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Contractor Roundtable Highlights
Growth in Rentals: Key Factor in Financial Equation
The ascent of nationwide rental companies has led many large construction contractors to rent equipment more frequently, and to base their rent vs. buy decisions strictly on financial analyses.
Other factors contractors take into consideration when deciding whether to rent or buy include project size, project deadlines, the support offered by the rental company, and equipment availability.
The emergence of the national rental companies has allowed contractors to more thoroughly analyze equipment ownership in terms of return on assets and return on capital employed, said Charles Snyder, a senior executive of Fluor Global Services.
Contractors like Fluor are increasingly renting lower-return, lower-utilization equipment because national rental chains make such equipment available throughout the country, Snyder said.
Utilization Rates
Other contractors prefer to own equipment, but find that the strength of the economy in the recent past has led to more rentals. "We tend to own 75% of the equipment we use, and probably rent 25%," said Robert Andrade, Vice President of Equipment Management for The Walsh Group, a national contractor. "The 25% is generally the short-term utilization. We schedule our equipment nationally and decide what we need on a yearly basis, and we buy that. The only rentals would be short term."
Job Locations - National and Global
Bechtel is increasingly renting, and basing the rent vs. buy decision on utilization, said Bob Hall, the company's President. But another factor leads the company to own rather than rent. "A very large percentage of our work is international, so in that environment we don't have as many opportunities to utilize rental companies, particularly in a lot of the Third World areas," Hall said. "That's where we principally have to own the equipment in order to support ourselves."
Conversely, rental companies may be better able to service and support equipment in some locations in the United States, and that will dictate contractors' rent vs. buy decision. "There are many reasons that we will rent as opposed to buy," said Chris Ryan, Vice President of Equipment for Boh Brothers. Boh will rent if a job is, "in an isolated area, in a geographic area that we feel like they can support it better than we can."
Partnerships with Rentals
Many contractors say they're more likely to rent for projects with aggressive completion schedules. For some projects, "you can't buy or mobilize enough new equipment fast enough," says Neal Ferry, Corporate Equipment Manager for contractor Peter Kiewit Sons', Inc. For such projects, "rental is the fastest way to get the job done."
The growth of rental companies is also leading some contractors to consider forming partnerships with them. "In the past we did a lot of regional renting or renting from certain dealers," Kiewit's Ferry said. Now Kiewit is beginning to examine which, if any, rental company could perform best for the company on a national basis.
Place for Dealer Networks
But the opportunity might not be just for rental companies - some of which, Ferry said, have uneven local support. A manufacturer with a strong, established dealer network and rental offerings could also possibly become a contractor's nationwide rental partner, Ferry said.
There's a large place in this business for a quality dealer network, but it has to be exactly that, Boh Brother's Ryan said, adding that dealer networks have an advantage over rental companies in their ability to extend the life of equipment, and to continue to use equipment until it's economical to move it.
Most Important Factors
Price, availability, and compatibility are the most important factors that determine which brand contractors choose to rent, according to roundtable participants.
"The pure rental decision is a little different than the owning decision in that we probably place more emphasis on price and availability," said Fluor's Snyder. "That is assuming, of course, that all will perform the work that we need to have done, and that they are, in fact, apples to apples."
>>Go to: Used equipment: financial aspects drive purchases
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