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Editor’s Note: Rental Management thanks William
Lasky, president and CEO of JLG Industries, and Dan
Sandonato, vice president – marketing, for their perspectives of the rental industry. We chose this dual-interview format in order to see the key issues from two vantage points — that of a chief executive who is relatively new to the company and the industry but an astute observer experienced in analyzing business conditions, and that of a marketing executive who has been close to the industry for many years and has been deeply involved in its development.
This interview is part of an ongoing series of commentaries on change and emerging issues in the rental industry from experienced authorities who represent various and sometimes widely differing viewpoints. We encourage readers to join in the discussion by writing or e-mailing their comments to:
Brian
Alm, Editor
Rental Management
1900 19th St., Moline, IL 61265
fax (309) 764-1533
or e-mail: brian.alm@ararental.org
RM: First, Mr.
Lasky, when did you start at JLG and where did you come from?
Lasky: I joined JLG in December 1999 as president and chief operating officer. Prior to
JLG, I served as a senior executive with Dana Corp. My last position [was] president of Dana’s Worldwide Filtration Products Group, a leading producer and supplier of engine filtration products with manufacturing operations on four continents. My earlier positions with Dana, which spanned eight different divisions, included vice president and general manager of the Spicer Clutch Division and general manager of the
Automotive Distribution Sales Division. I was also a member of Dana’s World Operating Committee, where I amassed considerable experience with business acquisitions, including playing a leadership role in the 1998 merger with Echlin.
RM: That certainly gives you an executive perspective. So as an executive, what do you look for in an industry, to take its pulse or “core sample,” if you will, to get a good, reliable profile of it — and in this case, sufficient to justify a career shift into an industry with which you have had no prior
familiarity?
Lasky: I am most pleased to see that it is a customer-centric industry. The rental industry is truly a service industry that provides the end-user with a precious product — efficiency, productivity, safety. In order to provide that product, it takes good people to make sure that the tools and services used to deliver time savings is done in an efficient manner. The industry is youthful and is developing at a rapid rate. From small entrepreneurial operations to public companies, they each provide their customers with products in an ever-increasing, efficient manner. We often talk about the productivity improvements in the United States resulting from technology, and naturally think about computers. But think about how the rental concept, the industry and all of its suppliers have contributed to this 10-year economic expansion that we are in the midst of. It is exciting. There are so many opportunities to choose from. The challenge becomes prioritizing them to ensure we are delivering the greatest value and returns to our customers and our
shareholders.
RM: How much of JLG’s business is tied to the rental industry? Putting it another way, how much of your production output goes to the rental channel? And is volume in this segment increasing?
Sandonato: At least 80 percent of all JLG aerial work platforms and Gradall material handlers manufactured are used in the rental industry. As our business increases in size, the
percentage going to rental stays about the same — the development of the rental industry has played an important role in the growth of our industry.
RM: Is there any segment where you see rental-channel volume increasing? Where are the market opportunities?
Sandonato: The greatest growth percentage that we are experiencing is in the international markets. We see our products
being used for more applications in more parts of the world. We continue to see boundless opportunities as we continue to learn more and more each day about how current and new end-users utilize our products. In fact, the use of aerial work platforms is in its infancy in all parts of the world.
RM: How do you tap that
emeging potential? How do you go after the markets you identify as hot prospects?
Sandonato: We continue to focus on the end-user who has a need to get people and materials safely in the air. By working closely with our customers, we get to understand their customers’ requirements. The net result is that we are able to develop products that closely meet the end-users’ needs.
RM: Here’s a question that may be a little provocative and I’d like to address it to Mr.
Lasky. Tell me your views about consolidation. Is it a good thing for the rental industry? The manufacturer? The economy? Or bad? Or is it not such a black-and-white issue, not so easy to define?
Lasky: I think that consolidation is a good thing for everyone in the industry. It is born from the need to become more efficient. Market forces dictate it. The net result is that industries become more efficient, productive and all stakeholders benefit. Now, it doesn’t come without a little pain, but in the long run it happens for all the right reasons. I really think that it provides a foundation for substantial growth for the entire rental industry.
From the manufacturing side, it can become challenging because as consolidation occurs, the rental companies achieve greater purchasing power. So, we must continue to become better in our operations to ensure we continue to provide products and services that add value.
From the rental company perspective, economies of scale and scope allow them to improve their asset utilization [and] that benefits their customers. Ultimately, as the industry becomes more efficient, it is better positioned to expand the markets it serves and create more value. The market continues to grow and that is good for everyone.
At some point in time, the rental companies and manufacturers together must focus on the most important person of all: the boss — the end-user, of course.
RM: You came from the automotive parts industry, which was fragmented once but has by now become 100 percent consolidated. The rental industry has proceeded down that path, too, but is far from completely consolidated and likely never will be. But from your perspective, what similarities and differences stand out in your mind when you observe and compare these industries?
Lasky: I think there is a very real correlation between the ongoing rental industry consolidation and the consolidation that took place in the automotive parts industry. In automotive distribution, consolidation is achieving greater efficiencies, resulting in the end-user receiving greater service, with more cost-effective acquisition prices.
