Rent vs. Buy
Internal
XX/XX/2009
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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
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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
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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 industry-
accepted formulas
— Costs are calculated using standard industry-
accepted formulas
— Calculations based on actual hours and actual
dollars spent by equipment contractors
— Computations include manufacturers’ data,
surveys and other industry inputs
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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 equipment-
related 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
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Cost Factor Definitions
General Definitions
Ownership Definitions
Operating Definitions
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General Definitions
Economic Life
Annual Use Hours
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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.
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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 single-
shift operations. Equipment usage time is
influenced by weather and other factors.
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Ownership Definitions
Depreciation
Salvage Value
Cost of Facilities Capital (CFC)
Equipment Overhead Costs (Indirect
Costs)
Overhaul—Labor & Parts
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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.
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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).
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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.
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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.
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Equipment Overhead Costs (Indirect)
2000 Annual Approximate % of
Overhead Factors Total Overhead
Insurance .025 56%
Taxes .010 22%
Licenses .002 4%
Storage, Security .003 7%
Record Keeping .001 2%
Mechanic’s Supervision, .004 9%
Inspection
.045 100%
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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.
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Operating Definitions
Field Repair – Labor
Field Repair – Parts
Fuel
Lube
Tires
Ground-Engaging Components (GEC)
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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.
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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.
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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.
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Lube
Lubrication costs are accrued per
machine working hour to offset the cost
for oil, grease, filters and the labor and
lube truck involved.
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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.
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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.
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See the Rental Advantage…
RSC Rental
XAS185JD7 Air Compressor-DSL-175-185 CFM
Economic Life Hours 2,500
Purchase Price (estimated) $ 12,000 Economic Life Hours 2,500
Annual Use Hours 500
Residual Value % 42.0% Annual Utilization % 24.0%
Residual Value $ $ 5,040 Monthly Rental Rate $ 546
Delivery/Pickup Fee $ 60
28 Day (Monthly) Rentals Per Year 3
Based on Ownership Life:
Factor Own vs. Rent Variance
Ownership Cost
Depreciation 2.69 $ 6,725 $ -
Cost of Facilities Capital (CFC) 0.97 $ 2,425 $ -
Overhead 0.86 $ 2,150 $ -
Overhaul Labor - $ - $ -
Overhaul Value
Residual Parts - $ - $ -
Total Ownership Cost 4.52 $ 11,300 $ - $ 11,300
Operating Cost
Field Labor 4.53 $ 11,325 $ -
Field Parts 1.61 $ 4,025 $ -
Elec/Fuel - $ - $ -
Lube 0.08 $ 200 $ -
Tires 0.10 $ 250 $ -
Ground Engaging Components - $ - $ -
Total Operating Cost 6.32 $ 15,800 $ - $ 15,800
Rental Cost
Rental Fees - $ - $ 8,190
Delivery/Pickup Fees - $ - $ 900
Total Rental Cost - $ - $ 9,090 $ (9,090)
Total Cost 10.84 $ 27,100 $ 9,090 $ 18,010
Annual Cost $ 5,420 $ 1,818 $ 3,602
Annual Cash Outflows
$8,000
$6,000
Own
$4,000 Rent
$2,000
$0
0 1 2 3 4 5 6 7 8
Assumes 20% down pmt and 5.25% interest rate
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Customer Equipment Needs
How can we drive more equipment users to outsource their equipment needs?
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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
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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
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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
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Maximizing RSC’s Potential
We strive to be our customers’ best, and only, equipment provider!
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