Want to make $20,000 a month off your idle equipment? Rent it out. From backhoe loaders to wheel loaders, construction firms are turning to lending programs to make the most of their heavy machinery.
In a new whitepaper called “Tech Innovations Drive Increases in Heavy Equipment Leases and Rentals,” Purchasing.com surveyed over 70,000 business owners, CEOs, managers, and procurement professionals between 2011 and 2014. They found that renting—and especially leasing—are on the rise. For example, during this time period, forklift rentals increased 90%, wheel loaders jumped 273%, and compact track loaders skyrocketed 925%. Overall rentals increased 75% just between 2013 and 2014.
The construction industry is becoming a sharing economy for three major reasons: finances, regulations, and the emerging Generation X construction manager.
The sharing economy is typically discussed in peer to peer settings. Popular brands like AirBnb and Uber personify the trend, where homeowners and car owners rent out their assets to consumers. However, this type of activity is happening more and more often in the business-to-business space, as well. An editorial by Dan Slagen in VentureBeat did an excellent job covering the emergence of business to business sharing. Slagan notes that, in B2B settings, “Companies only have to pay for what they need, which facilitates greater efficiency and drives a higher bottom line.”
And the “bottom line” is certainly on every construction manager’s mind. While the construction industry is “booming” in the United States, construction business owners remain cautious—the Great Recession is still affecting general subcontractors, residential remodelers, commercial contractors, building foundation and exterior contractors, and many other sectors pained by the “long housing bust.” Because construction is necessarily a project-based industry, contractors can’t afford to let their sometimes-million-dollar equipment depreciate without use.
That said, regulations are also nudging contractors to add new financing options to the mix, including renting-to-own and leasing. The study notes, “Starting in 2011, Tier IV non-road diesel engines were phased into heavy machinery as part of the EPA’s initiative to reduce the carbon footprint of many types of construction equipment.” Doing so necessarily forced many construction companies to opt for pricier financing options; there just isn’t enough equipment available to rent even in the sharing economy to meet the government-manufactured demand. That said, because these heavy construction equipment options are relatively new, contractors can expect these machines to enter the construction sharing economy within the next few years.
But there is one more driving force behind the growing sharing economy: the rise of the Generation X (born after 1961 and before 1981) construction manager.
When it comes to generational trends in the construction industry, the media tends to focus on Millennials (born after 1982) and Boomers (born between 1943 and 1960)—namely that the construction industry suffers from a dearth of young people and that the industry is aging. But Xers are just as important to shaping the industry—perhaps the most important currently—as any other generation.
Neil Howe, a generational expert and the author of The Fourth Turning, writes, “During the [Great Recession], Xers kept their companies afloat through relentless cost-cutting and sought out data-based software to help boost efficiency.” That trend hasn’t changed.
Xer construction managers rely heavily on construction management software to keep their costs low and their company afloat. They, like Millennials, are comfortable with “sharing” information, ideas, and even tools over the Internet—and aren’t afraid to make the same leap for their business. Unlike more flashy Boomers, these former latchkey kids are content to make do with the cheapest and most efficient business tools available. For construction, that means participating in the rise of heavy-equipment sharing.
A number of companies are already participating in this trend. For example, MuniRent, run by Xer Alan Mond, provides services for heavy-duty equipment sharing inside government agencies. Getable matches up suppliers and contractors looking to rent out equipment. Even Caterpillar and Komatsu are now taking a more active role in selling off its own used heavy machinery and letting customers rent their unused or idle equipment to other customers.
Millennials are not likely to be taking many leadership positions in the construction industry in the coming years. Boomers who have worked in these positions their whole lives are delaying retirement. Xers are nipping at their heels for leadership in their respective companies (though many are leaving existing businesses to start their own). As Xers move toward the C-suite, the trend for sharing heavy construction equipment is guaranteed to continue far into the future.