ARA introduces Equipment Rental Penetration Index

Mar. 25, 2013 – The American Rental Association at The Rental Show 2013 unveiled its latest
step forward in defining and analyzing the equipment rental industry with the
development of the new ARA Equipment Rental Penetration Index.
At the request of ARA members, ARA convened a workgroup
in September of 2012 to develop a plan of work for estimating an
appropriate measure of equipment rental penetration for the equipment rental
industry. The workgroup built upon ARA’s development of rental-specific
performance metrics to determine a way to calculate rental penetration that
combines several factors to result in the ARA Equipment Rental Penetration
Index.

The ARA Equipment Rental Penetration Index provides the
industry with a new method for measuring and forecasting equipment rental
penetration and leverages the ARA Rental Market Monitor and the expertise of
the association’s industry research partner, IHS Global Insight, as the
foundation. The ARA Equipment Rental Penetration Index is designed to
create a way for rental companies to measure how much potential market exists
versus the current market as well as for manufacturers to project demand for
machines, and investors and analysts to consistently measure trends about
equipment rental in construction.

“The basic concept of the ARA Equipment Rental
Penetration Index is to measure the amount of equipment that is rented as a
percentage of total construction equipment,” says Christine Wehrman, ARA’s
executive vice-president and CEO.

“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,” says John McClelland, Ph.D., ARA’s vice-president for
government affairs, who helped lead ARA’s rental penetration index workgroup.
“The OEC-weighted approach allows the ability to derive several components of
the equipment rental penetration calculation using well-established data and
techniques.”

U.S. Census data is used to calculate a value-based
measure of the construction fleet. Using this value as the denominator and
rental fleet OEC as the numerator, ARA can estimate an equipment rental
penetration index that is value-based and accounts for flows of equipment into
and out of the fleet and for the stock of equipment in the rental and total
construction fleets.

“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,” says Michael
Kneeland, CEO of United Rentals,
Greenwich, Ct.

“While our customers continue to tell us that equipment
rental increasingly plays a larger role in their businesses, 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,” said Kneeland.
ARA
used its new approach to analyze results covering 2003 to 2011, which shows rental
penetration for construction machines was in the range of 40 per cent at the
beginning of the analysis to just above 50 per cent in 2010 and 2011. The
result is consistent with the expectation that in recent years the size of the
rental fleet has increased relative to the construction fleet.

Related Link
www.ararental.org