As we take a look at rent-to-rent and how it is different than rent-to-sell, I want to talk about some objectives that should be a clear focus for your dealership if you're going to have a rent-to-rent fleet or you're considering it. First and foremost, a rent-to-rent fleet will create profitability for your dealership. Most dealerships can use some more gross profit, and rent-to-rent is one of those activities that uses most of your same products and most of your same people, your same overhead, and it can create profitability immediately. It can also create leveraged cash flow. What I mean by that is when you finance equipment, typically you are trying to establish a payment plan or an amortization schedule that might be somewhere around 50% of what you think the monthly rental rate might be on that item. So let's just say it's an excavator and you think the rental rate might be $4,500 a month. You would probably want to set that up on a schedule to repay the debt somewhere around $2,200 to $2,500 a month, maybe slightly more. And so while that piece of equipment is out on rent, you're generating what's known as free cash. It's the difference between the amortization of the debt and the income being generated by that piece of equipment. And so businesses go out of business most often because they're out of cash, not because of lack of profit. And so just looking at two things that Rent2Rent can do for your dealership, it can help generate profitability and it can generate free cash. Another item that should be a strong consideration is gaining more control over your local distribution of your product. Historically, many dealers sold their products to small independent rental companies in their communities, and that was a good relationship. Those rental companies oftentimes dealt with smaller, maybe less qualified customers than the dealer, and that was okay. However, somebody comes along, goes to one of those independent rental stores and offers them a competitive product to yours, maybe at a cheaper price, better financing terms, or all of a sudden your machine is not out in the street. So I would suggest to you that even if you have those type of relationships, nothing wrong with them, you should continue to nurture them. Just as a precaution, you probably want to be in the rental business directly to some degree, and I would probably suggest more than 50% of your machines that are out there in the marketplace, hopefully they're coming directly from you, because that helps drive your brand, it also helps drive parts and service to your own dealership. So a rent-to-rent fleet can also create more business opportunities with our existing customers. As I work with equipment dealers around the country, oftentimes we go to see a customer that has historically bought equipment from us, and we start talking to him about his rental requirements, and we discover that he's renting equipment from our competitors. And in some cases, it's things that we could be renting to him, and we just never ask the right question. Maybe we don't have the exact model that he would like. Maybe it's a different person, the person that does the equipment buying may not be the person that does the renting. So rent-to-rent offers us an additional opportunity to do business with our existing customers. It's also a way to introduce ourselves to new customers, and also emerging customers. And an emerging customer might be someone that has, let's just say they've maybe been a superintendent or a project manager, or a key individual for a local contractor, and after about 15 years, they decide they're going to open up their own construction firm. And they come to you, and you know them, you've had a relationship with them in the past, but now they're starting a brand new company. So there really is no history there in terms of their ability to pay, but it's an opportunity for you to potentially nurture a really good account for the future. So renting is one of those ways that most small contractors start out renting, because they want to manage their cash. And so rent-to-rent creates an opportunity for you to be able to do business with those people that are just starting out, and you have relatively low risk in doing so. The rent-to-rent fleet will also create a future source of used machines, and it is not a real, you know, one year you have a lot of machines and another year not too many. Once you get a three- or four-year rhythm going in your rent-to-rent fleet, you're going to continue to add machines every year, or you should, and you're also going to roll machines out in the back. So then it starts to become a cycle where you can anticipate January 1, you're going to have an idea how many used machines you're going to be able to roll out of your fleet during the year without making an adverse effect on the total size of your rent-to-rent fleet. So this is a very sustainable model, as opposed to, no one's trading in machines right now and I can't get my hands on any, and yet I have customers standing here that would like to buy used machines from me, and I can't get any. So this allows you to gain control of the used equipment market for your brand in your market area. And lastly, a rent-to-rent fleet is very good about creating an opportunity or a delivery channel for any new products. So oftentimes new products come in and they end up sitting by the fence and our salesmen are talking to people about them, but they don't get out in the marketplace because people are either scared of the price, maybe they're scared of the technology, or they don't see the value. So by putting this into the rental fleet, you break those barriers down so that customers can experiment with the product and maybe use it for a few days at a time, or maybe a week or a specific project, and then they become more comfortable with the overall product itself and what it can do, and then maybe they warm up to the idea of maybe interested in buying a new one or potentially a used one. So a rent-to-rent fleet can be a wonderful delivery channel for new products. For more information visit www.FEMA.gov

rent-to-rent

business strategy

dealerships

profitability

product distribution