What advice do two US rental veterans have to offer on surviving the recession?

For the first time since consolidation played out earlier in the decade, the US rental industry has had to weather a severe downturn. Two industry veterans describe what it's like to be back in the dance, managing independent rental operations in a tough economy. Lucy Peterson reports.

The last time the US rental industry was faced with a recession it was shallow and relatively brief - March to November 2001 - and it came on the heels of the longest period of economic growth in America's history. Rental consolidation was in full force, and many independent owners, unsure about the long-term economic impact of the terrorist attacks that year, saw an opportunity to exit at a good price.

Eight years later, the recession of 2009 is implicitly different for rental companies. The severity and longevity of this downturn are untypical of past cycles, and therefore less predictable. Credit constraints and a prevailing lack of confidence have dampened rental revenues. But not all is negative: within the industry, a new hand is quietly being played at the independent level. Experienced owners who sold during the 1998-2002 peak of consolidation have re-entered the business.

These rental veterans created a mini-wave of their own several years ago when non-compete agreements began expiring from the heaviest period of acquisition activity. For some, the ink was barely dry on their new enterprises when the recession hit. How applicable has their experience proven to be in this environment? Two seasoned rental owners - each with four decades in the business - share what it's like to pursue "success phase two" against the economic odds.

Bob Nally, president of Apache Equipment Rentals (Arizona and Nevada) is a 40-year industry veteran and the former owner of two ABZ Equipment locations in Arizona, acquired by United Rentals in 1999. "I started Apache in 2004 to rent heavy equipment to builders, contractors, municipalities, utilities and industrial companies - very similar to what we used to do at ABZ," says Mr Nally, who owns locations in Phoenix and Las Vegas, and rents to credit accounts only. "No homeowner rentals and no cash business over the counter."

Richard LoGuercio, president of Town & Country Event Rentals (Van Nuys, California) has taken his rental experience in a different direction. Mr LoGuercio spent 19 years building Los Angeles-based Classic Party Rentals before selling it to a group of investors in 1998. He retired after the transition, but "I was itching to get back," he says. "I love the business. I missed it." In 2005 he took the plunge again at the urging of past employees and customers, opening Town & Country in a 61000 ft2 building that is already at capacity.

The most obvious question to ask these two men is how they relate past experience to current strategy in a hyper-competitive environment.

Mr LoGuercio says he engages in only moderate rate flexibility, believing that too much discounting is a sign of a poorly run company. "You have to be flexible with pricing to some degree and go with the flow, but you still have to make a profit if you want to be around in two or three years. When the economy heads south, some companies start giving things away at a 30 or 50% discount. Frankly, there's just not that much profit in a company if you're running it right. You can't keep discounting without slipping into cheap stuff, bad workmanship, sub-par quality."

Town & Country's rate strategy benefits from long-term customer relationships that date back to the original Classic Party days and "took a break" while Mr LoGuercio was out of the industry.

Bob Nally has seen the same thing happen in heavy equipment rental. "There is no doubt that experienced independent operators have been welcomed back with open arms by former customers who are grateful to have previous relationships renewed," he said.

"After many years in the industry, one develops an attachment for the dynamics of this business. Certainly we have not forgotten how to apply sound principles in organizing and establishing our operations. We're resilient."

Resilience is a theme that resonates with both men, who hold similar views that the economic landscape for many rental businesses will remain bleak in 2010. Mr LoGuercio sees an advantage in having gone into the recession as a self-described "new kid on the block" with a history in the business. "Absolutely, it helps. I've gone through downturns and I know you have to cut back a little, but you also have to keep proving yourself. It's a time of opportunity. I can buy things cheaper now then I could two years ago."

At Apache, Mr Nally's inventory strategy is focused on utilization, and on responding to changes in his customers' rental patterns. "Some contractors who historically have had a comfortable backlog of work say they're now competing for smaller jobs that they wouldn't even consider in better times. The big commercial jobs have dried up. We're seeing a trend toward fewer monthly rentals, and shorter rentals overall."

His best recession-proof strategy, Mr Nally says, is that "we positioned ourselves to be debt-free." And while that option may not be available to most rental businesses, there should be opportunities to conserve capital when companies resume buying fleet. "A lot of excellent equipment has been put on the chopping block. I think you'll see companies take advantage of used equipment bargains and debt-free aging."

For an experienced rental veteran re-entering the industry, the best strategy of all may lie in welcoming additional experience to the business. "My son is a rental veteran and our general manager," Mr Nally said. "Other veterans in our business include my service manager, my dispatch manager, all of my truck drivers and my mechanics.

"Five years away from the rental industry gave me enough time to realize that I wouldn't be happy unless I could return to my rental roots. When my ‘covenant not to compete' was finished, my son and I were ready with a plan and people we wanted on board."

A lot of the "old crew" is back at Town & Country as well, where Mr LoGuercio had to persevere in a bidding war to staff his business with experienced employees - a cost he feels is well worth it. "Our people and our service are the reasons why we did 35% more business in 2008 than the year before."

That kind of performance proves that external factors, no matter how severe, are only part of the equation. Experience drives the dynamics that determine success or failure. As Mr LoGuercio put it, "We're not reacting to the economy, we're being proactive and having fun. I'm happy to be a daddy, a cheerleader, a psychologist ... whatever it takes."

The author: Lucy Peterson is president and owner of Balboni Associates, Inc. and its press distribution division, IndustryWire. The company is a longstanding US supplier of market communication and consultancy services to rental and related industries. lpeterson@balboniassociates.com