Editor’s note: This article first appeared in the November/December 1999 edition of Grading and Excavation Contractor.
Phillips Excavating puts about 1,000 hours per year on its equipment. It doesn’t hold on to equipment through destruction. Phillips remarks that even though they don’t always have the latest piece of equipment, they are not at a disadvantage.
“I know that some companies will go out and literally rent everything, but [during the construction] season, you just can’t get the equipment.” It comes down to having the means to get things done. “With rental you have no control, not like owning,” he points out.
Availability of equipment is changing, though. With demand for short-term rentals at an all-time high, Caterpillar Inc. in Peoria, IL, launched the Cat Rental Store in 1998. Although Caterpillar dealers have traditionally offered long-term, rent-to-own options, the manufacturer asked its dealers to set up stores focused on short-term rental. As a result, 220 Cat Rental Stores are open throughout the US and Canada. Mike Bruch, rental services consultant with the North American commercial division, notes, “Our dealers are in the business of distributing Cat equipment, and rental is one means of distribution.”
For the most part, the only place you can rent Caterpillar equipment is at a Cat dealer. “We needed to offer short-term rental to compete with the other rental houses,” says Bruch. It is now possible to rent Caterpillar backhoe loaders, telehandlers, wheel loaders, excavators, skid-steer loaders, and compactors directly from Cat Rental Stores on a daily, weekly, or monthly basis. In addition to Caterpillar equipment, the stores also offer all types of allied products, such as air compressors, light towers, trenchers, aerial work platforms, and small compaction equipment.
Service on Caterpillar rental equipment typically occurs the same day, even within a few hours. Since the equipment at the Cat Rental Stores is newer (it’s only held for about three years before it’s sold) and well maintained, typically there are not a lot of repairs required. If it does break down, a Cat technician will be out within three to four hours, states Bruch.
He says that the quality of rental equipment was much different in the past. The rental industry offered much older, less reliable equipment, typically holding on to it for five, seven, even 10 years. There was also a problem with the equipment not being there when you needed it.
Today there are more rental stores and more rental equipment available to contractors. Although Bruch admits that the potential for equipment not being available is still there, he said it’s happening less and less. “To compete, you have to have good availability.”
He believes that rentals are increasing because customers are getting smarter about how they manage their assets. He says that in the past, a lot of companies owned their equipment when working on large construction projects. “They had a lot of spare equipment that they used as backup.” There’s a lot of pride in owning a piece of equipment, but the trend to realize the economic advantages of renting is changing that.
Bruch also indicates that the advantages of renting will trickle down to smaller and smaller customers. Smaller contractors can “size themselves up to a new job” by renting equipment, he says. Because of the availability of newer and better equipment, it helps the smaller companies that do not have the capital to purchase equipment-particularly the companies that are doing a lot of different jobs.
K&G Contractors in Idaho Falls, ID, benefited from the expanding rental market. According to Larry Schuldt, owner and president, after doing the math on renting a backhoe versus purchasing one with dealer financing, the company opted for a five-year rent-to-own contract. Since 97% of the rental cost will be applied to the final purchase, Schuldt is looking at what amounts to a 2% interest rate compared to an 8% finance charge for buying the equipment. In addition, the backhoe comes with a five-year warranty on everything except the tires, glass, and hoses.
K&G also opted out of the routine-service contract. Schuldt explains that the rental store provides them with all the filters they need at the first of each year. Instead of paying $100 per oil change, his crew changes the oil and filters. For repair work, he says that when a water pump busted on the backhoe on a Friday, the dealer was out first thing Monday morning to fix it.
Schuldt, who owns most of his equipment, remarks that in the past, the available rental equipment tended to break down right away on the job. “Now I can get equipment the same day if I need it.” He notes that just about any equipment he needs is available, although he also calls on other small contractors that have the equipment to fill in on occasion.
Owning most and renting some of your equipment appears to be a popular combination. According to Mike Chapman, president of Carter Excavation in Brewster, WA, “If you can’t utilize it, it’s expensive to own.” He points out that the company geared up to its current level three years ago. Equipment needs have focused on replacing older equipment. Instead of purchasing, however, Carter Excavation entered into Rental Purchase Option (RPO) agreements upfront. Chapman says that after he looked over all the options, RPOs made the most sense for his company.
On the short term, Carter Excavation rents tools and allied equipment, such as plate whackers and trench whackers, as needed, because the availability of rental equipment is better than it was five years ago, even though the nearest rental store is 30 miles away. States Chapman, “We can usually call the night before and they’ll have what we need.
