ARA Equipment Rental Penetration Index Introduced | Daily Construction News

At the request of ARA members, the American Rental Association convened a workgroup in September 2012 to develop a plan of work for estimating an appropriate measure of equipment rental penetration for the equipment rental industry. Last week at the Rental Show, it introduced the ARA Equipment Rental Penetration Index. The workgroup built upon ARA’s development of rental-specific performance metrics to determine a way to calculate rental penetration that combines several factors to result in the ARA Equipment Rental Penetration Index.

The index provides the industry with a new method for measuring and forecasting equipment rental penetration and leverages the ARA Rental Market Monitor and the expertise of the association’s industry research partner, IHS Global Insight, as the foundation. It is designed to create a way for rental companies to measure how much potential market exists versus the current market as well as for manufacturers to project demand for machines, and investors and analysts to consistently measure trends about equipment rental in construction.

“The basic concept of the ARA Equipment Rental Penetration Index is to measure the amount of equipment that is rented as a percentage of total construction equipment,” says Christine Wehrman, ARA’s executive vice president and CEO.

“Rental firms tend to measure their performance on a cost basis, and the most often used cost base for rental equipment is original equipment cost (OEC),” says John McClelland, Ph.D., ARA’s vice president for government affairs, who helped lead ARA’s rental penetration index workgroup. “The OEC-weighted approach allows the ability to derive several components of the equipment rental penetration calculation using well-established data and techniques.”

U.S. Census data is used to calculate a value-based measure of the construction fleet. Using this value as the denominator and rental fleet OEC as the numerator, ARA can estimate an equipment rental penetration index that is value-based and accounts for flows of equipment into and out of the fleet and for the stock of equipment in the rental and total construction fleets.

“The ARA Equipment Rental Penetration Index is the association’s latest resource to help rental store owners and managers, manufacturers, and industry analysts and investors better understand the potential of the rental channel and its long term prospects,” said Michael Kneeland, CEO of United Rentals, Greenwich, Conn. “While our customers continue to tell us that equipment rental increasingly plays a larger role in their business, now with the Index we can better measure the extent of that growth over time. We also believe that the secular shift to rental may have at first been driven by macro-economic uncertainty, but that once customers turn to rental they appreciate the flexibility and convenience it provides, and appreciate the added value.”

ARA used the index to analyze results covering 2003-2011, which shows rental penetration for construction machines was in the range of 40 percent at the beginning of the analysis to just above 50 percent in 2010 and 2011. The result is consistent with the expectation that in recent years the size of the rental fleet has increased relative to the construction fleet.