To begin this next section, we're going to take a look at dealer challenges as they try to implement rental. We have learned through the first three modules about the industry as a whole and how it's growing and it's vibrant. It looks like it's very sustainable into the future. We've looked at some of the reasons why customers really like rental and how demand has changed. In the last module, we looked at the idea of rent-to-sell and rent-to-rent, and maybe it's a good idea to be in both of those activities. So let's just say you're one of these dealers that has traditionally had sales, parts and service, and you have been doing a rent-to-sell business. And now you want to integrate a rent-to-rent program. Well, operationally, it is easier said than done because you've got a history of doing business a certain way, and now we're going to bring in another profit center into the picture who is going to need services from the sales department and the parts department and the service department, and we've got to figure out how to make all that work. So I'm going to describe to you some of the challenges that dealers typically have in trying to get a rent-to-rent program going and why they're not always successful with this. Because all of these things are things that can be overcome, but it's better to know before you get started where we're going to have problems, and then you can make some policy and help the rent-to-rent get going. So, first of all, most of the dealers that I talk to, when you talk about a rental fleet, the very first thing out of their mouth is everything we have is for sale. And so anybody comes along, we're willing to sell that thing at any given time. Well, that's a great idea. The problem with that is the following. So we are out trying to solicit rental customers and people that rent things literally all the time. Maybe they own three or four machines of their own, and they always rent one or two extra. Well, what they're planning on doing with us as a rental supplier is counting on us having that machine available for them all the time. And what's not acceptable to a rental customer is when you answer the phone or your salesman's in touch with them and they say, hey, I'd like to rent that wheel loader or the excavator, and they go, oh, sorry, we just sold that. Although that may be good for you, the dealer, the bad part is what you just told that rental customer is we are not as committed to supporting you and whatever it is you're doing as we are trying to sell. So the holding period needs to be defined at your dealership that basically says if we're going to put wheel loaders or dozers or excavators or man lifts or whatever the items might be, you've got to have some predefined holding period that says we're not going to reach in there and sell those machines out unless we have a management meeting and we determine we've got too many of these things. Otherwise, we're going to continue to try to find rental opportunities and market. So dealers that have a traditional sales bias, they're the ones that the sales manager cannot be involved or cannot be in charge of the rent-to-rent fleet because he has a high motivation to want to sell rather than rent. Oftentimes his compensation is connected to that. As you see in my second point, commission plans not aligned with rental objectives. So my point there is oftentimes the rental activities from the dealership are almost considered a last resort. I mean if we can't get the guy to buy, okay, we'll let him rent from us. But the salesmen generally don't get much in the way of commission on that. And so mostly the way they earn their livelihood is through sales commission. And so if we're going to have a vibrant rent-to-rent fleet, we've got to pay people for the right behavior. And so we need to take a look at the compensation plan for the sales department to make sure that it drives the right behavior. I already mentioned number three. If we sell too early, then we're inconsistent and we're unreliable for our customers. Another thing that dealers have found guilty of is they've taken a trade-in machine. Sometimes it's not even the brand that they represent or it's an older machine. It's clearly not a current model. And it's sitting out there in use and somebody comes along and they say, we'd like to rent that whatever. And oh, let's go ahead and rent them that one. Well, I can tell you that that's in most cases not a very good idea. Because although you may think this is like extra income, you're really not helping your company brand by putting out in the marketplace, A, somebody else's brand, or B, a not current model that may not be up to speed. And I think it's a poor choice. So I would encourage you to stay away from putting trade-in machines into your rental. You can have quality control issues. Another conflict that dealers typically have is when they are doing the rent-to-sell business, it almost doesn't matter what the rental rate is that they get because it's not tied to long-term ownership. So they may be trying to build a down payment for a customer. And they are taking, let's just say, maybe $10,000 is the magic number we need for a down payment on this machine. They may decide, okay, we'll take this next six months and we'll divide it by the $10,000. And we're going to get somewhere between $1,500 and $1,800 a month to create your down payment. And as soon as you finish the six months, we'll give you 100% of your rental towards the down payment. That's fine for a rent-to-sell opportunity. But for rent-to-rent, that's no good. Because rental rates shouldn't be that arbitrary. There should be a market rate that's out there. And you need to be competitive with that. And so the idea here is that you could be either high or low doing the formula that we just talked about for the rent-to-sell. And on rent-to-rent, you need to make sure that your prices are aligned with what market conditions are. Additional conflicts come from, I've worked with some dealers that shortly after a customer has had a machine on rent for two or three months, the sales department starts to become scavengers. And they start calling up these customers trying to get them to convert the rental into a sale. Well, again, we are assuming, or that strategy