However tempting it might be to paint RDO Rental Co. with the same brush as the other publicly traded rental entities, that is a mistake. The industry's smallest firm with public ties is a different kind of rental animal.
Although parent company RDO Equipment is listed on the New York Stock Exchange, RDO Rental is not a copycat consolidator looking to roll up rental businesses while making its top officers and shareholders their next fortune in the process.
That much is obvious from a visit to its headquarters. Nestled in northern Arizona's Verde Valley and surrounded by towering mesas, plentiful cacti and peaceful vistas, the Cottonwood, Ariz., facility is a world away from the bustle of Wall Street. It is apparently no coincidence that RDO Rental's business philosophy is as far removed from that of the Wall Street-oriented consolidators as Cottonwood is from New York City.
"At RDO Rental, we're not driven by the value of the stock [of our parent company]," says president Bill Hutton, referring to publicly traded consolidators' use of their stock as currency to make acquisitions. "We're driven by bottom-line profit rather than gross revenues. Because we're focused on the bottom line, we are interested in running an efficient operation that serves customers. We want to build a solid base that serves both customers and the investors well."
While it is customary for executives to claim disinterest in the short-term volatility of their company's stock price, it doesn't appear to be mere lip service from Hutton. The industry veteran, who sold 80 percent of his Sun Valley Equipment Corp. to RDO Equipment in 1997, is running RDO Rental more like a privately held company with strong financial backing, rather than as a subsidiary of a public one with easy access to capital.
In this the day of consolidators' adding scores of locations and hundreds of millions of dollars in revenue in 12-month spans, RDO Rental's addition of eight locations in 24 months seems downright conservative. That is by design, according to Hutton.
"There is no magic number such as 50 or 100 or 150 locations," he says. "We intend to grow as quickly as the economy will allow us. We're not concerned or interested with being the biggest; we endeavor to be the best in the markets we serve."
While it would be easy for companies with a national presence to dismiss RDO Rental's 13 branches and $20.9 million in 1998 rental revenue as small-time, most would be hard-pressed to match its success in Arizona, California and Nevada.
The Hutton factor Although he is somewhat reluctant to admit it, Hutton deserves much of the credit for smoothly steering the company through the merger process and into its current growth mode. While he is no longer the sole proprietor, his stamp is still all over RDO Rental. For example, Hutton's attention to detail is legendary among employees.
"He is extremely picky, especially when it comes to equipment," says RDO Rental's purchasing/operations manager Steve Rust. "He can see that something is wrong with a machine from 500 feet away, and that is not an exaggeration. He absolutely will not let us compromise the quality of the machines. That makes things tough sometimes, but it is also what keeps us in business."
Says special projects coordinator Gary Wagley: "Bill has a 'no surprises' policy. He insists that the customer understands the cost of equipment in advance. Some companies quote a price, but when the invoice is totaled at the end of the rental, the price is completely different. Some companies heavily inflate their gas prices. Some charge 15 percent for damage waiver. Some charge personal property tax. Personal property tax? What is that? Those are the kind of surprises that upset customers and prevent them from renting equipment."
As head of RDO Equipment's rent-to-rent division, Hutton reports to RDO Equipment chairman and CEO Ron D. Offutt in Fargo, N.D., but generally maintains the freedom to call his own shots based on his 29 years' experience in the industry.
Without much hesitation, Hutton passes that autonomy down the chain of command. RDO Rental is in the process of adopting an open-book management style, which Hutton says is designed to help employees develop a deeper understanding of how their actions impact the bottom line.
"Bill gives us the room to roam and put out ideas without shooting us down," says controller Ellen Brunner. "He is willing to let us make mistakes, without letting us fall flat on our faces, and then talk about what happened. He stays involved, but is comfortable with people taking control of their daily activities."
Says Rust, "He lets us do things our own way, and if it is not working, he lets us know."
Hutton says his own experience managing a branch in the 1970s for U.S. Rentals' predecessor company makes him comfortable with employee autonomy when it is appropriately balanced by controls.
"My background is in day-to-day operations, which gives me somewhat of an advantage over a lot of competitors, whose top leaders often don't have any rental experience," Hutton says. "As a result, I am intimate with all the details of running a rental store, which makes these types of things less stressful for me."
The goodwill Hutton built with employees during the Sun Valley days proved to be an invaluable resource when the merger with RDO Equipment became reality.
>From Sun Valley to RDO For employees, there are few bigger occupational bombshells than when the company they work for is sold. Anxiety is unavoidable; panic is commonplace.
Before RDO Equipment announced the purchase of Sun Valley, Hutton did his part to defuse the bomb. At a pre-merger managers' meeting, Hutton spelled things out simply: Sun Valley was going to have to grow, or it was going to die. While all involved understood that it was strictly a business transaction driven by financial motives, Hutton made sure not to forget the human side.
