These are the best of times, these are the worst of times.

I doubt Dickens knew much about the equipment rental industry when he penned those immortal lines two centuries ago, but according to some RER 100 executives, the sentiment fits.

These are indeed exciting times for the equipment rental industry. The economy is continuing a solid upward trend, consolidators have provided exit options for hundreds of owners, and in most of North America, construction is vibrant if not booming, contractors are busy, and rental business is steady and consistent.

More customers are discovering rentals than ever before as an outsourcing trend takes hold in American business. The wisdom of renting rather than owning equipment is becoming increasingly clear to many companies that, in the past, considered rental only in an emergency. Electronic commerce promises easier, more efficient methods of doing business for this industry and opens horizons not even dreamed about a year or two ago.

Yet, storm signals on the horizon cannot be taken lightly. Rental rates face severe downward pressures - despite a healthy business climate, supply seems to be outpacing demand in many regions, and the tendency to market based on price rather than service is still often seen as the path of least resistance. Many markets are growing overcrowded with rental companies as national players enter all major metropolitan areas and vie for secondary market penetration as well.

"The Wall Street Journal reports rates being about 5 percent down, but I'd say they're the worst I've ever seen since I've been in the business," says Michael Watts, CEO of Phoenix-based Sunstate Equipment Corp. (No. 12 on the RER 100), who has been in the rental business since the 1970s. "I see 50 percent discounts in many places. We're living in the best of times we'll ever see in our lifetime for this particular business, but [low rates] are driving it downward. Contractors are busy, but they have no margins in their industry, and we seem to be heading that way, too."

Although not all RER 100 executives agree that rates are a serious concern - some claim they are no worse than usual - many share Watts' views. "Utilization is as good as it has ever been for us, but we have to rent 20 or 30 machines to make what we used to be able to make on 10," says Don Ahern of Las Vegas-based Ahern Rents (18). "Nobody will pay the rates they used to pay when [rental companies are] chopping them 30 percent. And customers expect us to improve service, which is hard to do when rates are so low."

A serious labor shortage is causing concern among many executives as well (see story, page 54). As unemployment reaches low levels, rental companies find it difficult to recruit qualified personnel, especially on the technical end. The allure of high-tech companies, particularly Internet suppliers, is limiting the appeal of the blue-collar equipment field, even though equipment itself constantly is becoming more computerized. Far too many rental companies recruit by raiding other rental companies, while far too few take a long-term, far-reaching approach to the problem by developing and training their own people or working with educational institutions to prepare people for careers in equipment-related industries.

While these problems must be addressed by an industry that aims for greater professionalism and maturity, growth is still the major theme defining the RER 100 companies, many of which enjoyed double-digit gains this past year.

The leading drivers of the industry's growth continue to be the consolidators and other national chains. Look at the top 10, which grew in rental revenue from $3.16 billion in 1998 to $4.94 billion last year, a rise of 56 percent. While much of that growth came about through acquisition, the major publicly traded companies - United Rentals (1), HERC (3), NationsRent (4), and National Equipment Services (5) - consistently rang up same-store growth of about 20 percent.

Those companies also demonstrate the benefits of consolidation as they save money on equipment expenditures and improve their ability to share equipment among branches, showing that improved internal organization is in fact a revenue producer. The national chains also are improving margins by cutting costs on office supplies, travel, telephone bills and a wide range of other expenditures.

Although smaller RER 100 companies can't maximize economies of scale to the same degree, many owners say their buying power is not a vulnerability. Many benefit from dealer discounts and relationships with suppliers that date back decades. And while they lack the ability to do large-scale national-account business with major corporations seeking outsourcing agreements, they compete by levering long-established relationships with local customers.

Increases among the smaller RER 100 companies were not as dramatic as the bigger players' gains - generally in the 5-10 percent range - but there was significant growth.

Take, for example, Vancouver, Wash.-based Western Power & Equipment (39), which rose from $19.4 million to $26.2 million in rentals. While an increase of $6.8 million (35 percent) pales in comparison to United's rise from $895 million to $1.58 billion (77 percent), it is still major growth achieved without acquisitions and in a flat sales market.

Komatsu dealer Furnival Machinery Co./FMC Rents (68), Hatfield, Pa., which increased from $7.9 million to $12 million, a 52 percent hike, demonstrates equipment distributors' growing vitality in rentals. While the category of equipment distributor vs. rental company becomes increasingly difficult to define, the number of RER 100 companies that in the past would have been labeled "traditional distributor" has never been higher as distributors find the short-term rental niche necessary to doing business.

The trend among distributors to get into the rental business has intensified the past few years. Caterpillar and Komatsu dealers have brought particular vitality into the rental market. Almost one-third of this year's RER 100 are dealers for Caterpillar, Komatsu, Deere or Case, although most are expanding their inventories to other lines.

The big question many are asking about business in the coming years is what kind of margins they should expect. Most RER 100 executives predict the economy will remain strong for the foreseeable future. Most report that their customers expect to be busy with a variety of jobs. Most expect to improve the degree and scope of the services they offer their customers. The expansive possibilities of e-commerce invite growth and improved service as more companies take advantage of the Internet to offer greater convenience and service for their customers.

All of those conditions continue to offer the best of all possible worlds for the rental industry. But nagging questions about rates, labor difficulties and an increasing, disquieting sense that supply might be outweighing demand in many markets raise concerns about the margins rental companies will face in the coming years.

The larger companies appear confident that public awareness of the rental alternative and a growing impetus toward outsourcing will grow the market by 20-25 percent per year, expanding the pie to make it big enough for everyone. Everyone, large and small alike, hopes they are right.

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