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As
you explore this year’s annual A.R.A. Convention and
Rental Trade Show in Orlando, you undoubtedly will be
asked, “How is business?” It’s probably the same
question you will be asking trusted associates in an
attempt to validate what you think is happening in your
local rental market. Is now the right time to purchase
additional inventory for a strong spring? Or is it best
to make do with what you currently have, assuming the
market may be soft?
These
are important questions for the long-term success of
your business, and people go about finding the answers
in various ways.
Networking
with fellow businesspeople in the rental industry is one
tool to help clarify how business has been, but it’s
often not an accurate source for what is coming in your
particular trade area.
It
is not a case of “one size fits all” — there is no
one answer that applies to every company. You have to
look at your own marketing data and do your own trends
analysis.
The
best forecast for your future business is your own fleet
utilization numbers (provided they are accurate and up
to date) combined with local industry activity reports
— housing starts, construction spending, large project
bid awards and equipment purchases, for example.
During
the past year, many regions of the United States
experienced a substantial decrease in the purchase of
new construction equipment. That is an important piece
of information that had and will continue to have an
impact on your construction equipment rental fleet.
Accurate
rental fleet utilization rates can give you
important information in advance on what is actually
happening.
In
most rental markets — barring unusual weather —
there is a normal fleet demand increase during the
months of March through May, a leveling during June and
July, a softening in August and September and a
noticeable spike in October through December. January
and February are normally soft compared to other months.
An accurate tracking of your fleet size and utilization
rates over a 24-month period will show your basic market
trends. Armed with your historical trend lines and local
business activity reports, you can now look for patterns
that signal important changes.
As
the market for construction equipment purchases
decreases, there is normally a corresponding increase in
demand for rent-to-rent machines. This is often due to
the end user’s not having sufficient future work
forecast to justify the long-term investment of a
purchase.
In
this situation, shorter-term rentals are used to equip
projects. Local business activity reports should also
show decreases in project bid openings and awards.
Assuming
a stable rental fleet size, your fleet utilization rate
will show increased demand relative to previous history.
This is a signal to be cautious about adding more fleet,
even though demand is increasing.
If
the market for equipment purchases decreases further —
normally 20 percent or more — the demand for
profitable shorter-term rentals will also suddenly
tumble, leaving you with excess inventory and rapidly
falling rental rates.
I
hope this didn’t happen to you during 2000.
Unfortunately, this did happen to a number of rental
operations that were only responding to increasing
demands and not watching their historical trend lines.
What
is in store for 2001? The correct answer will be
different for different areas of the United States, but
some general signals are out there. Lower temperatures
and more snow is stopping work in many areas of the
country compared to previous years. This will help
generate a spring start-up work spike in many areas.
The
recent lowering of interest rates by the Federal Reserve
is also positive, but the trickle-through result will
probably not have an impact until mid-year. Rental rates
are still very competitive.
Since
the market is down for new construction equipment
purchases, the first suppliers that will see a demand
increase (if any) will be the rental market.
In
a down market, the end user normally first goes to
shorter-term rentals to fill equipment needs. This
reduces their risk of excess fleet if future jobs don’t
materialize.
The
signal for rental companies is increased demand above
historical levels. In other words, rentals lead the way
out of a market slump or recession.
If
you have accurate utilization records, you will be able
to forecast the strength of the 2001 market. Typically,
the rental market will experience increased demands
three to four months ahead of an overall market
recovery. |
