Hertz Equipment Rental uses market indicators to target opportunities
Editor’s note: Lois Boyd, group president, Hertz Equipment Rental Corp. (HERC), has served in this role since April 2011. From March 2010 until April 2011, she served as the senior vice president, Advantage Rent-A-Car. From November 2007 until February 2010, she served as senior vice president, process improvement and project management of Hertz Holdings and Hertz. Prior to joining Hertz Holdings and Hertz, Boyd served in a number of senior leadership roles at Tenneco from April 1997 to November 2007, including vice president and general manager of global commercial vehicle systems and specialty markets, and vice president, global program management. While Hertz has been in the news recently due to activist shareholder activity, Boyd is moving forward as the equipment rental segment of the company continues to perform well. She recently discussed her outlook for the business and growth strategies for the future with Rental Management. An edited version of that conversation follows.
RM: What is your outlook for the equipment rental industry in general for 2014 and beyond?
Lois Boyd: We see continued strength in the marketplace, but this is always subject to something happening in the environment and the economy. We are seeing recovery at different speeds in different areas. If you look at it from a normal point of view, all indicators look robust.
RM: Hertz Equipment Rental Corp. revenues have been growing faster than the overall rental industry. How has the company been able to accomplish this and do you think this will continue in 2014 and beyond?
Boyd: Obviously, we are hopeful this trend will continue. We have created a science around what we’re doing with fleet and with acquisitions. We are positioning the company based on market indicators, and then supporting with our footprint, investments in the right equipment, the right people and the right services. We also use ARA Rental Market Metrics™, the voluntary financial reporting standards developed by the American Rental Association (ARA). We wish everybody would use ARA Rental Market Metrics. Based on those metrics, we have one of the youngest fleets in marketplace. That helps our performance. Then there is the continued growth in penetration for rental versus owned equipment in some markets. The ability to have the manpower that can maintain more sophisticated equipment is an opportunity for us. We are focusing on several markets. During the downturn, we had to diversify our customer base. We are a different company today than we were pre-recession. We now have a significant presence in industrial equipment rental and in the oil and gas industry. There are other niche and specialty markets that also add balance in our portfolio.
RM: Some people have talked about a “secular shift” to rental among customers. Do you think this is happening?
Boyd: I believe that to be absolutely true. People are more educated about the fleet cycle processes and are making smarter decisions. Depending on what business you’re in, you may need to adapt to equipment with new electronics and mechanics. This means you need an educated workforce to manage that fleet. Customers will continue to own some fleet, but not every piece, which is an opportunity for rental companies. We’re offering even more of a service to grow their businesses in a more effective fashion. As the rental equipment provider, we are now a partner, providing various services and taking care of the equipment maintenance. There are many business reasons to rent versus owning equipment and that accounts for growth for us with a lot of our customers.
Part of what we do is our HERC 360-degree support. We help our customers manage their fleet with GPS and telematics, so that they know where the fleet is and what is going on with the fleet with onboard diagnostics. It helps with efficiencies and helps them run their business with our fleet and theirs as well. We are working on ways to be a partner with our customers in the long term and we will continue to expand in this area.
RM: Who is today’s target customer for Hertz Equipment Rental? Are you more focused on large contractors and construction companies, industrial clients or other customer segments?
Boyd: The customer base for us is pretty broad. We handle significant, large clients — which may be global or international — and local players, who are key to our business as well. We are focused on the construction and industrial markets, as well as oil and gas. Other client bases include the entertainment industry and the government, and we also provide specialty services for many niche markets. We see all clients as important and, as you would expect, the service we offer depends on the client and their marketplace. When you look across the business, you will see differences in our customer mix according to the region. In Texas or North Dakota, as an example, the oil fields are a major focus as well as construction and industry. On the East coast, it’s the local contractor, the government and various other important markets. The entertainment industry needs lighting and we are there to support them. We are not a cookie-cutter business; what we do is market dependent. This brings us back to the HERC 360 program where we can look at what the best value equation is for those clients. For a customer with a large territory and lots of equipment, a telematics solution would be right. If the customer is building a house or strip mall, then the requirements are different. We have to have the right fleet and the right answers for questions based on a market and its demands.
RM: There has been quite an energy boom in North America with lots of activity in various areas with shale. What does this mean for Hertz and the equipment rental industry?
