As budgets around the country become increasingly tighter, the option of renting construction equipment continues to gain popularity. In the past, only a few large rental companies were competing against many mid-size and mom-and-pop-type organizations. Now, it is no secret that consolidation is taking the rental industry by storm.
Consolidation gives these larger rental companies increased buying power, creating larger customers that can take on larger inventories. Some of these larger companies are publicly traded, introducing a larger number of public dollars invested in the rental industry as a whole. Buying new equipment, upgrading older equipment and increasing equipment selection are much safer as the steady flow of customers increases the volume and profitability of rental companies.
Overall, rental companies growing through consolidation are getting stronger in the industry and are providing improved service and equipment to their customers in a more timely manner. They are taking advantage of their new size and ability to better serve their customers.
While consolidation is changing the foundation of the rental industry, it also is affecting equipment manufacturers in many ways. For one, it has put more pressure on them to succeed than ever before. The creation of larger rental companies operating on a national level is creating tight competition among equipment manufacturers. For instance, the impact of losing a national account will be far more significant than losing the business of one local rental outfit. Therefore, many equipment manufacturers are wisely changing the way they do business to meet the needs of their rental customers.
For example, many equipment manufacturers are working on build-to-order schedules, which help rental companies to deliver product to their customers in a shorter period of time. The goal is to turn out a customer's order with custom-made products within one to two weeks, thus greatly reducing inventory costs and increasing overall quality and customer satisfaction.
Considering that customer satisfaction may be the key to beating one's competition, both parties may find value in offering build-to-order schedules and other incentives, such as flexible delivery and payment options.
Consolidated companies operating on a national level also present problems for smaller equipment manufacturers. A national rental company may have one purchasing department for all of, or a significant portion of, a rental company's locations. Since it is more likely that a larger equipment provider can meet the needs of the rental company on a national or regional level, the smaller equipment manufacturers are often knocked out of the running before the gates open.
For all equipment manufacturers, dealing with a large, consolidated rental company has its advantages. First, the stronger organizational setup that typically exists within a national company results in diligent methods of forecasting fleet utilization. This gives the manufacturer a strong indication of the quantities and types of equipment it probably will be asked to provide in the coming year, which ultimately allows for more precise production schedules and reduced inventories. It is very helpful for manufacturers to know if they are likely to be asked to produce a larger-than-usual product inventory for their customers. On the flip side, but equally as valuable, it also lets manufacturers know in advance if the anticipated need for new equipment is going to be lower than usual.
Second, national companies tend to upgrade their equipment with newer models more frequently. The result is increased sales for the equipment manufacturer. Additionally, as competition increases andend-users have more choices as to where to rent their equipment, it will become more important that a company's fleet is new and contains the best machines. This can be a catch-22 for the manufacturer, however, because if rental companies purchase more new equipment, there will be less demand for spare parts and service kits. A healthy mix of both may be the best-case scenario for manufacturers.
Finally, national accounts, because of their financial resources, generally do not need their equipment manufacturer partner to finance their equipment, which improves the manufacturer's cash flow.
However, working with national rental companies has some disadvantages besides the fear of losing the account. Many national rental companies are publicly owned and, therefore, have to work within Wall Street's watchful eye and the financial expectations of shareholders. For instance, the company's purchasing department may want to invest in new equipment for a number of stores, but could have its hands tied by the company's financial analysts who insist that major equipment expenditures not be made until after the new fiscal quarter. Unfortunately, the manufacturer can only sit and wait for the order to come through.
Also, the buyer-seller relationship that equipment manufacturers diligently work to develop over the years may become insignificant with national rental companies. If one person is making the purchasing decisions for every store in his region and is mainly concerned with reporting the best financial numbers to the corporate accounting department, then the equipment's cost may become the only specification factor under consideration.
A long, great history of attentive and responsive customer service, as well as long-standing business relationships, may simply be overlooked in favor of saving the company a few dollars in the short term.
Rental company consolidation has also changed the face of national and regional rental equipment trade shows. Customers continue to buy at trade shows although this volume represents less than in years past. Companies are now making more purchases year-round, representing an increasing portion of manufacturers' annual sales. Continued growth of national companies means a consolidation of buyers, making trade shows more of a forum for manufacturers to display new products or features, pricing options and buyer programs.
The consolidation trend in the rental industry is expected to continue as the bigger companies are well aware of how mergers and acquisitions can help them stake their claim to this booming marketplace. Larger companies will continue to see greater capital resources to upgrade equipment, purchase new models and increase product portfolios.
Offering quality equipment at competitive prices may seem to be the primary factor for manufacturers in winning a national account. In fact, by combining quality equipment with dedicated customer service, the shrewd equipment manufacturer can best capitalize on the growing number of rental company consolidations and see more profits than ever before.