is assuming that everybody wants to own a machine. Secondly, it goes back to the idea of the heavy sales bias. And that's really not the idea behind the rent-to-rent fleet. We are trying to grow a steady revenue gross profit margin generating profit center within our dealership. And we need the inventory to stay in rent. We need to be jealous about rental revenue, not always trying to flip it. I have also seen the second point is the rental fleet starts to become a toxic waste dump. Meaning that the sales department is overstocked in something. The floor plan is just about to run out. And we don't know what to do with these machines. And so what we do is we'll just stick them in the rental fleet. And that's like kicking the can down the road. And so when we look at the rental fleet, it is just a ragtag group of equipment that we don't know what to do with. And therefore, the rental department is kind of taking the punishment for being the relief plan. So none of that's a good idea. The rental fleet also needs to line up with the strategic objectives of the company. I mean, what markets are we trying to go after? What customers are we trying to serve? What models are we trying to establish in the marketplace? And so just throwing a few machines and saying we've got a rental fleet, it should not be a silo to where it's doing its own thing. It really should be working in concert with the overall sales strategy of the company and the market alignment of the company. And then oftentimes dealers think that they can put a bunch of machines in a rental fleet and not really put an asset manager over that. I would suggest that's a bad mistake because really what you're talking about is potentially millions of dollars that should be earning an income or someone figuring out why is this machine really not participating. And that doesn't happen by casual observance. Somebody has to be constantly looking at the performance of the fleet, the utilization of the fleet, the maintenance of the fleet, the markets being served, the frequency of the rentals, how long the machines are out on rent, all of those things. For the rent-to-rent to really perform, it does need a manager. Continuing with the list of internal conflicts, we also have the issue with rental units that cycle through the service department with a work order after every time they go out on rent. So from a quality control standpoint, this is a good idea that we inspect our machines each time they go and come. The problem becomes when our rental machines go into the service department and then all of a sudden they do not have priority anymore in terms of how they process through the service department. So therefore, the service manager starts to fix everybody else's machine instead of the rental machine. That's a problem. We also put too much in terms of internal charges back against that rental machine. So therefore, the service department may show that they're making a good profit off of the rental department. Meanwhile, the rental department maybe has too big a burden in terms of maintenance and repair charges. I already mentioned about the customer machines getting preferential treatment. And then when we do have a rental and our machines are stuck in the service department, then what happens is there's a mad scramble and somebody's got to get taken off of a job and somebody's got to go over here and check this machine out because we've got a rental for it in two hours. Well, that's going to put a lot of pressure on your quality control. It's going to create inefficiency and havoc in your service department when people have to drop what they're doing and move over to work on another machine. And lastly, a few other conflicts that I see are the service department not having any real quality control measures to inspect the machines before they go out on rent as well as when they come back. And the issue with that is that we can start to eat a lot of damages from customers that our equipment gets beat up. We don't recover the money on it as well as maybe things not really getting fixed. And so we don't want our brand to look ragtag. And so quality control is a key piece of getting a strong rent-to-rent program going. So customers that rent equipment, they have real-life expectations. If for some reason that machine breaks down on a job, they've got people standing there waiting, potentially with other equipment that can't do its job because, let's say for instance, the telehandler is broken down and we can't unload the trucks, so we've got people standing around. Or maybe we can't put the mortar mix up on the third floor, so we've got masonry people standing around at whatever dollar per hour crew that is. So the service department in supporting a rental fleet has got to understand a level of urgency like maybe they've never done before. And so what I'll tell you is the major rental companies are pretty good at this. And so if you're going to be in the rent-to-rent business, you cannot get by with just having really nice machines and not being able to support it properly in the field. When somebody's down, you've got to figure out how to dispatch quickly and get someone there that is capable of an in-the-field repair, diagnostic, hopefully get the machine going again. And lastly, the processes. This really is about process improvement. And so if you had to put your finger on all of these conflicts that I'm talking about, they either have to do with changing the culture in the business to where we're now going to recognize that rent-to-rent really is a way of how we're going to make money in the future, and we've got to give it the due process. And then we've got to realize how the rent-to-rent is supported from the service department and the parts department. We've got to make sure that things flow correctly there. Because when the machine is stuck somewhere or sitting in our own processes, we're not making money with it. So inefficiency tends to run rampant in dealerships involving their own rental fleet. And so that's one of the biggest challenges in developing a strong rent-to-rent program that makes money is getting your internal processes organized.

rent-to-rent program

dealerships

rental customers

commission plans

quality control measures