Years After The Recession, Contractors Still Choose to Rent Equipment Rather Than Buy
Small businesses across America learned a lot of very hard lessons from the Great Recession. For contractors and public entities that maintain construction equipment fleets, one take-away has become a working strategy: it is better to rent equipment than purchase it. Of course that’s not true in every instance. Core equipment with essential value is a must-have. But those specialized machines? Not so much.
Given the whims of the overall economy and the need to remain flexible, it is no longer smart to own a lot of equipment that isn’t generating revenue on a regular basis. The decision to rent equipment can save money, increase productivity and enable contractors to take on more and different types of jobs. All without the expenses associated with purchase and ownership.
This is not only an opportunity for your customers, it’s an opportunity for your dealership. Think of it as a trade-off, one that you can turn to your advantage. Certainly you want to sell construction equipment – that’s your primary revenue stream. But increased interest in rentals gives you a chance to retain the customer while boosting income from that secondary revenue center. There are ways to parlay this into increased sales of used equipment, too. It’s another way to serve customers who are more price-conscious than ever.
Two types of rental options
Construction firms continue to rent equipment for fill-in – when a machine breaks down or they need more machines to keep jobs on schedule. Now, they are also choosing to rent equipment when they need a specialized machine short-term, for a specific task. Or they’re renting that machine longer term if they need it do handle a new type of job.
If that new job will last long enough, rental purchase option (RPO) can be a more attractive alternative. Your dealership can facilitate this, too.
The rental purchase option is also an excellent way to introduce customers to new equipment lines or models. Just as the name implies, this alternative enables customers to rent a machine for a given period of time and apply some of their rental payments to eventual purchase – should they decide to go that route. There’s nothing like an on-the-job “interview” to determine if a machine is right for their fleet. If they like it and they can keep it working on new jobs, they may buy it.
Straight-out leasing is another option for some customers. If your dealership doesn’t already have relationships with leasing companies that can help your customers, now is the time to get that done. If you can’t help customers in the way they want, they will seek that assistance elsewhere.
2015’s new tax laws are helping
Last year – at long last – Congress finally passed a five-year highway funding bill. Contractors across the country breathed a collective sigh of relief, after holding their breath for years. The new law will mean more work for many, and it boosts marketplace confidence for many more. Along with funding for roads, bridges and other transportation projects, Congress also extended a couple of tax benefits that help heavy construction equipment buyers and rental fleet owners:
- Bonus depreciation is now stabilized.
- The Section 179 expensing option became permanent.
These financial incentives may enable your dealership to go even farther in augmenting your rental fleet to meet customer demand.
The American Rental Association Index measures how much construction equipment sold in the US each year starts in the rental channel. Measurement is by dollar amount, not volume. Currently the index stands at 52.9, which means more than half of all equipment sold (by dollar amount) is joining rental fleets. Obviously, dealerships that rent equipment are seeing the value of increasing their offerings. And as those machines age out of rental, they supplement your used equipment sales.
The bottom line? Your construction customers want to rent equipment, now more than ever. By proactively implementing ways to make rental and similar options easily accessible, you can fill in potential gaps in equipment purchasing. You’ll boost revenue overall and – perhaps even more important – retain your position as the go-to resource for all things construction equipment.