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Rental Roundtable Highlights
"Preferred Suppliers": Rental Companies See New Partnerships with Equipment Makers
 As large rental companies continue to dominate the construction equipment market, they are starting to partner with equipment makers, making them preferred suppliers.
Although equipment makers and rental companies are still learning to dance together without stepping on each other's toes, the new relationships being forged may make it difficult for other equipment suppliers to step in. And in these new relationships, rental companies may have increased leverage.
"I think that we will get more closely affiliated with our manufacturers," predicts John Milne, Vice Chairman for United Rentals. Instead of having numerous manufacturers court rental companies each year with new product showings, "we're going to be developing more relationships with strategic, or preferred, suppliers," he says.
Helped by the Internet
New Internet technologies - such as e-commerce and e-procurement - will enable these new relationships, Milne says. And once established, these relationships will be formidable barriers to other equipment makers hoping to sell to the big rental companies.
These relationships - basically sole sourcing - could pose problems for some construction equipment manufacturers, says Consultant Dan Kaplan.
"So, let's say you're a manufacturer and you're not a supplier to the major rental companies, and the major rental companies have the greatest market share and the greatest spending," he says. "Where are you going to sell it? How are you going to stay in business? What kind of future are you going to have?"
Depends on Market Channels
The consequences to an individual manufacturer will depend on how much that manufacturer sells into the rental market, according to Michael Watts, Sunstate President. He notes that manufacturers' rental channel sales may account for less than 20% to more than 80% of total sales.
Equipment makers that sell 80% of their product to the rental channel could well be in trouble if they're not preferred vendors, Watts notes. And even though rental's share of the equipment market is growing, "I'm not sure that it's growing to such an extent that [equipment makers] that sell 10% to 20% of their product line into rental channel are threatened today or anytime soon."
Tests of Commitment
It may not be all bluebirds and rainbows for those manufacturers that are preferred suppliers - at least not initially, say some CIMA Rental Roundtable participants.
"For those companies that are strategic suppliers or preferred vendors, there will be challenges as well," says Doug Dougherty, Vice President of Fleet Operations for United.
"There will be tests of the commitment of both parties to the relationships. There are going to be a number of issues that will need to be worked through. A lot of these strategic supplier agreements are fairly new."
Order Reversals
One potential problem for manufacturers noted by some roundtable participants may be rental companies placing then pulling large equipment orders, with the situation possibly exacerbated as large rental companies attempt to adjust to their expanded footprints. Striving to develop a regular and ongoing information flow between the two partners was cited as a major way to sort out these situations in the future.
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