Boyd: We’ve been fortunate to play a significant role in the last few years in this area. Oil and gas has several stages of development from exploration to refining and transportation. For each customer we look at all segments to see what’s necessary, and then create value solutions and packages for those elements. We are working with clients, learning how we can support them. Fracking is different from traditional drilling. That change requires different products than they had in the past and there are different applications. As demand increases in different spaces, we are working to support that demand. We bring the capability for helping them move. With refining, there is increased production. Pipelines have to be built to help move the energy to a refining location. You have to look at it from the beginning to the end and add a value equation that makes sense for you and the client. Anytime we can offer value to a client, it is worth the investment. We always listen to clients and their needs. We listen to their problems and figure out how to offer a solution.
RM: Hertz Equipment Rental, among other national rental companies, recently has started making acquisitions again and opening new branches in North America. Why is this happening?
Boyd: We’ve always done acquisitions. There is a fragmented marketplace across the country, and where and when it makes sense we will acquire businesses. We also have opened a number of greenfields lately. Strategically, you look at places that make sense for greenfield expansion or for acquisition. Our greenfield strategy allows us to use our own talent and take the opportunity to drive a new business and career opportunities for our employees. We are moving with clients who have requested our support at the local level.
RM: Several announcements by different companies like United Rentals and Sunbelt Rentals are related to the opening of more specialty branches. Does Hertz have a similar growth strategy?
Boyd: We are in pump and power, entertainment and other specialty niches. These bring a focus on that product line to the client. When you look at some products, some engineering support may be necessary. As an example, in the pumping business, you have to design and develop line sizes and pressure capabilities according to the volume of fluid, so that becomes a value-added service. You need an expert to support art directors and production teams to light spaces properly, we offer that service. There are power requirements to support an event. To be a step above, you need people who can handle those applications. The specialty branches complement our core fleet with expertise for design and development. We open branches around those product lines, such as entertainment. We continue to make those efforts to grow products and branches. Many times the specialty branch is next door to a core branch or on the same property to take advantage of the synergy and provide rapid service to our clients.
RM: Along those lines, it seems that Hertz has found a strong niche in serving the entertainment industry. Why target that segment?
Boyd: It makes sense for our business. We saw an opportunity in entertainment because companies were renting Hertz cars, some of our equipment, generators and rolling stock. We took the next step and now provide customized equipment and vehicle rental solutions to movie, film and television productions, live sports and entertainment events, and all-occasion special events, such as conventions and fairs. Expanding into lighting made sense for our entertainment business, so we acquired Cinelease in 2012.
RM: It’s been two years since United Rentals and RSC merged. Several industry observers and analysts have expected the “other shoe to drop,” but it hasn’t. Why hasn’t there been further consolidation in the industry?
Boyd: We believe we will continue to see consolidation in this fragmented market. We look at small tuck-in acquisitions, what makes sense for our business portfolio and what will be accretive to our business.
RM: On the equipment side, how have Tier 4 regulations impacted your company?
Boyd: You have to position the right fleet for the right client. We are acquiring Tier 4i and Tier 4 equipment and there are marketplaces where you need to have it available. We have experience on the different Tier regulations, so we have a good development training program. Many companies that provide engines already have been through this with trucks. We’re set up with diesel exhaust fuel (DEF) to supply clients and ourselves if that is the technology in play. You also have to set yourself up for diesel particulate filters. Our processes watch and measure everything surrounding our new product launches. We haven’t seen any problems with the reliability of this equipment. We have new fleet to meet regulations and we will be smart about it. All players will need to do this. We have regular meetings with suppliers to give feedback about what customers and mechanics like and don’t like. Reliability is critical. We think we have the right teams in place to avoid issues. Tier 4 also plays a role in the company’s “green” strategy. We also are working with suppliers with battery-powered equipment, natural gas and other green technologies. For example, in our own facilities we use efficient lighting, recycle fluids and materials and have incorporated solar panels where it makes sense.
RM: What other concerns do you have about the future?
Boyd: One thing I always keep my ears and eyes open for is a greater economy. The indicators are all good at this time, but if something happens in the greater economy, you need to be prepared.
RM: Hertz Equipment Rental also is making significant moves overseas. Mongolia and Dubai are two that come to mind. Do you think the company’s North American success can be duplicated in other areas?
Boyd: Yes, it can be duplicated. We have been in Europe for a long time. We continue to see opportunities in other parts of the world. We have corporate locations in China, a joint venture in Saudi Arabia and franchise agreements in Iraq, Chile, Panama, Mongolia, Greece, Portugal and Afghanistan. We have many partners who want to work with us and take advantage of these growth areas. For new markets, we introduce the same principles and practices we have in place for fleet, utilization, productivity and lean practices. We try to leverage all of these areas on a global basis where it makes sense.