Continuing to focus on our products portion of our course, besides the machines and them being available in the right quantity and that type of thing, we also spent a considerable amount of time talking about the pricing. And so, in addition to pricing, the other thing that we've got to wrap around our rental equipment is some type of protection, because bad things happen when people use equipment. Accidents happen. As you can see by the pictures on the screen, none of those folks could have even imagined that something like that could happen. And if they were thinking that they were planning on renting that machine for a day or a week or maybe even a month, and then all of a sudden the thing ends up in the pond, now all of a sudden we're talking about the risk associated with potentially the value of the machine, or certainly the engine. And so, all of a sudden we have major issues. And so, everybody that is in the rent-to-rent business needs to have something called a rental protection plan, kind of formerly known as a damage waiver. So, let's take a look at some of the things that happen, because your company, to be competitive in the marketplace, is going to have to offer some protection for your customer, and that's protection for both of you. So, let's take a look at customer A, who rents an excavator, and of course, using the machine to dig out a building foundation, they manage to swing the machine into a steel dumpster that's parked close by, and they damage the engine grill on the back of the excavator. That's one thing that happens. Second one, customer B rents a small skid steer to clean up some demo debris, and accidentally hits a piece of angle iron that gashes the sidewall of the tire. He's only renting the machine for two days, and the cost to replace the tire is greater than the total rental charges. Customer C is using a small excavator with a hydraulic thumb to pick up some broken sidewalk material. In the process of swinging the broom, the concrete breaks, a piece of it falls against the boom cylinder, scores the hydraulic cylinder so it begins to leak. Customer D is renting a backhoe for a new construction site, and the machine is vandalized over the weekend, and all the glass in the cab is broken out. Well, I'm sure those of you that have been in rental for any length of time, you can identify with virtually every one of these situations. And now we have a conflict with our customer, and we need to have some resolution for that. So when we talk about rental protection plans, we're talking about ideas and concepts that your company can present that would limit someone's risk and liability, because this will get messy, and we don't want to end up in the courtroom. So with virtually every one of these situations that popped up, here's what's going to happen next. The customer says, I'm sorry it happened, send me the bill, I'll work it out with my insurance company. They're not happy about it, you send them a bill, and then after 45 to 60 days later, you're trying to collect the money, they'll do their best to negotiate the repair costs. Or you want to forgive the incident as they remind you that they spend $10,000 a month with your company, and they don't expect you to charge them. They threaten to take their business elsewhere. So those are three different responses to damages that occur to your rental equipment, and those could go all different directions. So the question of the day is, how do you maintain the integrity of your fleet? So meaning that you get everything fixed back the way it was. Having enough repair budget to handle all of these unfortunate situations, while at the same time being able to maintain positive customer relationships. How do you do that? So in answering that question, it gets down to who has financial responsibility for our equipment. And sometimes there's misunderstanding about this. It has to do with potentially how your contract is written. And then some people sign contracts and they don't read them. And they think you've got insurance on it, and you think they've got insurance on it. So when we're renting equipment, it's necessary that the customer not only be financially responsible for the overall condition and value of the equipment, but they need to know that. That they agree to return it in the same condition as it was rented, other than normal wear and tear. And that they're solely responsible for the repair bills, parts, labor, freight, along with rental charges accruing while the damaged machine is being repaired. I mean, think about that. You've got a machine that's been turned upside down. You bring it back in the shop. You determine that we've got $8,000 worth of damage, but it's going to be three weeks until we get the parts in. So who's responsible for that machine sitting out of commission? Should you eat that, or should your customer have some responsibility for that? And so the financial consequences associated with loss or damage to construction equipment can be high risk when the equipment values go all over the place. I mean, upwards of $100,000 or more. And so before entering into a rental agreement with a customer, it's really necessary to make sure that both parties agree and understand the financial risk that's being assumed by the customer and what arrangements will be made in the event of loss or damages occurring. This is actually part of the qualifying process. Back in the very beginning when we talked about this, we need to be very upfront and not pretend like it never happens, because it does happen. And so we need to understand, okay, it's a legitimate question. Who's your insurance company? I need to see a copy of your policy so that I can make sure that it's in line with the value of the type of equipment you hope to rent from