616 $727 $4,083 51%
1986 4,635 $585 $2,711 55%
1985 3,720 $469 $1,745 58%
1984 3,132 $352 $1,102 41%
1983 2,800 $280 $784 28%
1982 2,560 $240 $614

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