"I really would have been worried, except for the fact that Bill had been very open with us about where he was headed and what he wanted out of the merger," says Brunner, the controller. "He assured me that there wouldn't be changes in the accounting department, and because of my trust in him, I tried to reassure everyone else."
It was a good thing that Hutton took the time to bolster the confidence of employees because the former Sun Valley Equipment Corp. would soon be consumed by post-merger challenges, including:
* A name change. The original plan was to keep the Sun Valley name. However, a small rental company in California had rights to it and was unwilling to part with it. Because expansion to California was imminent, Sun Valley changed its name to RDO Rental Co. It took time for both employees and customers to adjust. (See story, page 58.)
"When the signs changed, we had customers come in and ask us whether we were still Sun Valley," says Rust. "We'd also have customers of RDO Equipment who bought a new machine from them call up and want warranty work done on their machines. We'd explain that RDO Rental wasn't authorized to do it, but the customer would say, 'But you're RDO, you have the same name.' It really caused a lot of problems for a month or two, then it died down."
* Being public. It took Hutton time as well to adjust to the increased scrutiny that comes with being part of a publicly traded company. "I didn't have a lot of boardroom activity in my background, so that was new to me," says Hutton. "It has been extremely interesting and rewarding to be exposed to that although it took some getting used to."
* Rapid growth. With RDO Equipment's backing, Hutton was able to launch a major expansion campaign that saw the company enter California and Nevada, as well as bolster its presence in its home state.
"We have grown so fast that we're still trying to keep up in a lot of respects," says Brunner. "For instance, we're in two new states, which means different employment laws and vehicle registration laws, all of which take a lot of time. It has been trying at times, but seeing the progress we have been making has been encouraging."
Former Sun Valley customers - who find themselves in late-model equipment on a more consistent basis at RDO Rental - certainly are enthused.
"We really do have so much more buying power," Rust says. "If a customer wants something, we will try to get it for him. We can get whatever we want, as long as we can make money with it."
Increased buying power is one obvious benefit from the merger, as is the ability to dispose of equipment out of the rental fleet more quickly and profitably.
"The last couple of years have made me feel, pardon the cliche, like a kid in a candy store," says Hutton. "After 25-plus years of being an entrepreneur and struggling with all the things entrepreneurs have to deal with, I really have been having a lot of fun.
"It has allowed access to resources I wouldn't have had, and allowed me to expand and grow the company without restrictions."
Not only was Hutton revitalized by the merger, the company was, too.
Meeting in the middle With its relatively new expansion into Southern California and its recent acquisition in Las Vegas, RDO Rental splits its 13 branches into four operating divisions: California, Northern Arizona, Southern Arizona and Western Arizona, which includes Las Vegas. A 14th branch, in Gilbert, Ariz., will open later this year as part of the Southern Arizona group.
Day-to-day business at each branch is overseen by a manager, who has at least one salesperson, one shop foreman and one semi-truck for deliveries, in addition to support personnel. Each store manager is tasked with getting certain preset returns from the varied mix of construction equipment in the inventories.
The company's computer software allows managers to proactively analyze inventories and make decisions as to which equipment is and is not profitable. If a branch doesn't make its numbers for a specific type of equipment, its inventory for the items in question is restricted. "Not eliminated, but restricted," Hutton says. "The inventory is then moved to areas where it can get better returns."
RDO Rental also relies on its computer system for equipment maintenance. Each shop foreman is informed via computer when periodic preventive maintenance is necessary. Each week, parts and shop coordinator Terry Piper uses an "equipment-down report" to find out what pieces have been down longer than they should be. Once notified by Piper, branch mechanics have the option of fixing the offending equipment themselves or moving it to another store to be repaired.
"We're on top of that every week," says purchasing/operations manager Rust. "The last thing we want is equipment sitting and not making us money. And we don't want to buy new stuff when we have the same piece in maintenance."
When equipment does have to be moved between branches, a designated meet spot is used, which allows a truck from Branch A to meet Branch B's truck at a location roughly equidistant from both. "That way when equipment has to be moved, store managers are less likely to feel as if they are being taken advantage of by losing a truck for an entire day," says Rust. "They know they have to go halfway to help the other guy, and it goes both ways."
As one might expect, inventory in the company's Phoenix outlet differs somewhat from that of the Bullhead City, Ariz., branch. However, all RDO Rental branches are construction-oriented, with some homeowner items and an increasing emphasis on industrial rentals. While the Phoenix branch recently added a salesman whose focus is the industrial niche, several rural outlets still carry lawn mowers and other homeowner items.