us, and also that it indicates that it covers specifically rental equipment, because sometimes it doesn't. Sometimes their policy only covers their type of equipment, stuff that they own, and it doesn't do anything for them relative to rental equipment. So as I stated, the problem, now we're going to look at potentially three different options that could occur to minimize the risk. The first option is that the customer does have an insurance policy. But as I said a minute ago, we need to make sure that the name and address of your company is on that policy and that they've got proof of general liability, because what you don't want is your piece of equipment was out there and somebody decided to dig a hole and bingo. They hit the Internet cable for everybody in a business district, and there's going to be some back charges involved in that. That would be something that general liability would take care of. They didn't damage your machine. They just tore up somebody's property, and you don't want to be charged for that. They need to make sure that they've got physical damage coverage and that there's an understanding of what is the deductible amount. You need to understand whether they've got $1,000, $1,500, or maybe it's a $10,000 deductible. And so that's really the risk that you are assuming with that particular customer. So to cover the risk of these damages or a piece of equipment getting knocked out of commission, one of the options is that the customer has their own insurance and they have the right amount of coverage, and your name is on the policy and everything looks good. Option two, the customer has insurance and they elect to purchase the dealership rental protection plan at the same time. So why would somebody do that? Well, we talked in terms of the deductible amount. So let's just say they've got full coverage on something and it's up to $75,000, and they take one of your skid-steer loaders out there and they tear up a track. And so now maybe that track value is $2,500 or $3,000, and these people have a $2,000 or $2,500 deductible. So their insurance is really not going to cover that or just cover a minor portion of it. So they're still going to have to come out of pocket with that. So if you have a rental protection plan put together, you can cover certain types of damages or mishaps. That's up to you as a company what you want to cover. You may choose to cover tire damage and you may not. You may tend to cover glass breakage or not. You could cover dents and dings or not, or mirrors or things that get knocked off or fenders, those types of things. So it's possible for a customer that has insurance to still be very interested in a rental protection plan that your company offers. And so these rental protection plans out there in the marketplace are generally anywhere from 10% to 15% of the rental charges. And so if you rented something to somebody for $1,000 a month, the rental protection portion of that could be as much as $150 of the $1,000. And so now you've got a little bit of money into a pool that will cover some of those damages. So now the customer has coverage for the worst thing that can happen to the machine, and through buying a policy from you, they now have coverage for the minor things that can happen. And honestly, in years and years of business, it's the minor things that cause all the disagreements, especially related with tires or any other kind of damages. It could be something that a chain slipped off and severely bent something, or somebody puts a nice crease down the side of some sheet metal on your machine. And as I shared in one of the prior slides, this customer is going to say, look, I didn't mean to do that, and I spend $5,000 a month with you. If you charge me for that, I'm going to take my business elsewhere. So now you've got this problem of I can charge the guy $610, but if I do, I'll lose $10,000 a month. What do I want to do? So I eat it. And now, where do I get the money to pay for the damage there? So that's actually one of the designs behind a rental protection plan, is to be able to create a pool of money, because you're getting a little bit of money from a lot of different customers, that helps create a pool. Can you make money with this rental protection plan? Yes, you do. One of the primary reasons for having a rental protection plan is to keep you and customers, especially good customers, from getting sideways and having all kinds of arguments and potentially ending up in small claims court over some small repair bills. And then secondly, as I showed in one of the other scenarios, is you send the customer the bill, the customer doesn't really agree with it, and so they're not in a hurry to pay for it, and then you call them about 60 or 90 days later and they say, Look, I'm sorry that happened, but, you know, that wasn't a brand new tire on that machine. Can't you help me out? And so instead of you charging them $600 for the tire, you negotiate it to $375. All is well, right? No, all is not well, because what happens now is, anytime that customer gets a repair bill from you, what you just train them to do is not pay it on time, and if they wait long enough, the owner is going to call you or the rental manager is going to call you, and then you get to negotiate the bill. So that doesn't work either. So having a product, a rental protection plan, that gives the customer additional coverage for certain types of things that happen, and it's your plan. You can write it to be as tight or loose as you want, but I'll promise you that this is the best solution for the customer as well as the dealership, because qualifying damages, great and small, are all covered. If he's got protection against worst-case scenario and you're offering a product on the minor stuff, that's