Although Caterpillar's rental program has made the headlines, Komatsu has also developed a growing rental presence with nearly a dozen dealers on the RER 100. RER recently caught up with Tom Stone, the Vernon Hills, Ill.-based manufacturer's director of rental services, to get his vision of Komatsu's world of rentals.
RER: Komatsu slowed down the rent-to-rent program development program over the past few years. Were there any problems or reasons for this?
Stone: From 1997 through 2000, Komatsu encouraged its distributors to open rent-to-rent operations. During this same timeframe, Komatsu was very successful as a supplier to the rental industry. Our distributors participated in the growth of the market through sales to rental companies. As the rental industry consolidation slowed and consolidators turned to [concentrate on] operating profitably, rental rates and resulting margins began to drop.
As we entered into a recessionary timeframe, there was an oversupply of equipment in the marketplace and rental rates continued to be depressed. Distribution stepped back, saying, if we can't be profitable in RTR, let's not do it. Distribution's core business was profitable. As a result, our distributors were reluctant to invest further in the RTR market and chose to concentrate on their core competencies.
It is important to understand our focus. The main purpose of independent rental companies, from small one-location rental houses to national chains, is to buy assets, rent and sell them profitably. Then they buy more and complete the cycle. Our purpose is to support distribution and grow core distribution products in their territory.
For us, as a manufacturer, our main goal is to increase Komatsu products in the marketplace. Everything we do is in support of our distribution. We are looking at customers who will own or rent core products. That is where we want to take our rental process. If the customer wants to rent, we will rent to them. If they want to buy, we are happy to facilitate that process. Our goal is simple — deliver and support our products into the marketplace.
You own three dealerships with substantial short-term rental programs. Do you plan to stimulate the rental program by buying more dealerships or is the primary methodology to help other dealerships to develop their rental programs?
We own three: Furnival/FMC Rents; Komatsu Equipment Co., in Salt Lake City, and Road Machinery in Phoenix. We are not planning to increase investment in additional distribution. We will sell the distributors we own at some time. We purchased these organizations to protect our position in the markets they serve. Those particular dealerships are in key market areas in which owners weren't in a position to sell to the next generation or another in the marketplace with the same goals as ours. Therefore we took ownership. That's not something we plan to do on an ongoing basis.
There are quite a few Komatsu dealerships on the RER 100. Do most of them have a dedicated rent-to-rent infrastructure?
Most have a separate rent-to-rent focus within their organization, and they each do it differently. Our primary goal is to provide core products through the rental process. Is it truly rent to rent? Do customers want short-term use or do they want an equity position in the product, in which case they can provide a structure for that.
Those dealerships realize there is need for rent-to-rent, and have developed processes to provide the service to their clientele. A customer wants to do one of two things: either own the product or use it on a true rental base. We are working closely with distribution to qualify customers to see if they want to buy or rent. Distribution can present a menu of options. Those are two distinct processes and transactions. We are encouraging distribution to lessen their rent-to-sell activities, which is the most expensive inventory for distribution to hold. If the customer desires ownership, rent-to-sell is a more expensive method for customers to purchase equipment.
We are spending more time developing processes that can help our distribution operate efficiently in rent to rent. Many can acquire equipment, have low-rate financing, and sometimes even better rates than we can offer, but the real key is to work on the processes.
What are the keys for a dealership to be successful in rental?
You must have an experienced rental manager who knows the RTR business and knows how to manage the fleet to maximize utilization. You also need proper software to provide the necessary information to operate the business profitably. We are working with distribution to help them improve processes, train people, become more efficient. We work with them to look at allied lines that will increase overall fleet profitability.
We work closely with distributors to help them find software. A lot of new dealer systems have good rental packages. We will work closely with them to see if a system is good at managing rental, customer interface, managing inventory and product support. We look at the whole package. We'll work with them with e-commerce and other electronic transactions. Each dealer decides what they want. We work with them and overlay programs to extract data needed for e-commerce, product support and Internet-based systems. The more we can use e-commerce the more cost efficient we all can be.
Do you recommend allied lines or leave it up to the distributors?
