Condition Of Rental Market Varies

By Aram Kalousdian, Editor | September 28, 2010

The state of the rental construction equipment market in Michigan will vary somewhat depending on what percentage of a store's business is commercial, residential and do-it-yourself business, according to Jeff Krueger, owner of Rentalex of Michigan, of Kalamazoo, MI, and a director of the American Rental Association of Michigan. The Rentalex store in Kalamazoo services Southwest Michigan and part of Indiana. Rentalex's largest construction equipment categories are aerial lift platforms and compact dirt-moving equipment.

“Approximately 60 percent to 70 percent of our business is commercial construction. Starting in 2006, we saw residential construction just about disappear in Southwest Michigan. I think that was pretty much a trend all over,” Krueger said.

“In Michigan, residential construction, especially outside the Detroit area, isn't a big rental customer. So, when we saw the residential market slowdown in 2006, it didn't really bother us too much. We still had one of our best years in 2007. In the middle of this year, at the end of the second quarter and the beginning of the third quarter, we began to feel commercial construction soften up a bit. We hear from customers that there aren't as many bids out there. You see contractors traveling more from Grand Rapids to Kalamazoo, from Lansing to Kalamazoo, and from Kalamazoo out. You see guys moving around more looking for work.

“We'll be flat this year because we saw commercial construction soften up the second half of the year. It's not as bad as it is in other parts of the country. One thing Michigan has going for it is that we've been down for a long time and you can only go down so far. Our stores in Florida are probably doing half of the business that they were doing in 2006, solely because the residential market was such a big percentage of their business. However, Michigan hasn't been one of the high-growth states, so even if we see a slowdown, we're talking about 5 percent or 10 percent; nothing dramatic. We'd like to see it grow, but I think for the next year or so it's going to be a little bit tough.” Krueger doesn't expect any major change next year.

“I don't think anything is going to change in 2009. I think we're going to continue to see a little shrinkage. It will at least be flat in 2009. Our capital expenditure in 2008 was pretty steady compared to what it's been the last few years. I expect our capital expenditure to be way down in 2009. We'll sit tight on our fleet business; we're not going to grow any categories unless we have a very specific demand for something. If we have a project come up that we know is going to take six or 10 extra lifts, we'd have to address that, but outside of that, we're not going to incrementally grow different categories like we did in the past few years,” Krueger said.

“If that's the trend that most small businesses are headed toward – even mid-size businesses – that usually takes a few months for it to trickle down. If we spent x number of dollars last year and we're going to spend half of that in 2009, that takes a few months to trickle through the system. If everybody is tightening up in the second half of 2008 and continues to tighten up in 2009, then it will be 2010 before we see things stretch back out again.

“We pay attention to what our market is and the size of our fleet, and we know from experience how important it is to manage the size of inventory we have each year relative to the amount of business we have.

“The bright spot is that we've been busy with some municipal infrastructure work. We've had some Michigan Department of Transportation business on Interstate 94 and US-131 that's done a little bit this summer to help us. We're a little bit lucky in Western Michigan, especially in the Kalamazoo area. We still have some jobs moving into the area because of some local initiatives. We've got a couple of new construction projects that are helping to smooth things over, but it's probably going to be hit and miss for the next year or so.”

Krueger said that the residential market was a larger part of the rental construction equipment business in Southeast Michigan. “In the larger metropolitan areas where housing was strong a couple of years ago, they are feeling more of a slowdown then we are in Southwest Michigan. They complain a little more on the east side of the state than we do over here because of the slowdown in the residential market and the automotive industry projects. It seems like Western Michigan is a little less cyclical than the east side of the state.”

Krueger said that the rental construction equipment business is somewhat recession-proof. “Our industry pretty much follows the general economy. However, our business is somewhat recession-proof. We obviously like growing times better than slowing times, but in slow times, contractors may be more prone to rent equipment and put off capital expenditures and therefore not take as much risk. That's good for us.”