ARA penetration index confirms growth in US rental market

By Murray Pollok12 February 2013

John McClelland, vice president of government affairs, American Rental Association.

John McClelland, vice president of government affairs, American Rental Association.

The American Rental Association (ARA) has launched a new Rental Penetration Index for North America, measuring the take-up of rental by estimating the value of the rental fleet relative to the total equipment fleet of equipment in the market.

Using the index, ARA estimates that rental penetration in the US has increased from around 40% in 2003 to just over 50% in 2011. ARA said the results support the widely held view that rental penetration has increased in response to economic uncertainty.

The figures also show that penetration fell by 5% between 2007 and 2009 – when US rental companies de-fleeted and cut their spending dramatically – but has grown strongly as the economy has recovered.

The penetration index is different to other frequently used measures of rental development such as estimating the proportion of sales of equipment entering the rental sector or assessing spending on rental services as a proportion of total construction spending.

John McClelland, ARA’s vice president for government affairs, said the fleet valuation approach accounted for equipment flows into and out of fleets, rather than providing a snapshot of current sales trends.

“Rental firms tend to measure their performance on a cost basis and the most often used cost base for rental equipment is original equipment cost (OEC),” he said. “The OEC-weighted approach allows the ability to derive several components of the equipment rental penetration calculation using well-established data and techniques.”

Mr McClelland said the approach taken by the European Rental Association – reporting rental penetration as a proportion of total construction spending – was understandable given the absence of consistent data across the many European countries, and that ARA benefitted from the data collected by the US Federal government.

The index will allow rental companies to measure how much potential market exists versus the current market, help manufacturers project demand for machines, and provide data for investors and analysts to consistently measure trends.

Mr McClelland said ARA planned to provide forecasts of the index, but the initial launch is focusing on the methodology and the historical values between 2003 and 2011.

The index was welcomed by Michael Kneeland, CEO of United Rentals; “The ARA Equipment Rental Penetration Index is the association’s latest resource to help rental store owners and managers, manufacturers, and industry analysts and investors better understand the potential of the rental channel and its long term prospects.

“While our customers continue to tell us that equipment rental increasingly plays a larger role in their business, now with the Index we can better measure the extent of that growth over time. We also believe that the secular shift to rental may have at first been driven by macro-economic uncertainty, but that once customers turn to rental they appreciate the flexibility and convenience it provides, and appreciate the added value”.

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