Rental Return on Invested Capital | Ask Me Anything March 26th-30th
A huge thank you to everyone that participated in this Rental Return on Invested Capital | Ask Me Anything event! Stay tuned to Genie Aerial Pros and our social media channels for the next Ask Me Anything Session.
Q: Why did you implement a steel surcharge when it hasn’t affected you?
A: Thank you for your question, TJ. Since Q4 2017, U.S. steel prices have increased over 40%. Current steel price forecasts indicate continued increases through Q3 (2018) with some seasonal flattening in Q4 (2018). While Terex, which includes the Genie® brand, does not import large quantities of raw steel, the inflationary impact on global steel prices and related components is increasing our product cost. The impact of the rising cost of steel, coupled with the added effect of the recently announce tariffs is too large and too sudden for many businesses, including Terex, to absorb. As a result, all participants in the machinery/heavy equipment value chain, downstream of the mills themselves, can expect higher costs and pass through prices in 2018.
Q: What is Genies recommended rental fleet, fleet mix in Middle East say Saudi and Kuwait, UAE if at each location you are setting up with 200 units.
(e.g number of booms v scissors, articulated v telescopic, power source etc)
A: Robert, local knowledge is everything. We are forwarding you email address and question to one of our teammates in the Middle East. The size and type of jobs will dictate to a large degree that recommendation. If you can be ready to discuss the types and sizes of the jobs you are encountering, as well as the timing of activities of those, I believe we can help you make some great decisions.
Q: How can I buy like the large National dealers do to help improve my ROIC?
A: Hi Joan. While there are some differences in buying levels, they are really very narrow. Most of the differences you see is how companies approach actual rROIC – meaning the actual return they expect for a given time period, say weekly or monthly. Shorter terms, for example, generally command higher rates. How companies depreciate their asset, as well as how they load it onto their books, along with length of the depreciation cycle, will also dramatically affect returns. Additionally, larger jobs with more machinery will likely return less on a per-machine basis than smaller jobs. Finding customers that have equipment needs that fit your ability to supply will be most important to rROIC.
Q: Why don’t you sell to each customer at the same price for everyone?
A: Hi Craig. While there are some differences in buying levels, they are really very narrow. Most of the differences you see is how companies approach actual rROIC – meaning the actual return they expect for a given time period, say weekly or monthly. Shorter terms, for example, generally command higher rates. How companies depreciate their asset, as well as how they load it onto their books, along with length of the depreciation cycle, will also dramatically affect returns. Additionally, larger jobs with more machinery will likely return less on a per-machine basis than smaller jobs. Finding customers that have equipment needs that fit your ability to supply will be most important to rROIC.
Q: How can I compete with other dealers if it’s difficult for me to buy at a better rate than them?
A: Hi Mike. While there are some differences in buying levels, they are really very narrow. Most of the differences you see is how companies approach actual rROIC – meaning the actual return they expect for a given time period, say weekly or monthly. Shorter terms, for example, generally command higher rates. How companies depreciate their asset, as well as how they load it onto their books, along with length of the depreciation cycle, will also dramatically affect returns. Additionally, larger jobs with more machinery will likely return less on a per-machine basis than smaller jobs. Finding customers that have equipment needs that fit your ability to supply will be most important to rROIC.
Q: I can only buy used to get the return I need. How can I have that same return on new equipment?
A: Thanks for your question, Rich. Remember that while your actual dollar return will be higher with used equipment than with new equipment, your maintenance and repair costs will actually be quite a bit higher as well. Warranty compensation for some repairs, along with lower general maintenance overall on new equipment will be helpful.
Lastly, tax deprecation as an expense on your books will be lower with used equipment. This is especially relevant in recent years, when the government has enacted bonus deprecation rules as a buying incentive.
Q: What better practices can I follow, when buying parts, to improve my ROIC?
A: Hi Jake! Are you taking advantage of freight concession for either dollar volume or shipping methods? To that end, think about consolidating your purchases with a more limited supply base or at least consolidating your orders with each supplier.
Another thing to keep in mind: make sure you are using parts identification tools that OEMs provide to ensure you are getting the right parts every time you have a need.
Q: How can you help me improve my downtime to help with ROIC?
