RERMAG

*Who Pays the Price?

Hit hard by consolidation and deflating rates, many independent rental center owners have thrown out the rate books and have thrown themselves into a potentially calamitous price war in which success is measured by market share rather than profitability. As such, it is becoming increasingly difficult to find owners and managers who use, much less maintain, rate cards on a regular basis.

Some say the price war escalated a few years ago as the consolidators steadily gained territories previously held by independent centers. Some owners say the lower your rates go, the better your chances of surviving the competition.

“Rates right now have been reduced to individual job sites,” says Steven Durante, owner of Able Supply in Copiague, N.Y., on Long Island. “If a salesman says he can rent a piece of equipment for $1,000 a week and the next guy says he can do it for $800, then the rate's set at $800, and you can only go lower and lower. That's why most companies don't advertise rates, because it's very hard to get out of it.”

A general manager of a major independent company in the Northeast agrees. He says that until a year ago, an accountant helped the family-owned company map out rates that would get a fair return on investment. This approach does not work anymore, he says, because too many rental centers slash rates on impulse.

“We have a starting point, but we rarely follow it,” he says. “Almost all our equipment is rented out for less — that's why we don't print rates for our customers, because the next guy will beat it.”

For many companies, it's a give and take.

“So if you're not making your expenses by lowering rates, why do you want to lose in the end? They're only hurting themselves by playing the bidding war.”
— Kim Hawkins Grand Rental Station



“When you're new, the rental rate is what the market will bear,” says Don Charbonnet of Louisiana Rents, a Cat Rental dealer. “If they want to do business with you and have a relationship, they might be willing to pay your rate. But a certain percentage is price shoppers who don't appreciate the added values, so delivery [charges] are the first to go. Most companies have several different tiers of rates. They have the book rate, and then the counter guy has a rate, then the sales rep and then the manager. Everybody has their take as to how much they want to give up.”

Instead of chopping rates, Trish Cereda prefers to “discount aggressively.” Last year, for instance, she rented an 84-inch roller for $2,900 a month to a loyal, “high-profile” customer. The machine normally rents for $4,500 a month.

“I've been doing this long enough to know how low or high we can go,” says Cereda, manager of Cesco (Contractor Equipment Supply Co.) in Meridian, Idaho. “It depends on who the customer is, on our inventory and utilization. It also depends on the season. In the winter months we are more aggressive and charge by the hour on certain machines.”

Cereda claims she doesn't want to get involved in price wars but says Cesco calls area rental stores to compare prices. She also has no misgivings about handing out rate sheets or posting rates online because “rates are always negotiable.”

“We just want to be in the middle so we can negotiate our prices,” Cereda says. “We don't want to be the cheapest in the valley. We just want to be fair.”

Some owners refuse to play the bidding game and choose to be more proactive about rates. They factor in the usual operation, equipment maintenance, repair and delivery costs, payroll and insurance costs.

Bill Gaffney, president of Boston-based Boston Equipment and Supply, sets rates by “multiplying the equipment cost by the percentage of the return on investment,” which ranges from 4 percent for large equipment to 7 percent or 8 percent on smaller equipment.

“Smaller pieces go a little higher because you won't get a lot of use from it [compared with] large equipment,” Gaffney says. “Whatever my cost is, I try to get back a return on investment in 30 months.”

Rates in his area suffered an 18 percent decline last year. The worst rate he has encountered was $1,600 a month for a 6,000-pound forklift with a suggested book rate of $2,940.

Anne Cristiani, president of A.C. Equipment Rental in Clarksville, Ind., says rate slashing is getting so out of control that she is focusing on volume and utilization when setting rates.

“We do stay competitive. But we don't check [our competitors' rates] too much because our customers let us know what the others' rates are,” Cristiani says. “We evaluate our rates once a year, and if a piece of equipment is not working, we move it.”

Kim Hawkins, store manager of a Grand Rental Station in Oneida, N.Y., says there are no surprises when contractors come to the counter because everything is laid out in black and white.

“I am concerned about [haggling] because it hurts the industry,” Hawkins says. “It's sad because those companies [that slash rates] still have to make a buck. They have the same cost [of running a business] that we do … nobody works for free. So if you're not making your expenses by lowering rates, why do you want to lose in the end? They're only hurting themselves by playing the bidding war.”

Brad Jacobs, CEO of United Rentals, No. 1 on the RER 100, agrees. “You can't leave a lot of money on the table in rental rates,” Jacobs says. “If you price down to attract an occasional sale, or if you are inconsistent in how you charge, you're usually killing yourself. The first job is to train salespeople better, to price right instead of by impulse, to take the good rentals and let the bad ones go away. Just doing that alone increases average rental rates dramatically.”

Some believe playing the price war might be the only solution to keeping a viable rental operation, at least while rates remain at an all-time low. But it also might be counterproductive, particularly when word gets out and your customers start asking, “What else can I say to get the price down?” And guess who ends up paying a high price?

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