the <strong>rer</strong> 1ootaking thelong viewThe short-term outlook is laden with obstacles, butoverall industry dynamics portend much growth inthe years ahead.By Michael Roth, RERAdditional reporting by Brandey Smith, RERLocation, location, location — a mantraused often in business — matteredmuch in <strong>20</strong>07. So did inventory mix.It was not a good year in the earthmovingbusiness, especially in placeslike Florida and Southern California, and, ingeneral, most of the West and East. Even in thesteadier Midwest, there were pockets where thehousing slump hit particularly hard and quitea few companies felt the effects of it.Still commercial and industrial and infrastructurework tracked fairly strongly in mostareas, not really hit yet by the effects of thehousing slump. But so much construction isrelated to housing — all the strip malls thatcater to the new housing developments, theroads to get there, the schools, hospitals andbusinesses that would cater to those residents.In many places it hasn’t caught up yet. In manymarkets, <strong>20</strong>08 will be the year that it does.National companies tended to deal with theissue by restructuring their fleets. Companiestransferred equipment from slower marketsto where there was more demand to a largerdegree than ever. United <strong>Rental</strong>s, for example,altered its compensation structure to offer incentivesto branch managers to move equipmentout of slower markets. Hertz grew itspercentage of aerial equipment and reducedits earthmoving inventory to about 25 percentof its fleet, an all-time low for the company. Anumber of smaller companies did subtle makeoversto emphasize the commercial/industrialsegment of their business.Despite the general tone of doom and gloomin much of the media — often exaggerated, but<strong>rer</strong> / <strong>may</strong> / <strong>20</strong>08 21
1oonot based on fantasy — <strong>20</strong>07 certainly won’t be rememberedas a down year among the 100 largest companies. Not includingthe additional companies — 101 through 110 — theRER 100 totaled $13,853.6 million in rental volume, or, roundedoff, $13.85 billion, a 4.3-percent year-over-year increase.Excluding companies whose revenue figures are based onRER estimates only, 67 percent of companies on the 100 listthis year as well as last had rental volume increases in <strong>20</strong>07compared to <strong>20</strong>06. Of those with increases, a surprising60 percent had double-digit boosts. Still, these numbersare a far cry from last year’s listing, where 95 percent hadyear-over-year increases compared with the previous year,with 70 percent of those in double digits and the overall listjumping 14.5 percent.The consensus is far more will experience decreases in<strong>20</strong>08, although many still expect an increase. The majorityof companies expecting increases look for single-digitjumps, but some, especially those that have niches in theindustrial and commercial end, still see double-digit revenuegrowth as possible this year.Such is the unpredictability of the current environment,that the range of increases and decreases of rental volumeamong the RER 100 was as wide as it has been in recentmemory. Unlike the <strong>20</strong>04-<strong>20</strong>06 period where just about allcompanies posted increases, this year reported revenuesranged from 64 percent down to 46 percent up.For most companies, the commercial construction, industrialand infrastructure markets remained vibrant althoughsome companies saw signs of softness, with somejobs held up pending financing, with credit harder to comeby, and the sense of economic uncertainty in the air causinginvestors and banks to hesitate before funding projects.Industrial companies that had considered manufacturingplant expenditures and other ventures were adopting thecautiousness normal for this type of economic cycle.For many rental companies, <strong>20</strong>07 marked the beginningof a tightrope that would have to be walked, that might getnarrower and windier in <strong>20</strong>08 — the need to be cautious withexpenses and cut costs while at the same time look for opportunitiesto gain market share, either by improving serviceor making an acquisition or starting a greenfield branch. Howto expand and cut costs at the same time? It’s a delicate balanceto say the least, and those that went for opportunities hadto study them carefully — gone are the days of acquisitionmaniathrowing caution to the wind. Not in this market.Several themes were constant among RER 100 executivesinterviewed for this year’s 100: constantly refining thebusiness, using information more effectively, maximizingefficiencies. How deep the current slowdown — or recession,if you will — will go is a subject of much debate“I don’t think there is any major catalyst that will drive the construction partof the industry upwards at least through the rest of 2OO8. I don’t see a majorpush towards this turning around and [I don’t expect to] see major capitalspending on housing or commercial projects.”– Gerry Plescia, Hertz <strong>Equipment</strong> <strong>Rental</strong> Corp.22 <strong>rer</strong> / <strong>may</strong> / <strong>20</strong>08and nothing even close to a consensus has emerged. Butthe long-term demographics, in a country where the U.S.Census Bureau expects the population to grow by another60 million over the next two decades, are seen in very positiveterms in most of the country.“The long-term demographics of our market are quitegood: populations will continue to grow, commercial buildingremains strong, net in-migration to our markets continues,”said Mark Clawson of Diamond <strong>Rental</strong> (No. 66), speaking ofthe Intermountain West, but expressing a sentiment sharedby people in many regions. “A recession <strong>may</strong> come but we aretrying to take a long view to this business and that helps mitigatethe possibility of a relatively short-term slowdown.”Most 100 executives agree the long-term outlook remainsstrong. But some are optimistic of a turnaround in the latterhalf of ’08, perhaps with the assistance of the federal stimuluspackage. Others don’t see it until <strong>20</strong>09 and others see theslump lasting a year or two beyond. Location has a lot to dowith it. A lot of variables are yet to be played out in the financialmarkets, still uncertain and unpredictable.Seven of last year’s top 10 posted rental volume increases,with NES decreasing because it sold its tank and trafficsafety divisions, and Neff, heavily concentrated in earthmovingequipment and located in areas particularly hardhit by housing, posting a 3.6-percent rental volume declineand dropping out of the top 10 to No. 11.How long, how deep?Most of last year’s rental volume numbers look good, butno matter how you slice it, we’re in some challenging economictimes and when a light at the end of the housingtunnel will start to appear is still a matter of debate, as is thequestion of how long and how deep the overall economicdownturn will be.
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