"Because most northern Arizona markets can't support specialty houses like big cities do and our original market was northern Arizona, we have a more diversified fleet than a typical rental center," Hutton says. "For our stores in larger markets where there are large specialty houses, we restrict items such as scissorlifts and forklifts. We do carry them, but just on a limited basis.
"For our locations in smaller markets, we try to serve all of the customers' needs, even those items that would normally be called specialty."
The RDO management team can monitor equipment and track utilization in real-time from the Cottonwood headquarters simply by logging onto the company's frame-relay computer system, which is designed by Wynne Systems. While Hutton does have some concerns about using Wynne, which is owned by equipment rental giant United Rentals, he's taking a wait-and-see approach before switching systems.
"We're not concerned with security issues as much as we are with the fact that enhancements to the software could be retained for the exclusive use of the United Rentals' organization," he says. "We're going to see how it plays out, and if it gets to be such that we don't feel as if we are being treated fairly, then we'll change companies."
The current hardware configuration can handle at least 25 stores without strain, which is good news for Hutton, who plans to further dot the Southwest with RDO Rental branches.
Beyond the Southwest? While Hutton pays attention to the consolidators' moves, he does not plan to mimic them. In the same way he urges his salespeople not to get lured into a price-cutting battle with competitors, he has - at least so far - resisted the urge to join other publicly traded rental companies in acquisition bidding wars.
Hutton says, "We are pursuing strategic acquisitions," which include the recent asset purchase of Rebel Equipment Rentals, RDO Rental's entree into the Las Vegas market. "Our criteria are that they have to fit into our operating model and be in markets we want to be in. The biggest obstacle the last couple of years, quite frankly, has been the prices being paid by consolidators. We have chosen not to pay those prices."
RDO Rental currently shares two facilities with parent company RDO Equipment, but Hutton does not foresee opening an RDO Rental outlet in each of the 50-plus markets where RDO Equipment does business. (See story, page 55.)
"We have no problem being competitive in the markets we're in," Hutton says. "The number of branches that other companies have in other states is irrelevant to us. Thus far, we've been able to be competitive and accomplish the goals we've set. Size has not been a factor."
While downplaying the size issue, Hutton is also using it to his advantage by adopting the "We try harder" philosophy that perennial car rental runner-up Avis used to try to woo customers from longtime No. 1 Hertz. Because RDO is not the biggest company in many of the markets it serves, Hutton charges employees to show customers that RDO Rental cares more.
With firsthand knowledge of the awful effect of recession on large rental companies, Hutton believes well-run smaller companies such as his will be more adaptable and, therefore, more successful in the next economic downturn.
"When construction does slack off, the effect on rental companies' balance sheets is quite obvious," Hutton says. "With all the excess inventory on the books, it is going to be a bloodbath with rental rates sent to the floor."
So Hutton is content with the addition of eight branches in the past 24 months, which, in a time before billion-dollar rental company mergers, would have been considered reasonably brisk growth.
"Things are very busy right now," says Hutton, "and I am not forecasting a downturn anytime soon. Business, especially in the Southwest, appears to be robust. But a downcycle will come, and we don't want to be vulnerable when it does. So we will continue to grow the company in such a manner that, when it does come, we can weather it."
For the publicly traded rental company that behaves more like a private one, Hutton's forecast calls for more slow and steady growth - rain or shine.
Because RDO Rental and its parent company RDO Equipment have overlapping territories in much of Arizona and Southern California, they have teamed up with twin facilities in two locations.
The idea behind those branches - located in Lake Havasu City, Ariz., and Poway, Calif. - is to take advantage of "synergistic opportunities," as they say on Wall Street.
"Combining them at the same facility is better than their standing alone," says Gary Wagley, RDO Rental's special projects coordinator. "It is one of those one-plus-one-equals-three scenarios." Wagley is helping to design a double-duty facility in Gilbert, Ariz., the first twin outlet built from scratch. The Gilbert branch is expected to open later this year.
At the twin facilities, RDO Rental shares real estate with RDO Equipment, a Deere distributor. Synergies are realized not only with reduced real estate costs, but with trucking and re-renting as well. RDO Equipment farms out all of its transport functions to RDO Rental, eliminating the equipment operation's need for trucks, trailers and drivers. Additionally, all RDO Equipment re-rent business is conducted through RDO Rental.
The rental company is housed in a separate structure from the equipment operation, however, and each maintains separate staffs and phone lines. While pushing the synergy envelope by combining the operations under one roof with one staff makes sound sense financially, RDO Rental president Bill Hutton says the operations nightmare that would ensue outweighs any potential economic gains.