Consolidation runs in phases. This first is the consolidation of the smaller operations. We’ve seen a lot of this over the past few years. Now we are starting to see the second phase in which the consolidated companies consolidate. This will continue to happen as long as there are efficiencies to be gained, resulting in larger players.
RM: Mr.
Sandonato, you’ve been close to this industry a long time and you know its historic utilization patterns. Will consolidation itself lead to a higher degree of saturation, do you think — higher levels of rental vs. ownership? Are consolidators or large rental companies producing that effect?
Sandonato: I can’t envision a saturation point for this industry. We will continue to see increasing demand for rental because it just makes economic sense — whether you are a homeowner, contractor, operations manager, facility manager, and so on. And rental companies are doing an excellent job at expanding the market. Sure, there will be ups and downs in the market, but in the long run we will see that long-term sustainable growth will be achieved.
RM: No saturation point? Is there no upper limit?
Sandonato: I guess that it all depends on how you define your market. For example, if your market was a single construction site and it was full of equipment, then you could, in
theory, saturate it. But if you believe that economies are boundless and can grow endlessly, you’ll discover that while there, you develop a relationship with a subcontractor. Then you begin working with him on another project. And the owner of that new project, who never used an AWP before, decides that she wants one for her new factory. When you visit the factory, you see a tree trimmer working off a ladder. Guess what. It may be a simplistic analogy, but the bottom line is that with eyes open wide, you can see that there are continuous opportunities to grow the marketplace.
The rental industry has the luxury of providing all types of end-users with solutions that in the past they could not afford. In short, growth
industries only exist because they contain firms that take advantage of growth opportunities.
RM: Do you see a stratification of the rental industry in which the manufacturers’ dealers and the big consolidated companies — or large specialists in the access-equipment segment specifically — will dominate construction rental, or at least segments of it?
Sandonato: There is room for both kinds of companies. Stratification will occur, but to the extent that it is required by the end-user. Some end-users might want or feel more comfortable with a company that specializes in a certain niche because of the expertise that they offer. Other end-users might value a rental company that provides one-stop shopping, while another type may want something else. It all boils down to having the best understanding of the customer and being able to provide them the best value proposition.
RM: What is the future role of the one-, two-, three-store operation? What would be the profile of that company? What would it be like?
Lasky: Using the high level of acceptance of rental in Europe as an example, it’s clear that the United States can at least double its capacity. That means there is always a place for the smaller, independent rental companies. They have the ability to service a client’s specific need in a different way from the large rental companies.
Industry consolidation will displace some small rental companies, but it will create greater opportunities for others. Smaller operations will survive because they will fulfill a valuable need for a customer group. That’s what is so great about this business. It is difficult to be all things to all people in an efficient manner. A lack of efficiency suggests that a point of diminishing returns is on the horizon.
This situation is the reason why the “law of responsive substitution”
exists. In short, it happens when a more economical solution is required by the marketplace.
In fact, it is the reason why rental has evolved — it provides, in some instances, a more economical alternative than purchasing.
Small rental companies can exist on the same premise. There are things that they can do better than a larger counterpart.
It doesn’t matter if you’re big or small, as long as you understand your customers, your business, you will be able to survive.
RM: What do you think would happen to the rental industry if a recession were to occur? Most people predict that a recession would increase rental utilization rates. Do you agree?
Lasky: Should a recession occur, I think we will see companies learn how to better manage and utilize their assets. Smart companies will quickly learn how to respond to the change in their customers’ needs. They will reorganize and develop strong internal teams and support systems. A recession would accelerate the ongoing asset utilization-improvement process that rental companies are engaged in.
There will certainly be more end-users opting to rent equipment that they might have purchased during better economic times. Also, I think that survivors of the recession will look more aggressively towards industrial opportunities to generate their business, which will ultimately create new demand. Then as we come out of the recession, the market will have actually expanded.
RM: What are the economic forces you watch? What are the important numbers for you?
Lasky: Actually, I’m not sure that history means much in this industry anymore. Dramatic changes in the rental industry have forced us to think and plan differently — focus
on what the future could be, rather than what the past was. But from a quantitative standpoint, there are some key indicators we watch, including double-digit interest rates, housing starts, industrial output, fuel prices, non-residential construction and level of political stability. In fact, we try to stay abreast of all types of economic activity around the globe. There are many interrelations that exist among economic variables that we don’t totally understand. But we continue to learn as we monitor and attempt to correlate other variables to our business activity.
RM: What do you watch closely in order to plan and direct the company’s future? Segment shifts? Differences in the way work is done? And what are these observations telling you about the broad picture of
construction and material handling, particularly with regard to the
involvement of the equipment rental companies in those markets?
Lasky: I would say that the most important thing we watch closely to plan the company’s future is our customer and our customer’s customer. Only then can we develop products and solutions that are valued by our customers and end-users alike.
What we see is an incredible opportunity to help others with things that we try to accomplish every day — get the job done in a better, safer, more cost-effective manner. That may sound like apple pie and motherhood, but the fact is that equipment rental companies must do the same. Get close to your customer and you will very quickly see for yourself how work is being done and how your products can be used to help your customer become more productive. The opportunities are endless. |
