In the spirit of CROSSHIRE Rental Rate Roy might not have been an academic high-flyer, but he understands business basics - and wishes some other hirers did, too.
YOU WANT TO PAY HOW MUCH?
I never did economics at school. In fact I struggled at my education, preferring cricket and chasing girls. Sadly, my hopes of being the next Ian Botham evaporated faster than my adolescent acne and with the fairer sex I was an absolute disaster. I recall the rebuff from one girl which was so minimalistic, but so painfully cutting and succinct: “Really?” delivered in a withering manner with a subtle hint of sarcasm which resulted in my scuttling back under the stone from whence I’d crawled.
I did, however, manage an O-level in woodwork and a second in home economics (cooking). This, dear reader, obviously set me up perfectly for a career in the plant and tool hire trade. However, of the few things I did glean from four years at secondary school, the two that have stuck in my thick skull are: (1) You can’t spend more than you earn; and (2) The candle that burns twice as bright only burns for half as long.
So, in the mighty industry of ours that provides massive employment to the economy, why are rental rates reducing whilst costs are rising? As an example, our sales rep returned recently from his foraging in a somewhat dejected mood. He sat in the office and looked like he was about to cry. Being the caring boss that I am I asked as to his well-being. His response cannot be printed, but the heart of the issue was that he had just lost an order for three articulated boom lifts for two weeks. “Ouch… that hurts. Why?” I asked. Well, it seemed that a major national hirer has just supplied them at £165 per week each. Please be aware that these machines are now in excess of £38,000 to purchase, so we are looking at a return of 0.43% on the purchase price! I quickly did my sums (yes, I know, I didn’t get O-level maths either), but any one-celled amoeba can work out that, at £38,000 with a 10% deposit (£3,800) that leaves you £34,200 to fund however you wish.
Let’s say we want to HP finance it over an arbitrary five years at a rate of £18.80 per thousand, which makes the equivalent weekly repayment of £148.38. So, if you ignore such trivial insignificancies as depreciation, overhead recovery and maintenance, then at this rate you will be
working for the princely sum of £16.62 a week. And once all those trifling details are factored back in, the first observation of not being able to spend more than you earn becomes glaringly obvious.
Based on those returns, which yacht shall I buy with the proceeds? Or will that help me fund a villa in the south of France? Or a round the world cruise? However, absolute imbecility on rates is not confined to access equipment: we hear of £63 per week for an 80 ride-on roller, £75 for a 3-tonne dumper, £200 for a 12m telescopic handler, or £7 a week for a 12in petrol saw.
Why is this happening? Well, dear reader, there is too much competition that is hell-bent on utilisation and not on that very dirty word… Profit! Any fool can sell £10 notes for a fiver! Anyone can chase turnover above profitability. There will always be the new kid on the block wanting to make an impression by offering great spoils but very little margin. Yet what staggers me most is that the industry rates are not being driven upward by the national hirers. Hewden was a prime example of allowing the vanity of buying new equipment over getting it out on hire at affordable rates, maintaining the equipment and - most importantly - getting paid. They were the epitome of the second lesson, of the candle burning twice as bright for half as long.
I fear that Hewden will not be the last major player to fall by the wayside because of poor hire rates and uneconomic returns. We need to sharpen up and be prepared to stand our ground. Make sure that the customer isn’t lifting our leg and I’d suggest the following response from yesteryear: “You want to pay how much? Really?” With that, I’m off to plane a bit of old timber and bake a cake.
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