Future-Proof Your Dealership
“Are we in a recession?” How’s that for a party icebreaker?
By definition, the answer is “no.”
This is based on the Oxford definition of “recession,” which is a temporary decline of real gross domestic product over two successive quarters.
Despite the “no” answer above, most economic indicators show minimum growth rates are substantially slowing. Consumer spending is dropping, and aggregate delinquencies have been at their highest since the pandemic and are worsening. Interest rates are driving up the cost of ownership on everything from houses to excavators. Corporate debt is coming due and at a rate that has the potential to cause instability. In addition to corporate debt, U.S. debt is reaching all-time highs, producing systemic risk into the future.
So, how will these economic trends manifest in equipment rental?
I’m sharing below a few future scenarios our team is monitoring. The good news is your dealership can prepare for it.
Scenario One: Rental becomes a primary engine for growth and profitability in a dealership.
In this scenario, the rental business will accelerate as customers move to allocate risk away from machine ownership and fight the cost of new machines.
Based on past market downturns, this is the most likely scenario and a great hedge for your dealership. This doesn’t mean competitive pressure on rates and from used won’t take hold, but the growth in rental will be demonstrable, as will machines in population.
Scenario Two: Rental growth slows, and demand stabilizes while new and used machine sales increase.
The Federal Reserve signaled rates remain steady for now. Should rates drop or the government take a more active interest in incentivizing PPE purchases, we should prepare for the sales as a channel to grow while rental remains steady. Rental purchases would likely grow in this scenario as well.
Scenario Three: Growth halts as demand for heavy equipment cools.
This scenario is least likely given that government spending alone has a very large pipeline and much of the $1.2 trillion authorized under the infrastructure bill in 2021 remains unspent. The question on the forefront is whether growth can be sustained for heavy equipment as in the immediate post-pandemic era, given all other economic pressures.
Preparing for the Future
Regardless of the scenario, rental dealers can and should take proactive steps for potential economic shifts.
Step 1: Prepare your salesforce to shift from a fleet-deprived, order-taking environment to a fight for deals and utilization.
The supply/demand curve is shifting. Two years ago at a dinner, a dealer we work with was considering buying a 14-year-old dozer for the rental fleet because it was so highly utilized that it was losing deals. Contrast this with recent dealer visits, where utilization has dropped, and rate premiums have stabilized. Reps in the field need tools to do more with less, respond faster than competitors, and analytics to help them win deals.
Step 2: Do more with less. Invest in technology to improve operational efficiency.
If you are not utilizing software to manage your operations from machine turns to quotes on the job site, you are leaving margin on the table and adding labor where you could be capturing profit. Automation will drive profitability but also minimize your risk.
If your software system has a reservation system, use it. This will help you forecast needs in the future and increase utilization today. Tracking unit status in the system and being able to see when a unit is in the shop or ready for pickup allows users to get creative when fulfilling their next rental order.
Step 3: Improve customer engagement and experience.
Drive a consistent rental approach that provides excellence for your customers. Example: Transport customers should ideally see where their machine is en route for the rental and consistently have on-time deliveries. In a competitive market, every point in the process allows you to differentiate your dealership from others.
By remaining agile and adaptable, dealers can navigate uncertainties and position themselves for long-term success, regardless of the economic climate – recession or no recession.
