RM: How are you preparing for better days?

Michael Kneeland: It’s challenging. In today’s world, you have to be transparent and out in front of all stakeholders. That’s employees, investors and vendors. We’ve been communicating, communicating and communicating. We are not sugar-coating it, but instead telling them exactly the way it is. Direct communications is critical. Our employees know it’s tough. They feel it. But the downturn also provides an opportunity to identify areas for increased efficiencies and to improve operating metrics, such as pick-up time for equipment off rent. In 2008 we consolidated or closed 75 locations as well as defleeted. Our compensation plan now promotes the transfer of fleet between branches, districts and regions, which has been very important. To get through this current cycle, we have to constantly become better at what we do. It’s not a luxury. We’re also focused on our long-term vision for profitable growth and customer service leadership.

RM: You’ve said that we’ve been through these types of business cycles before, but the current economy seems different than what we’ve been through before.

Kneeland: This is a cycle that is unprecedented. Yes, we’ve been through economic cycles before and each one of them has its own personality. We are living through a historic and global downturn, one with no comparison, at least not in our lifetime. Financial services companies with long and admired reputations have disappeared. The credit markets have seized up and many people fear losing their jobs and homes. This is a difficult time for our nation and we need to work together to solve the economic problems we face. It’s a different and challenging environment.

RM: How does this change the rental business? Just as this is a different economic downturn, the economy may be different when we come out.

Kneeland: The industry overall has gone through peaks and valleys, and ultimately it comes out stronger on the other end. I don’t think that will change. In fact, I think you will see more of a dramatic swing when the cycle turns favorable. We believe that there will be significant declines in the rental space for 2009 — that the trajectory we saw in the back half of 2008 will continue in 2009. Our sense is it will be 2010 at the earliest, before it turns around. I think you’ll see better business models come out of it. This cycle will force rental companies to do things differently than they’ve done in the past. That’s not necessarily a bad thing for the industry.

RM: In what other ways might this current economy benefit the rental industry?

Kneeland: It doesn’t allow us to take anything for granted. There is no room for complacency. If you’re not at the top of your game, you can’t survive. We will hug the customer as close as possible, demonstrating that we are his partner, with his best interests at heart.

RM: Does this then relate back to the company’s new customer service effort? It sounds like this was started before the current economy hit, but has it become even more important in this environment?

Kneeland: Our vision is to become the first choice for equipment rental based on the level of service we provide. I think that the word “service” or “customer service” is an overused term, not only in our industry, but in all industries. As we refocused on our core business of equipment rental, we wanted to make sure that we raised the bar on the level of service. We did an independent survey by a nationally known company and found that there is no one specific company that delights the rental customer with its service. That’s a real opportunity. United Rentals does a very good job one on one at the local level, but we need to leverage our size and services for the larger accounts. Every rental company believes that they do a great job at customer service, and they can show you stacks of internal or friendly surveys to prove that point, but that’s not what the customers think. As an industry, we all can do a better job of winning over the customer. At United Rentals, we are committed to setting this standard for the industry. We want customers to view United Rentals as a partner committed to their success, getting the equipment that they need, when they need it, with no hiccups.

RM: Is this an opportunity to improve and increase employee training?

Kneeland: Yes. We have implemented a new sales structure that will allow us to focus on the different levels of the construction environment, whether it is a national account, a regional type of customer or the local customer. We have aligned our organization from the branch up through a new initiative called Operation United. What are the key things that companies and our customers are looking for? What are the hot buttons when it comes to quantifying the word “service?” We’ve developed customer service metrics internally. We are training our people on these metrics so that we can measure ourselves on how we perform with customers. Ultimately it is up to the customer to decide if our level of service meets expectations. We are also training our people on all 20 of the touch points of rental transactions.

RM: United Rentals has reduced payroll by 2,100 people over the last two years. Two years ago, there was a great need for mechanics. Has this environment changed that need?

Kneeland: It’s never enjoyable to take people out of the business, but in this environment it’s a necessity. We must match our operations to market activity. Mechanics are an important touch point because ultimately the product we put out is the end result of their efforts. The need for mechanics will always be there. Equipment is not getting any simpler. I’ve always been a proponent of trying to get good people into our industry, particularly mechanics, because I think that’s going to be an area of long-term need. We do our best at attract and retain good people in all job descriptions.

RM: You were interim CEO and in late 2008, you officially became CEO. The company has named a new chairman of the board and added new board members. Do you have a new charge as CEO?

Kneeland: Our charge is our vision. I’ve been in the rental industry for 30 years, and I’ve never been as excited about a company as I am about United Rentals. I’m equally excited about the prospects for the equipment rental industry. I see this as a golden opportunity to take United Rentals to the next level. I see it as an opportunity to realize our vision through our people and creating enduring loyalty with customers through customer service. It won’t happen overnight, but we’re making solid progress. The strategy I put in place in mid-2007 clearly defines United Rentals as an equipment rental company and over the past 20 months we have returned to a focus on our core business. The legs of our strategy are fleet management, cost control and profitable growth. Our new leadership team is committed to these goals and eager to take on the challenge.

RM: How does the current economy impact how United Rentals handles advertising and marketing?

Kneeland: Like any well-run business, we have to make sure that every dollar we spend helps the business grow. We have just launched a major sweepstakes for construction professionals — Consider It Won — that further differentiates us from our competitors.

RM: Manufacturers, of course, want to know when United Rentals plans to start buying equipment again. In the most recent conference call with investors, you said net capital spending will be around $100 million in 2009?

Kneeland: Yes, capital spending in 2009 will be about $100 million, which is down significantly. We have to manage our way through the economic times we have. Our fleet will age out to 43 or 45 months this year. When we start seeing demand from our customers, then we will expand the fleet. Until then, we will continue to move equipment around, redeploy capital and drive those customer service metrics as a way of making the best use of our current fleet.

RM: United Rentals has moved inventory between branches to take advantage of areas where there is demand for equipment. Has there also been any shift in the type of inventory you carry?

Kneeland: Last year we moved more fleet than ever before in the company’s history and we will continue to shift fleet based on changing demand. Every employee understands that idle fleet doesn’t help us. Our branches are motivated to share equipment and also transfer it to where it is needed. In the fourth quarter, $1.4 billion worth of equipment or 30 percent of our fleet was transferred. As for our fleet mix, that’s based on customer need. These days, demand for earthmoving equipment is lighter than say two years ago, while demand for trench equipment is likely to increase because of the economic stimulus package. The good news is that equipment manufacturers understand and work with us to meet those changing needs. Aerial represents about 50 percent of our fleet right now. Material handling is at 17 percent and about 12 percent is earthmoving. This will change, depending on customer demand.

RM: Industrial equipment rental has been mentioned as a source of revenue growth. Why is this considered a growth area?

Kneeland: It is largely an untapped market that’s worth about $12 billion in annual revenue to the rental industry. Currently we have about 4 percent of that pie and we’ve only scratched the surface. Industrial companies are similar to other equipment end-users from the standpoint of economic motivation — it usually makes more economic sense for these companies to rent equipment than to own it, especially when credit is tight. We have a competitive edge here because of the vast size of our fleet. If an oil refinery, for instance, needs 100 pieces of a particular type of equipment, we can get it there quickly. That’s true throughout North America. We’re heading in the right direction with industrial, and there’s a lot more room for growth.