North American ‘rates war’ starting warns Kaplan

Rental rates in North America fell by 8% or more in the first quarter of the year and could decline by even more in the second quarter, according to rental consultant Dan Kaplan. He warned that the beginnings of a damaging rates war was now evident in North America.

Writing in the Association of Equipment Manufacturer's (AEM) latest quarterly AdvisorRental publication, Mr Kaplan described the rate decreases of the first quarter as "unprecedented" and said that rates could decline even more; "It is possible that, during the second quarter, rental rates could decline in excess of that number, but hopefully the stimulus package will kick in to stop this slide."

Mr Kaplan, an ex-president of Hertz Equipment Rental Co, said the rate declines were being fed by a lack of discipline; "not only by the larger rental companies but also by the independent firms. Effectively, we are beginning to see a rental rate war in which everyone loses."

Mr Kaplan said the lower rates were being driven by lower time utilisation; "rental yards are loaded with equipment and it's not going back out on rent as it has done historically at this time of year. As a result, time utilisations have declined for many rental companies by 10% in the first quarter.

"In order to get their machines back out in the field, some rental companies are decreasing their rental rates to gain market share at the expense of their competitors."

Meanwhile, Mr Kaplan is forecasting that capital expenditure on new equipment this year by the top 10 North American rental companies will be around US$1.145 billion, down 30% on 2008 and a third of the figure in 2007. "The focus of the rental companies today is fleet disposal, not capex spending", said Mr Kaplan.