While prospects appear fairly strong for the rental business in the Southwest, things look a bit tougher in the Northwest, where Washington rental people often echo an old saying in the region: How Boeing goes, so goes Washington.
So how is Boeing going? The answer is rather quickly. It has moved its corporate headquarters to Chicago and plans to lay off more than 20,000 workers in the Seattle area over the next year. Add this to one of the two highest unemployment rates in the United States and it's no wonder Washington rental companies are taking a cautious attitude going into 2002.
“The recovery here is likely to lag behind the national recovery,” says Bob Kendall, CEO of Seattle-based Star Rentals. “In polling our large customers, every one is slower. There is work going on, but in polling our top 50 customers in Washington and Oregon, every one said they'll have a slower year this year.”
The other of the two highest unemployment rates is Oregon, which, like its northern neighbor, has rates topping 6 percent. In addition to the Boeing layoffs, which have yet to hit, the region has been severely hit by the drop-offs in the technology sector, with more than 15,000 people laid off from telecommunications industries such as chip manufacturing plants.
The economic problems in the Northwest have been exacerbated by severe drought, which has seriously impacted landscapers and related industries.
Still, most rental owners in the region remain at least optimistic. “We have an extreme traffic crisis here,” adds Kendall. “So there will be roadwork and mass transit projects, although those projects take time.” Dennis Hoglund says his Beehive Rentals in Eugene, Ore., was down only 3 to 5 percent in 2001 and Bob Johnson of CJ Rentals in Central Point, Ore., says rentals were basically even with 2000, while sales increased. Johnson added the Mustang skid-steer loader line to CJ's inventory, which he expects will boost sales volume in 2002, while he hopes for a modest increase in rental volume.
Jim Neill, who owns Sun Rental Center locations in Pullman, Wash., and Moscow, Idaho, says the difference between the current recession and others he has been through has been interest rates. Still, he, like most owners in the region, has become cautious about his equipment expenditures. “Unless we have some customers lined up to rent a new item, we're not adding new pieces to our inventory,” Neill says. He adds that building, especially housing starts, are down in both of his market areas.
Northern California rental center owners report a significant drop-off in the second half of 2000. “In mid-year, June, we were up 16 percent, but the second half set us way back,” says Ken DeVries of Vallejo, Calif.-based All-Star Rents. “It was a combination of the rain, the events of September 11, and the economy — a triple whammy. But we're optimistic for 2002. My managers tell me we have work as soon as the rain stops.”
Larry Pedersen of A Tool Shed, Campbell, Calif., with eight locations in and around the San Jose area, found a similar pattern. “We had a fantastic first quarter, up 40 percent,” he says. “But we wound up with the year being just even. There's plenty of work out there, but it's just delayed. Two huge hotel projects in downtown San Jose have been delayed for a year.”
Southern California rental companies report fairly decent rental demand from their customers. “California is still growing, southern California especially,” says John Hoham of Temecula, Calif.-based Rebel Rents. “We haven't seen too much of a difference. Everything slowed down after the disaster in New York, but I think we're coming out of that now, and we can see it coming back slowly.”
Mike Watts, CEO of Phoenix-based Sunstate Equipment Rentals, whose 48 branches extend throughout California and the Southwest and as far east as Oklahoma and Texas, says his company has seen a bit of a decrease, but not as much of a drop-off as he might have expected. “Our locations show a variance from down 5 percent to up 5 to 10 percent and year over year we're up about 6 percent, so we're pretty pleased with that,” Watts says. “Many of our customers that had projects in abeyance report that they're being revived, so we're more optimistic than I would have thought [at the beginning of the year]. Business seems to be strong where the sunshine is.”
Roger Poulson of Faris Machinery in Commerce City, Colo., says his company's volume was down about 9 percent and, based on his reports from his salesmen in the field, he expects about the same in 2002. While the economy and the events of September 11 have had an impact in the mountain region, Poulson says, the overbuilding of office space in his area has had a major effect on business. “When you're running 30 percent occupancy, somebody better stop building,” he says.
Things are a bit tougher for rental companies that specialize in aerial equipment. “We're having a hard time,” says Don Ahern of Las Vegas-based Ahern Rentals, which has 23 locations in Arizona, California, Colorado, Nevada and Utah. “We've got about 14,000 pieces, about 6,500 aerial pieces and a lot of them are sitting right now, but it's picking up. I think the first half of 2002 won't be real strong, but I'm hoping the second half of the year will be good. I'd say 2002 will be a good year from the standpoint of separating the men from the boys out there to see who can prosper. It takes skill to operate the rental business in these kinds of times. During other times, anybody can operate the business. I'll try to supply every skill I've got just to survive and making a profit is not even something I'm thinking about this year.”
Concern over making a profit is widespread in times like these. Cost-cutting is a major issue for all rental centers, and while many have been able to avoid laying off employees, losing a few to attrition and cutting back if not completely eliminating overtime, some, such as Ahern, have had to lay off as much as 10 percent of their work force. Concern over rates is felt across the board, with many rental center owners echoing Ahern, who said the rates he is seeing make profit almost impossible.
Still, most rental center owners in the west are confident that the economy is on the road to recovery and most expect to see substantial improvement by mid-year.
Michael Roth can be reached at [email protected].