Key Takeaways for Decision Makers
RENTER/SELLER: To make up for lower prices on electric scissor lifts and rough terrain lift trucks, rental distributors may consider adjusting prices upwards on other equipment types that still command a higher premium.
The rental equipment industry is expected to continue growing in 2016, with the American Rental Association forecasting revenue growth of 6.7% in the next two years. Renting offers contractors flexibility and access to project specific-equipment, so it’s little wonder that demand for rentals remains strong.
However, in addition to rental activity itself, an important source of revenue for rental houses comes from the sale of used equipment. Used equipment values are heavily dependent on age and utilization, so understanding trends in those areas helps rent-to-sell companies know what to expect as they prepare to offload used inventory.
Over a two-year period, over 550,000 unique equipment listings were collected and analyzed for this very purpose. Although equipment manufacturers and dealers often provide rental services, assets sold through these channels were not included. The results reflect only companies with a primary business model of equipment rentals. Top equipment sellers in this category include United Rentals, Hertz Equipment Rental, Sunbelt Rentals, and BlueLine Rental (formerly Volvo Rents).
Five of the most commonly sold types of equipment were chosen for an in-depth look at price, age, and utilization trending. Together, these types represent 56.7% of the assets listed for sale by rental companies from January 2014 through January 2016:
- Electric Self Propelled Scissor Lifts
- Telescoping Boom Rough Terrain Lift Trucks
- Portable Light Towers
- Large Generator Sets
While other types of lifts were also wildly popular, they generally exhibited the same trends as Electric Self Propelled Scissor Lifts; including welders and generators provides a look into other areas of the industry. In order to compare prices for multiple equipment types, prices were indexed according to their values as of January 2014.
Overall, prices for less expensive equipment showed the greatest degree of variability, which is to be expected given the relative volume. An influx of newer models into the resale market pushed average unit age down for generators, light towers, and welders, which corresponds with higher prices for each of those equipment types. Prices for used portable light towers have taken a hit in recent months but are about 8% above the level seen in January 2014.
Compared to initial values, rough terrain lift trucks also showed a modest price increase, but note the gradual decline from November 2014 to present. Unsurprisingly, average age and total meter reads rose during the same period. After increasing through the first half of 2014, indexed prices for Electric Self Propelled Scissor Lifts dropped below 1.0 last January and continued declining until May. Since then, prices have been nearly flat as average unit age inched upwards.
Utilization metrics were also indexed for easier comparison. First, to reduce the impact of equipment age on average utilization, annualized meter reads were calculated for every applicable asset by dividing the unit’s total meter reads by its age in years. As a result, a 2 year-old asset with 500 use hours and a 3 year-old asset with 750 hours would both have annualized meter reads of 250 hours. That metric was then aggregated across equipment types to determine if annual utilization changed over time.
Average meter reads for scissor lifts have been stable following an initial drop in early 2014. This suggests that higher use hours seen in the market are due to increasing age rather than different utilization patterns among consumers. The drop in price may also be explained by the presence of older equipment on the market.
For rough terrain lift trucks, annualized hours have been on the rise as businesses dispose of older, heavily utilized assets. Although annual meter reads did increase relative to 2014 for light towers, generators, and welders, lower unit age helped offset the negative impact this would typically have on prices.
The rising age of lift equipment on the market suggests that rental companies are currently disposing of units manufactured during the height of the 2007-2009 recession. Cuts to new production made during that time leave rental houses with a smaller supply of 2008 model year equipment available to sell, making it critical to maximize the return on investment. Although sellers theoretically hold power in a thin market, the sheer drop in volume introduces challenges to rental companies that rely heavily on equipment sales.