the ultimate combination. There is one more. So a customer doesn't have any insurance at all, and now they need to get a rental protection plan through you. So now you've got to decide whether we want to do business with this particular person or not, and what if they damage the equipment, what's the potential loss? A customer has limited capabilities to pay for these damages, and so do you want to move ahead with this customer and offer them something? So one of the things that happens in the marketplace is sometimes people decide to get a cash deposit or some type of advanced payment, it can be on a credit card or something like that, that basically is kind of an escrow, if you will, against future damages. Well, that's fine if you can do it. I will also tell you that that is a handicap or a speed bump to be able to do business with some folks, because it just seems they can't even in their wildest dreams imagine that something really bad is going to happen, and they think you're kind of not using good business practice when you want to do something like that. So what we need to handle all this stuff is a rental protection plan. It's a financial product. You are waiving your right to do something that you have a right to do if they'll pay you money. So in this story, it is a protection for them, and you will waive your right to collect money if they pay you a specified amount. So the rental protection plan is offered to rental customers at the time of the rental transaction to reduce the customer's financial obligation for the damages while the machine is on rent. So that benefits the customer. The reason it benefits the dealer is that I get to maintain the fleet integrity, meaning that I have a pool of money to put my machines back in the right order. What we don't want is the service department to say, Hey, why put the mirror back on there? Because everybody always knocks it off, and so we'll just leave it off this time. And then, you know, that fender, why fix it? Because it's always getting dinged. We'll just leave it alone, and when we get ready to sell the machine, then we'll fix it. Well, part of your marketing is the overall condition of your equipment and its integrity, and so you need to have money to be able to put it back. And if when a customer damages equipment and we charge those repairs against the machine, what that does is it overstates the wear and tear and maintenance costs of that machine because really those things were not wear and tear. Those were damages. So we need to charge damages in a different way than just normal wear and tear. So let's take a look at this example. By charging a fee of 14%, which is pretty common in the marketplace today, on all rental charges, a dealer could generate potentially up to $14,000 worth of additional revenue based on $100,000 worth of rental revenue. These funds are to be used exclusively to offset the cost of repair to rental machines that are damaged during the month and are covered according to the terms and conditions of the company rental protection plan. So be mindful it doesn't cover everything, but it's your policy, and you guys get to be the judge as to whether or not you want to let it be covered or not. And then tell your customer, look, I know this was a bad situation. You guys have been paying the damage waiver or our rental protection plan, and so we're going to cover it this time. But really that was a lot of negligence right there, and if that happens again, we may not cover it the next time. And so that's how you can handle a customer that is being careless with your equipment. From a customer's benefit, he is reducing his risk. So he's got the full liability for the equipment when he rents it from us, and if he's got insurance, that reduces his liability. But if he doesn't have insurance, what else could he do? Well, a rental protection plan can reduce his exposure. So that helps him get a more fixed cost approach to the rental damages. He won't get any surprises. He can budget rental protection because it's a fixed amount of his rental charges. So going back to customer satisfaction, being competitive in the marketplace, when we think about products, we have got to be proactive in having the right machines, having the right mix of machines. We've got to have the right pricing that's attractive to customers, and we've also got to have some products that enable the customer to reduce their risk because it's real. And the competition out there in the marketplace has some pretty nice products that cover all kinds of things. So if your dealership is not yet on board with a rental protection plan or yours hasn't been updated in a while, I'd strongly recommend you go out on the Internet, look up some competitors, and see what their damage waiver or their rental protection plan looks like because they're very aggressive. In terms of taking the risk away from the customer, they're willing to take more and more risk. So to summarize, who needs rental protection? Customers with rental equipment insurance that have a deductible, customers with insurance with no coverage for rental equipment, and customers with low limits for rental equipment. In other words, all customers need a rental protection plan. There's very few that don't need some type of additional coverage. And then all customers that don't have insurance, period. So this is another way to help your company be competitive in the marketplace by helping assume some of that risk, and you're doing it through a financial product where a lot of people pay a little bit that creates the pot that enables you to basically forgive some of the damages that happen while equipment's on rent.

rental protection plans

equipment rentals

accidents

damages

insurance coverage

customer relationships