The high-flying, everyone's-buying days are over for the equipment rental industry.
Saying it was “embarrassed by what happened last year,” NationsRent (No. 4 on this year's RER 100) gave pink slips to 546 workers, affecting about 15 percent of its workforce. Rental Service Corp. (No. 2) just completed a reduction of its headcount by 15 percent, including several top managers. And No.1 United Rentals, the largest rental company in the world, is considering closing as many as 5 percent of its 755 branches in a move that could send up to 700 or more employees scanning the classifieds.
The rental industry, despite the continuing trend of contractors renting more fleet and buying less, is clearly not immune from the general economic malaise creeping into many business segments this year. Job cuts by U.S. companies in March were the highest in a decade with 86,000 layoffs, according to the Labor Department. For the first three months of 2001, layoffs increased 187 percent over the first quarter of 2000, according to international outplacement firm Challenger, Gray & Christmas.
The rental reckoning also includes machines. Companies are scaling back the size of their equipment rental fleets, cutting back on orders to manufacturers and flooding an already crowded used equipment market as they sell off underutilized machines.
“Frankly, we just underestimated the impact in the industry of overfleeting and slower growth in construction spending for the second half of 2000,” said NationsRent chairman James Kirk.
NationsRent is not alone. The belt-tightening is reaching all corners of the rental industry, though the bigger companies are making the bigger headlines. United has said it will reduce expenditures on new equipment by about 60 percent to $400 million this year.
But no one — at least not yet — is abandoning the growth opportunities that remain in the rental market, evidenced by surveys that show contractors now rent about 20 percent of their equipment needs compared to less than 5 percent only five years ago.
“This transition from sale to rental has a long way to go in America,” says Art Droege, chief operating officer of RSC. “There has been this effort to roll up businesses and grow real fast; somewhere along the line you have to count your cards and manage your business.”
Unfortunately for many workers manning the counters, driving the trucks and turning the wrenches, that reality has left them without a job.
How will the downsizing — or “right-sizing” as some corporations prefer — affect the quality of service and the reputation of companies who still must deliver equipment on time, fix it when it fails and respond to the always changing demands of demanding customers? According to some executives, upholding service standards was never about maintaining a minimum headcount anyway.
“When you grow as fast as the consolidators did, it's very difficult to instill a solid culture of service, and if that includes supporting customers, it probably didn't get translated very well from corporate dictates to the end users,” says the president of a company in the upper fifth of the RER 100. “It's very difficult, even with sensible strategies, to get those goals implemented in the field.”
Indeed, the largest companies have recognized that a corporate mission set forth in policy memos does not necessarily equate a mandate set in motion in the field.
“The past [RSC] management did an outstanding job in the rollup process, but we are finally going to combine a high level of [market] dynamics with more respect for internal efficiencies,” says Droege. “This is something the traditional manufacturing businesses have already been through. The rental industry is going to have to go through this now.”
Several RER 100 executives say they already began the difficult deed of streamlining staff and inventory last year. Now, they say they are ready to roll as bad weather gives way to increased rental activity this spring and summer.
“We began tightening belts and adjusting to pricing pressure two years ago. We made drastic changes in our operation to get more cost-competitive,” says one president of a mid-level RER 100 company. “All the problems have made us much better. It's very painful to become a better company, but we're actually growing right now despite all the bad news out there.”
For many other companies, drastic measures have been avoided, though certainly considered. “Companies are reacting appropriately, given the business condition and financial reality they find themselves in,” says the owner of an RER 100 company in the East. “Our headcount is relatively steady. We think the work is there. We're feeling more pain from increased health costs and pricing pressure, although were starting to see that come back up.
“But if this thing doesn't come roaring back this spring, we're going to have to hunker down, too.”
“Frankly, we just underestimated the impact in the industry of overfleeting and slower growth in construction spending for the second half of 2000,”
— James Kirk,