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Buying and renting construction equipment

Rental can solve short-term needs. But rental has also been used to delay buying equipment during the last four years of economic uncertainty. Perhaps it is time to consider buying.

John Crum, National Sales Manager, Wells Fargo Equipment Finance, Inc., Construction Group, comments in the company’s “Construction Quarterly” (Q2, 2013) report, “For the last few years, equipment distributors and rental companies have expanded their fleets to meet the growing demand for short-term construction equipment rentals. Uncertainty in the future of the construction industry often dissuades would-be buyers from making the long-term commitment associated with buying heavy construction equipment.”

This can be seen in data from the American Rental Association’s (ARA) latest forecast, the ARA Rental Market Monitor. They forecast that in Canada the equipment rental industry will generate nearly US $4.6 billion in revenue in 2013, a 3.1 percent increase compared to 2012. In the U.S., construction was more severely impacted than in Canada and has further to recover, which is reflected in a U.S. rental revenue growth projection of 7.3 percent in 2013 compared to 2012, with total revenue of US $33.6 billion. 

By the end of the current five-year forecast in 2017, North American equipment rental revenue is expected to surpass US $50 billion to reach US $51.6 billion, with U.S. rental revenue at US $46.3 billion and rental revenue in Canada at US $5.3 billion, according to the ARA Rental Market Monitor.

“However, we are now finding an interesting conjunction of trends and conditions that make a compelling case for contractors to think more seriously about buying the equipment they use,” says Crum. “Because renters pay a premium for their flexibility, if you are renting a significant portion of the equipment that you use your carrying costs may be more than they should be.”
While the Wells Fargo report covers trends in key U.S. construction industry economic indicators, among other things, Crum’s comments apply to both Canada and the U.S.

He lists several other reasons why owning a piece of equipment in today’s environment might make sense over renting.

Low cost of capital won’t last forever. Interest rates on long-lived, heavy construction equipment continue to hover near record lows but these rates will not last forever. If you can lock in a great rate now, the payment will be predictable for the life of that loan. Given today’s low-rate environment it may be time to take advantage of the growing economy and invest in equipment that will help to meet your future project needs.

Used equipment values are holding steady. The most recent Rouse Rental Report indicates that used construction equipment generally continues to hold its value. Many types of heavy construction equipment are still in demand and as an owned asset would be a plus on your balance sheet.

Replacement equipment costs are rising. New construction equipment costs are on their way up. Equipment demand remains relatively strong in North America and implementation of Tier 4 standards will only push prices higher. You may want to get into some newer equipment before prices rise much more.