Who Invented Equipment Rental? WRITTEN BY PAM GRUEBNAU
Article Date: 06-01-2007
Copyright (C) 2007 Associated Equipment Distributors. All Rights Reserved.
So many construction equipment dealers were renting equipment in 1950, AED published its Fifth Rental Rate Guide.
All construction equipment dealers rent equipment; they just don’t do it using the rental companies’ model. In fact, dealerships have been renting equipment for more than 60 years, and some would argue equipment dealers invented equipment rental.
AED’s Rental 2006 survey found that the number of dealers with rental fleets had increased steadily since 1980 (the earliest date addressed by the survey), from 57 percent in 1980 to 99 percent in 2005. However, these percentages understate the reality. As strong as they are, they don’t include any of the long lists of AED dealers – all of whom were involved in rental – that were purchased by United Rentals and other large rental companies during the rental industry rollups. Those companies no longer exist as dealers and so aren’t reflected in the survey numbers. However, they were certainly in the rental business during the 90s and probably during the 80s, and including them in the data would more accurately reveal the high level of participation in rental by equipment dealers.
In fact, by 1950 dealers were involved in equipment rental to such an extent that AED was publishing its Fifth Annual Rental Rate Guide. The guide published monthly, weekly and even daily rental rates for a variety of machines and attachments, including loaders, graders, bulldozers and cranes.
In 1950, a self-propelled, gasoline pneumatic-tired single-drive grader might rent for $318 a month, $106 a week or $35 a day, according to the Guide. Suggested rental prices for a 1-cubic-yard rubber-tired loader with bucket were $550 per month, $179 per week or $60 per day. And a 100-hp bulldozer would cost a contractor $176 per month, $58 per week or $19 per day. (To calculate how these rates relate to today’s rates, visit www.westegg.com/inflation/)
To put those prices into perspective, in 1950 the average cost of a new house was $8,450 and the average annual wage was $3,210. The average cost of a new car was $1,510, although a Studebaker Commander would have cost you $2078. The cost of a gallon of gas was 18 cents and a Stromburg black and white television was $249.95.
In the January 1950 issue of this magazine, then called Construction Equipment News, in an article entitled Rentals: Today’s Problems – Tomorrow’s Profits, Harry E. Shaw of Service Supply Co. in Philadelphia, Pa., coached dealers who were new to equipment rental on how to establish a rental business.
“What are the principal objectives in setting up a rental division or operating a rental section of your business?,” he wrote. “From the overall standpoint, the three most likely purposes could be outlined very briefly as:
“Accurate cost accounting systems must be established with all cost elements recognized on each piece of equipment,” he wrote. “Rental rates and sales terms must be established and maintained in line with your costs in order to show a profit.”
- First: to make it easier to sell new machinery through the rental purchase plan.
- Second: as an outlet or source of income from trade-ins, or for the purpose of liquidating trade-ins.
- Third: to establish a self-sustaining equipment rental business exclusively for profit.”
Even then, Shaw was advising dealers to set up separate organizations for their rental businesses that included management, sales, service and accounting.
To establish rates, Shaw suggested dealers use AED’s 1950 Compilation of Rental Rates for Construction Equipment: “The statistical information contained in the A.E.D. rental compilation, viewed in line with your own past experience, will be very, very helpful.”
The key to profitable rental operations, according to Shaw, was keeping the equipment out on rental.
“The rental business of today is based on how many months we can maintain our equipment actively in rental. If, for example, this active period is reduced to two months, and if you are taking depreciation and various other factors in handling and, in addition, must maintain an organization, you are not apt to be making much money.
“But if you can turn it over on the basis of eight months per year, by close watch over your equipment, by having minimum and maximum contracts, and by seeing that repairs are made in the off-season, you will reap more profit dollars from your rental fleet.”
Like today, technicians were difficult to find in 1950, and Shaw was concerned contractors would neglect rental equipment maintenance.
“Many contractors no longer employ maintenance men or master mechanics, as was commonly the case prior to the war, to see that all the equipment on the job is properly lubricated, adjusted, and otherwise well maintained,” he wrote. “Due to present high costs of mechanical labor, union rules, and lack of interest or ingenuity on the part of some operators, equipment is often neglected and simple adjustments are not made.
“Such small matters as flooded carburetors, clogged gasoline lines, leaks in pumps and hose lines, hard starting due to weather conditions, and dozens of other minor conditions are the responsibility of the lessee to correct.
“All distributors are paying higher labor rates for their men today, overhead and other costs have soared. When a distributor assumes the responsibility of his customer for such items, his rental profit dollar shrinks proportionately.”
The 1950 Rental Rates Guide is a good reminder that dealers have been in the equipment rental business from its beginning because that’s what their customers needed…and that not all that much has changed after all.
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