Rental Decision Point™: Excavators, Medium

Are fluctuations in price and market activity in the construction market beneficial or detrimental? In this article, we utilize the new EquipmentWatch Price Stability Index™ to deconstruct the resale channel over time.

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This is the fourth article in our Rental Decision PointTM Series and focuses on Medium Excavators. The Rental Decision PointTM is a proprietary metric from EquipmentWatch combining ownership/operating cost rates with retail rental rates to answer the question often asked by Equipment Managers, “When should I use an owned asset vs. a rented asset?”

For the average Excavator, Medium (33.1-40.0 MT) we recommend an equipment manager use a rented asset, instead of an owned asset, if they use a machine less than 565 hours per year.

Compared to previous articles, you’ll find that the decision to an owned asset escalates much more quickly compared to smaller assets as utilization increases. Thought of another way, it’s much more likely that an operator will make the right decision by using an owned asset vs. a rented asset.

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What’s in this analysis?

Above, you’ll see a visualization of the Rental Decision PointTM for Excavators, Medium, 31.1-40.0 MT, specifically the Caterpillar 300D L, the winner of our 2016 Highest Retained Value Awards for this equipment category.  To build this graph, we’ve put ownership costs on the Y-axis and meter reads per year on the X-axis. The curve is the ownership costs per hour of an average crawler excavator with the assigned meter reads per year.

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The min and max of the X-axis represent the distribution of actual machine usage, coming from our proprietary Utilization Database, a custom database available through EquipmentWatch Consulting. This database was built for both nationwide and 11-regions (increased specifity), and was derived by leveraging the meter reads of machines at the point of transactions. For any model in our database, we show a distribution of machine usage per year (in hours), in 5% increments. In terms of data behind the calculations, for Medium Excavators for example, we have tens of thousands of machines in our benchmark.

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The blue bar in the middle is the “Rental Rate Zone”, the min and max average hourly rate to rent a piece of equipment, depending on rate type selected. The top bound is the EquipmentWatch Retail Rental Rate, Daily, divided by eight. The lower bound is the EquipmentWatch Retail Rental Rate, Monthly, divided by 176 (our standard for assumed machine use per month).

Where do we get our rental data? Through our Retail Rental Partnership Program, we have the most extensive rental data inexistence (200+ rental houses), updated quarterly.

How can an EquipmentWatch user replicate this analysis using their subscription?

To adjust the hourly ownership costs: use the Internal Charge Rate, Caterpillar 330D L (or any model in size class). Once here, go to “Adjust Costs”, modify the “Annual Use Hours”, click “View Adjusted Hourly Cost” to see how the Ownership Rate has changed. Plug this into your graph.

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To determine the monthly and daily retail rental rates: use the Retail Rental Rate, Caterpillar 330D L  (or any model in the same size class). Once here, look for the respective Monthly and Daily rental rates. By default, the National Rental Rate is displayed. For increased precision, if the location of the rented asset is clear, you can modify the “Region”. Additionally, many Equipment Managers have contractual discounts with rental partners. Using the manual adjustment feature, you can modify the rental rate to reflect any discounting you may receive.

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Don’t have access to EquipmentWatch?

With our Equipment Manager Package, you can replicate the analysis above yourself.

If you are interested in doing this for a large number of machines, contact us at EquipmentWatch Consulting to find out how we can help do this for you.