"The companies operate with different priorities," Hutton says. "It simply doesn't mix to put the two together. We're used to responding to customers' needs in an hour or less. Many dealers think that if they get out there later the same day or the next, they have done a good job. So it really is a whole different mind-set."
RDO Rental predecessor Sun Valley Equipment Corp. was one of the first rental companies with a functional site on the World Wide Web. Today, RDO Rental's site is one of the industry's most comprehensive.
At www.rdorental.com, customers will find electronic credit applications, an inventory of available equipment and a downloadable rate book - making it one of the few rental sites that offers online price quotes.
"You would be surprised at some of the comments we have received," says Jim King, systems administrator. "We had a contractor tell us that he was sitting at home at 9 p.m. wondering how big a water truck we rented. He went to our site and saw we had 4,000-gallon trucks. He knew we had it, and the next morning he called and rented one."
RDO Rental technical services manager Tod Keltner is working on the next step: allowing that contractor to place his equipment order online via the Web. Keltner anticipates it will be another three to five years before true electronic transactions become reality in the rental industry.
Another RDO Rental pilot project is barcoding, which would automate the consumable sales and possibly the rental process. It would allow computerized ordering of sales merchandise such as hard hats and gloves at each of the company's 13 outlets.
"We are really excited about the possibility of barcoding, something like what rental car agencies use at their airport locations," says King. "It is not inexpensive, but it does produce an accurate record. We won't have to worry if the guy who is checking in the equipment suddenly gets called away and forgets to finish the check-in process and the equipment sits there for two days unaccounted for."
Says RDO president Bill Hutton about the technological advancements: "It's definitely an investment in the future. Companies that don't embrace these new technologies will ultimately be left on the side of the road. I don't intend to be one of them."
There was a time when RDO Rental was strictly a northern Arizona company. Today, its branches reach south to Tucson, Ariz.; west to Riverside, Calif.; and north to Las Vegas.
Such geographic expansion mandated changes in how the company markets itself. Obviously, strategies that work in Show Low, Ariz. (population 6,330) aren't guarantees for success in Phoenixor San Diego. The company's presence in both very large and very small markets created several challenges for RDO Rental's marketing department, which is headed by construction industry veteran Dave Maupin.
The first order of business was to help RDO Rental stand out from its namesake and parent company, Deere dealer RDO Equipment. Maupin began using blue-colored print on letterhead and other printed materials for RDO Rental, while the parent company uses black. It may seem like a small distinction, but every little bit helps, according to Maupin.
"Some contractors see the name RDO and think [the rental company] is offering only Deere equipment," he says. "So we're working hard to help customers identify the difference between RDO Rental and RDO Equipment."
The marketing department also has been expanding the customer base, especially in markets such as Temecula, Calif., where RDO Rental only recently established a presence.
"In this business, customers can usually go down the road and get pretty much the same piece of equipment from a competitor," says Maupin. "That makes this a real people business, so we're working on some things that make us stand out and help people recognize us."
RDO Rental Co. Cottonwood, Ariz. History: Bill Hutton began in the rental industry in 1970. After a six-year stint with U.S. Rentals, which was then called Leasing Enterprises, he co-founded Phoenix's Sunstate Equipment with Mike Watts. Watts bought Hutton's stake in Sunstate in 1980. Hutton moved to northern Arizona and, after a short-lived retirement, he returned to the industry with the founding of Sun Valley Equipment in 1984.
Hutton grew Sun Valley to five Arizona locations before selling 80 percent of the company in 1997 to publicly traded RDO Equipment, a construction and truck equipment sales and rental specialist. Under the new name RDO Rental, the company expanded with seven greenfield start-ups in the next two years, including three in California. RDO Rental made its first acquisition - Rebel Equipment Rentals' Las Vegas operation - at the end of last year. Plans call for additional start-up branches to open this year.
Key management: Bill Hutton, president and minority owner; Gary Wagley, special projects coordinator; Ellen Brunner, controller; Steve Rust, purchasing/operations manager; and regional managers Dick Farrell, Erle Faust, Dan Rohler and James Warren.
Employees: More than 150.
Locations: 13 total, nine in Arizona (Bullhead City, Cottonwood, Flagstaff, Kingman, Lake Havasu City, Phoenix, Prescott, Show Low, Tucson); three in California (Poway, Riverside, Temecula); one in Nevada (Las Vegas).
1998 rental volume: $20.9 million.
Customer breakdown (as a percentage of revenue): 90 percent construction, 6 percent homeowner, 4 percent industrial.
Parent company ticker symbol: "RDO" on the New York Stock Exchange.
Philosophy: "Everyone knows that the current situation for rental companies is as good as it has ever been. We are attempting to build a company that can weather the bad times as well as perform in the good."