A little of both. We have a selection of preferred vendors. They make allied products that are complementary to our products and core distribution products, with quality that is commensurate to ours. We look for companies that have financial stability, companies we would expect to still be in business in 10 years. They have provided national account pricing for our distribution and make themselves available to our distributors, but we don't dictate. It is important for the distributor to develop its own relationship with an allied vendor. Each must be comfortable with the relationship.
Is Komatsu strongly encouraging its dealers to develop rental programs or is it up to each individual dealer?
Yes, we are strongly encouraging our distribution to develop true RTR processes. We have not taken a heavy-handed approach. Our approach is that it provides a profit opportunity. They have an infrastructure in place, products available, knowledge of their customers, and knowledge of the products. As the market recovers, our distributors are more interested in developing profitable RTR programs.
We can suggest visits to our dealers that have been successful in rental, such as Clairemont, AIS or Anderson, so they can see what their peers are doing. They are comfortable to work with these individuals. We see it as a profit opportunity, it's a market segment that can help profitability and presence in the market. We prefer a partnership approach. They are independent businesses, they have to survive, if they don't survive, we don't survive.
Many distributors that have been successful in rental have emphasized that you have to run the short-term rental business as a very separate business from the dealership, with separate locations, sales staff, counter people and service personnel. Do you agree with this view and is that the way you are counseling Komatsu dealers to approach the rental business?
Sometimes a separate facility works, sometimes a location within an existing facility works just as well. We're not into increasing brick and mortar for its own sake; it depends on the distributor's personality, and the market personality. If they can do it without investing on brick and mortar, it will be more profitable. In each situation, we have to ask: What is the most logical path to satisfy customer needs?
One of the keys is that they do need focused staff for the RTR process. So even inside an existing facility, you need focused service staff, sales staff and phone staff. The distribution staff has a full-time job already. You need specific attention and focus by rental people focused on rental.
Do you prefer to hire an experienced rental person to manage the rental operation or train from within the existing dealership?
Yes, an experienced RTR manager is necessary to succeed. You need a true rent-to-rent manager answering to the executive management of the company. If there is an individual who has affinity for and likes the rental side of the business, and can come up to speed quickly, then we can promote from within. But it takes much longer to train these individuals to move up to management of rental. It's a time issue. We are investing in training and we have the people to do that. At the same time, there are only so many professionals in the marketplace for those positions who understand software systems, product support, finance, rental operations, and who have the required management skills. The requirements needed to run such an operation are far more sophisticated than in the past, and it's not easy to find those people.
Rental is a different mentality, isn't it?
It is a different mentality but things have changed tremendously in the past four or five years. The customer's expectations of service from an AED distributor or from a rental house are becoming more universal. Our previous ways of doing business have changed. The customers' expectation is for quality service and prompt service whether they buy or rent. The difference is the actions and timing necessary to satisfy the customer. Rental carries a higher sense of urgency as it is a more immediate process.
Does Komatsu have any particular goals in terms of size of its rental distribution network?
We're not just trying to get numbers of stores. Our goal is to increase our rental market presence through distribution in a profitable manner. Obviously the more locations the better, but these must be profitable operations satisfying customer needs.
Does the Komatsu roadmap include small equipment such as small generators, chain saws, roto-tillers and electric drills, or is that pretty much up to the individual company?
It's entirely up to the individual company. Our ultimate goal is to put more of our distributors' products into the field. Complementary allied equipment is helpful to find new customers, to be able to provide more products to existing customers. As long as our distributors are putting in products that are complementary, it's a wise thing to do. We have distributors all over the board. Some, such as Continental, Clairemont and Anderson, are strong in allied products and supplies, but they have taken years to get there, making sure the foundation is strong in the rentals of core products and then slowly adding items as they went along.
Will each Komatsu dealership market under its own name, i.e., FMC Rents, or are you considering a national brand, i.e., Volvo Rents?
We have an identity as Komatsu Rents, with a blue yellow and white logo. We are starting to bring this logo forward in national advertising to establish a stronger national identity. We want people to know Komatsu Rents but don't want to displace the identity of distributors on the local level. People know them and they have worked very hard to develop their local reputation and relationship with their customers.