A: Carl, you are absolutely correct that downtime is a big drag on rROIC. Genie has great resources for quick repair and troubleshooting processes. We have Regional Service Reps in the field, as well as many troubleshooting folks manning the telephones. Getting the right help at the first sign of trouble is critical to getting your machine back on the ready line.
Next, are you satisfied that you are performing scheduled maintenance on time? Many times, it may feel like there is a choice between utilization and maintenance. There is, and it is not always a clear decision. What we do know is that ultimately deferred maintenance is somewhat counterproductive from an rROIC point of view.
Remember, Genie provides detailed scheduled maintenance tables in your machine-specific maintenance manual. All maintenance manuals and Parts reference guides are available on our website at https://genielift.com/en/support/manuals.
Q: Would manufacturers building cheaper machines help with ROIC for rental businesses?
A: Great question, Tina! Like all products that perform the same function, original equipment cost counts a lot towards rROIC. The cheaper the machine, the more it may return against invested capital. However, cheaper-built machinery can also have a shorter lifespan, for one. Here are factors to consider:
• Does the less expensive machine actually do the same job? The technical specifications are the primary consideration – relating to speed, power, durability, and quality of components. However, does a cheaper machine perform as quickly and efficiently?
• Does the machine respond predictably, and will it be viewed as delivered quality?
• Does the manufacturer of the less expensive machine support the units in the field?
All considered, Genie produces machinery that has exhaustive market, application, and engineering experience behind it. They are tested for durability, backed with both great technical support, and have Genie Genuine Parts. Our technology is original, with the customer’s needs always in mind. Customers in our business have high expectations for performance and reliability, and we are here to meet that need. Sometimes, the customer is working against his or her budget for both money and time; he or she may move on if the experience is uneven or not predictable.
Q: Why can I buy machines for a cheaper price from a rental store than if buying directly from the manufacturer?
A: Hi Roger. As far as the Aerial Work Platform world is generally organized, from a distribution point of view, Rental businesses are our largest customers. Genie, for example, does not sell to the general public or what we would refer to as ‘end users’ of equipment. Our path to the market and to private entities is through either the rental dealers who both rent and sell, or through equipment supply businesses that sell to specific businesses and institutions. These companies (rental businesses and equipment dealers) buy products from us and resell them, determining the prices they charge based on the needs and goals of their financial and service business models.
Q: In your experience, what would you say is the most effective way for a rental store to achieve optimum RROIC?
A: A broad question Thomas, probably volumes could be written, but you asked in my experience, so here goes:
While I have never actually been an “operator,” I have over 30 years of dealing with and observing rental practices.
What I take from the good rental practices are some of these observations:
• Know who your customers are and how they use equipment, stay close (monitor) to them and how they perform. The rental owner or manager needs to visit jobsites, not just the salesman.
• Have a real good sense of discipline financially, know what you will and can do, stick to your rules and stay the course. Deviation will generally not produce predictable results. I am not advocating avoiding taking on risk, but it should be as calculated as you can make it. Research and careful consideration will produce good results.
• As much as your customers might choose you, that needs to be reciprocal in the sense of rental rates, volume and how customers treat your equipment and pay their bills.
• Have great relationships with suppliers. Even good equipment breaks down from getting hard use and needs to be kept operable. Keeping equipment rental ready is your business blood, having great employees and good relationships with mainstream suppliers will keep the cash coming in, and rROIC will be on track. Many times I have seen the grave yards or fence queens at rental operations, that is lost rROIC!
Q: Are ROIC practices affected by the locale / state a rental business is in, and should I be mindful of anything specific because of this?
A: Another good question! There are obviously a lot of rules and regulations we all must obey. Some can be quite localized and they may have a direct influence on rROIC.
The most obvious one are all the local versions that might affect operation costs. These can be local rules that affect environmental costs like wash racks, repainting, disposal costs and the like. Local taxes and other issues like noise, operating hours and other property and equipment use issues all can add or subtract costs.
Traffic regulations could also play a factor – anything that affects your cost of goods delivered to a job and then maintaining the equipment and turning it around for the nest cycle. A mentor long ago said the oft quoted phrase “the devil is in the details”:
• do the research
• know all you can know
• know more that your competitor and that will help keep your costs low and rROIC higher
Call your local government and call your accountant. Generally, experts are better at helping you avoid and solve for issues on the front end rather than after the fact.