RERMAG

Rental Rates Under Pressure As Revenue Grows, Survey Shows

NEW YORK - Business is strong and getting stronger, but pressure on rental rates continues to spark intense competition, according to 100 rental companies participating in a broad-ranging industry survey conducted recently by Merrill Lynch.

The report highlights a generally optimistic outlook for rental companies and the robust growth of equipment rental, citing higher revenues in 1999 versus 1998 for 82 percent of the companies. And, 2000 should be an even better year as 91 percent of the respondents anticipate revenue increases. "The larger companies are somewhat more positive on the magnitude of growth with 50 percent looking for gains of more than 10 percent compared with 33 percent of the smaller companies," said Elaine Thomson, vice president, Merrill Lynch, who directed the survey which was composed of a near 50/50 split between companies earning under $2 million a year, and those exceeding the $2 million mark.

The survey found that higher revenues have in turn brought increased equipment spending. Eight-two percent said they spent more on equipment in 1999 than they did in 1998, and 75 percent anticipate 2000 will see greater spending over 1999. "On a unit basis, our respondents expect to increase their fleet by 13 percent this year," said Thomson.

Despite the positive signals, the survey does indicate a slight pullback from a September 1999 study that portrayed a more aggressive acquisition climate. Thomson attributes the change to "the strong build-up over the past two years and expenditures beginning to return to a more normalized level," she said.

Competition has clearly made its impact on rental rates. Although the study does conclude that rental rates have not "meaningfully deteriorated," results clearly indicate that many companies are having a hard time trying to notch up rates, especially larger operators.

The numbers show that two different pricing scenarios exist, with about a third anticipating raising rates and another third having to make cuts this year. Large companies as a group are more likely than any another group to cut rates. And about half of the larger companies said their rates were down in 1999 compared to 1998.

The study concludes that larger companies are engaged in more competitive pricing wars. While larger chains move into crowded markets, smaller operators can service smaller markets and operate in niche businesses "which tend to command higher prices," Thomson said.

"In addition, the larger companies also tend to have more large customers who rent equipment for longer periods of time, which is less profitable business than daily or weekly rentals," said Thomson.

Participating in the study were companies doing business in 30 states. Annual rental revenue per company ranges from $25,000 to more than $25 million. Nearly 80 percent of respondents say they are "dedicated rental companies" where the majority of revenues are from rent-to-rent operations.

"We believe this broad sample provides a good overview of the current state of and prospects for the equipment rental industry in the U.S.," said Thomson.

TAGS: Ar
Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish