Rent vs. Buy

Rent vs. Buy Internal XX/XX/2009 1 Why Customers Rent  Trend toward outsourcing  Improved customer focus on specific needs  Renting avoids large cash outlays  Renting improves asset allocation  More flexibility and availability in peak demand times 2 12 Reasons to Rent             Control expenses Control inventory The right equipment for the job 24/7 customer care Save on storage/warehousing Reduce downtime No need for maintenance Save disposable costs Cost control Equipment tracking No licenses Conserve capital 3 Revenue Growth The North American rental industry has come a long way! Rental Industry Revenue Growth in North America (in billions of dollars) Source: Custom Cost Evaluator, as published by Equipment Watch magazine, a Primemedia company. 4 Room For Growth Only about 1/3 of American equipment usage is from rentals…RSC plans to change that! Source: Custom Cost Evaluator, as published by Equipment Watch magazine, a Primemedia company. 5 Renting Makes Sense  Renting makes Financial sense!  Breaking down the cost — Costs are calculated using standard industryaccepted formulas — Costs are calculated using standard industryaccepted formulas — Calculations based on actual hours and actual dollars spent by equipment contractors — Computations include manufacturers’ data, surveys and other industry inputs 6 Cost Formula Intro  The Custom Cost Evaluator (CCE) lists hourly ownership and operating expenses for construction equipment, using both fixed and variable costs. — Fixed Costs are depreciation and equipmentrelated overhead, which begin when machine is purchased and keep adding up—regardless of equipment use. — VARIABLE COSTS include overhaul, field repair, fuel, lube, tires and ground engaging components, and occur during equipment use; therefore, these costs are accrued during actual operating hours 7 Cost Factor Definitions  General Definitions  Ownership Definitions  Operating Definitions 8 General Definitions  Economic Life  Annual Use Hours 9 Economic Life  Economic Hours reflect the average economically productive life of a machine used under normal conditions.  Economic Life is the expected length of time, stated in total usage hours, that a purchaser would own a given machine. 10 Annual Use Hours  Annual Use Hours are the average number of hours per year that a machine is actually performing work (as determined by a survey of equipment owners).  Annual Use Hours are based on singleshift operations. Equipment usage time is influenced by weather and other factors. 11 Ownership Definitions     Depreciation Salvage Value Cost of Facilities Capital (CFC) Equipment Overhead Costs (Indirect Costs)  Overhaul—Labor & Parts 12 Depreciation  Depreciation refers to the capitalization of equipment acquisition cost over time. It is not meant to express the amounts used for taxation.  Depreciation costs are based on the purchase price plus sales tax and original freight costs, minus the cost of new tires (if applicable), minus an allowance for salvage at the end of the machine’s economic life. 13 Salvage Value  This is the amount of a purchase price that is not depreciated over the machine’s economic life, AND is equivalent to the unit’s residual value at the time of disposal (i.e. no gain/loss assumed). 14 Cost Of Facilities Capital  Cost of Facilities Capital (CFC) is an allowance for the cost of the money invested in machinery—it is not the same as interest charges.  This government-created formula applies whether the equipment was purchased in cash or financed over time. 15 Equipment Overhead Costs  Indirect Costs  Equipment Overhead Costs result directly from equipment ownership.  These costs include normal risk insurance, property taxes, storage and security, mechanics supervision, inspection, licenses and record-keeping costs.  Profit, project overhead and general company overhead costs—such as office facilities and supplies—are not included in these costs. 16 Equipment Overhead Costs (Indirect) 2000 Annual Overhead Factors Insurance Taxes Licenses .025 .010 .002 Approximate % of Total Overhead 56% 22% 4% Storage, Security Record Keeping Mechanic’s Supervision, Inspection .003 .001 .004 7% 2% 9% .045 100% 17 Overhaul-Labor & Parts  Overhaul Labor is accrued for each hour that a machine works, to offset labor charges incurred to rebuild and condition major components, such as engines, transmissions, undercarriages, etc.  Overhaul Parts costs are accrued for each hour that a machine works, to offset parts costs incurred for average, periodic rebuilding and reconditioning of major components. 18 Operating Definitions       Field Repair – Labor Field Repair – Parts Fuel Lube Tires Ground-Engaging Components (GEC) 19 Field Repair—Labor  Field Repair Labor costs are accrued on a machine working hours basis to offset labor charges incurred to perform normal field repair and maintenance, such as adjusting components and repairing or replacing injectors, carburetors, batteries, ignition parts, pumps, seals, etc. 20 Field Repair - Parts  Field Repair Parts costs are accrued on a machine-working-hours basis to offset the costs for supplying parts normally needed to keep equipment operating in good condition.  These parts consist of anything short of a complete component overhaul or major component replacement. 21 Fuel  Fuel costs calculated according to average load factors and the price of fuel per gallon.  Actual fuel consumption will depend on variations in load factors, elevation, terrain, engine performance and operator efficiency.  Calculations involving fuel costs should be adjusted for differences in the price of fuel. 22 Lube  Lubrication costs are accrued per machine working hour to offset the cost for oil, grease, filters and the labor and lube truck involved. 23 Tires  Tire costs are accrued per machine working hour to offset the expenses incurred for the repair and/or replacement of tires.  Tire costs are based on the current price of tires, typical contractor discounts and average tire life. 24 GEC  Ground Engaging Components  These costs are accrued on a machine working hours basis to offset charges incurred for the repair and/or replacement (either whole or in part) of ground-engaging components such as pads, drums, cutting edges, etc. 25 See the Rental Advantage… RSC Rental XAS185JD7 Air Compressor-DSL-175-185 CFM Purchase Price (estimated) Residual Value % Residual Value $ $ 12,000 42.0% 5,040 Economic Life Hours 2,500 Economic Life Hours 2,500 Annual Use Hours 500 Annual Utilization % 24.0% Monthly Rental Rate $ 546 Delivery/Pickup Fee $ 60 28 Day (Monthly) Rentals Per Year 3 $ Based on Ownership Life: Factor Ownership Cost Depreciation Cost of Facilities Capital (CFC) Overhead Overhaul Labor Overhaul Value Residual Parts Total Ownership Cost Operating Cost Field Labor Field Parts Elec/Fuel Lube Tires Ground Engaging Components Total Operating Cost Rental Cost Rental Fees Delivery/Pickup Fees Total Rental Cost Total Cost Annual Cost 2.69 0.97 0.86 4.52 $ $ $ $ $ $ 6,725 2,425 2,150 11,300 $ $ $ $ $ $ Own vs. Rent Variance $ 11,300 4.53 1.61 0.08 0.10 6.32 - $ $ $ $ $ $ $ $ $ $ 11,325 4,025 200 250 15,800 27,100 5,420 $ $ $ $ $ $ $ $ $ $ $ $ 8,190 900 9,090 9,090 1,818 $ 15,800 $ $ $ (9,090) 18,010 3,602 10.84 $ $ Annual Cash Outflows $8,000 $6,000 $4,000 $2,000 $0 0 1 2 3 4 5 6 7 8 Assumes 20% down pmt and 5.25% interest rate Own Rent 26 Customer Equipment Needs How can we drive more equipment users to outsource their equipment needs? 27 Internal Rent vs. Buy Tools  Utilizing each region’s ―Champion‖ to promote renting  Continue district training sessions  Print and electronic sales support materials  Customer presentations comparing costs of renting vs. buying  Direct mail to prospects  Media support in trade publications 28 Market Rent vs. Buy Tools         Rent vs. Buy brochure for customers Rent vs. Buy examples in trade publications Customer testimonial sheets Customer flash videos Sales/Customer Q&A Presentations for customers Direct mail to current customers and prospects RSC trade publication advertisements & public relations  Tradeshow participation 29 RSC’s Advantages          Over 465 locations throughout the U.S. & Canada 24/7 Customer Care & After Hours Support Over $2 billion in rental fleet/equipment inventory RSC Online® & Total Control® management software programs Mobile Tool Room™ Short- or long-term rentals Equipment delivery and pick up New and used equipment for sale Usage and safety training 30 Maximizing RSC’s Potential We strive to be our customers’ best, and only, equipment provider! 31 32