Rental equipment has always been a part of the farm equipment industry, but the current business and economic climate makes it especially prudent today. End users are putting off the purchase of expensive equipment, and instead exploring leasing and renting.  

Dealers are cognizant of the safer approach customers are taking to acquiring needed machinery. They also know sales are down nationwide, so forming a rental arm of the business helps bring in new revenue when the cashflow from sales is low. The problem is many dealers don’t know what the rental business would look like for their operation or how to be successful. Many more simply don’t entertain the idea because they don’t see success happening for them. And many of the dealers who do try, go about it without a proper plan in place.

Michael Freundschuh is a former top 10 Bobcat dealer in the U.S. and a rentals expert. He estimates that he’s visited probably 200 dealerships. What he’s continuously heard from these dealers that don’t yet rent is “rentals don’t work in our market.” They often assume the market is too saturated with rental departments as it is. He says such an approach would be analogous to stepping away from being an equipment dealer just because there are others selling in the market. To have that outlook, in Freundschuh’s opinion, is a “myopic failure.”

“I guarantee your customers today are going and renting from those competing dealers,” he says. “Why would you give them a reason to go to somebody else to use some other type of brand of equipment or OEMs machine? You [as the dealer] have such a large opportunity to capitalize on that customer because your parts are at cost, your service is at cost, and the rental machine that you're giving them is your brand that you service. You're creating your own work.”

Dealerships have also routinely told Freudnschuh they worry about deprecation of the equipment value. Freudnschuh says that’s fair to worry about, but there are solutions. Losing because of depreciation often occurs when a dealer is struggling to sell in its market. In such cases, he recommends dealers sell rentals 15-30 miles from the dealership. To offset the depreciation, he also recommends insisting on long-term contracts for the equipment.

Freundschuh also hears of dealers struggling to rent equipment often enough. In that situation, he expects there would be one of two issues. One would be that the dealer is too aggressive for its market. The other issue could be that the dealer is incorrectly marketing its rental business. Dealers should be creating a sales program specifically for rentals, he advises.

“Have you come up with a competitive way to get your customer coming through the door and buying a payment that includes things like service discounts, parts discounts, where it makes more sense for you to own the equipment rather than your customer?”

Another issue Freundschuh often sees is that dealers have the wrong perspective. They often view themselves as being in the business of selling equipment when instead they should view it as being in a partnership with customers with the mission of helping them accomplish their business goals. 

“Those that like to just sell equipment — who doesn’t? Sales drive business,” he said.

 However, that doesn’t mean a dealership can’t do more. 

‘Church and State’ Division

A dealership can also throw support into its other departments: rental, services and parts. But to be successful in doing all of this, Freundschuh suggests running each department as its own separate business. In his experience, the most common reason a dealership fails in its foray into renting equipment is that the department is then shared with services, parts and sales. Rental and sales departments even need different management. In other words, there needs to be a church and state type separation.

Dealers contemplating a rental program can also be apprehensive about how fast or slow to dive into a pilot rental program. One way to start is to purchase the equipment to be rented and plug it into a fleet for just that. Then, reach out to customers who have traditionally been sold to and ask them if they rent equipment, too. If they do, ask that they call the dealership next time they’re set to rent from someplace else for an opportunity to best that offer.

“We identified about 100 customers who already rented from our competitors from time to time, and now we would instantly promise to save them money,” he said. “So, we put them on a list and when they called, we said, ‘OK,’ and we made sure that we gave them a stupidly low rate only the first time.”

 After offering that special rate for rental to start, Freundschuh advised going back to the normal market rate. Because, by this point, both a sales and rental relationship has been established with the customer, making the dealership now a one-stop-shop for its needs.

 When it comes to rental maintenance, Freundschuh suggests not charging rental from service at a lesser rate for repairs and maintenance. He thinks a rental business should be able to function on its own, so if a dealer’s lowering its parts margins and service margins to help the rental side, it doesn’t really know where it stands.

“I want to make sure that my rental business has the capacity, the financials and everything else to stand alone so that any investor who is interested in buying the business could say, ‘Hey, they were being charged full rate, and they're still showing and producing profit and results at the end of the year.’”

Freundschuh finds a lot of reasons dealers routinely give for not wanting to go into rentals are bogus. However, one often cited reason is valid in his opinion: The dealer simply doesn’t want to be in the rental business.

“That is the only reason you can use that really makes sense not to have rental because if you don't want it, you're saying, ‘I don't want the extra work involved to create another investment strategy for my business that will undoubtedly make me more money and save me money off of my taxes,’" he says. “It’s the proof. The proof is in the pudding.”

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