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Two major factors have prompted equipment rental to boom in recent years, according to rental expert Dan Kaplan, CEO, Daniel Kaplan Associates: Economic uncertainty and what he calls the “outstanding” performance of today’s rental companies.
“Major rental companies are targeting national contractor accounts and converting them from owning to renting,” said Kaplan in a webinar hosted by Rental Equipment Register magazine yesterday. “There’s really no need for a contractor to own unless he has more than 65 percent utilization.” Kaplan places rental penetration—the amount of equipment rented as a percentage of the total construction equipment sold—at 51 percent in 2011.
Kaplan was joined during the RER Rental Penetration webinar by equipment analyst Chuck Yengst, Yengst Associates, and John McClelland, vice president of government affairs, American Rental Association. In February, ARA announced the creation of its Equipment Rental Penetration Index, designed to estimate how much equipment goes through rental channels.
“Based on 2012 estimates, we will probably have rental penetration in the range of between 40 to 50 percent,” said Yengst. “As long as the economy continues to grow, we might hit 50 percent rental penetration in 2014.”
But don’t expect upward spikes from the 50 percent level, warns Kaplan. “The significant movement towards rental between 2005 and 2011 was driven by uncertainty. I see rental penetration being at 53 percent in 2015.”
Contractors should realize that “rental today is not the rental that their daddy used to have to deal with,” said McClelland. “The industry has become highly professional. I don’t think we’re going back to the equipment ownership patterns that existed before the downturn.” ARA is predicting that the U.S. rental equipment market will generate more than $33 billion this year.
And, adds Kaplan, further consolidation in the rental industry is “eminent. How it goes I don’t know, but it’s likely to occur in 2013.”