A wave of heavy-equipment renters could be converted into buyers this year if interest rates continue to fall and market conditions improve.
Total volume for the 100 largest equipment rental firms in North America grew 15.8% year over year to a record $41 billion in 2023, according to the Rental Equipment Register 100, which tracks rental and sales volume for those companies. That followed a 22.9% YoY increase in 2022.
Rental demand has surged in recent years as high interest rates and inflation have made renting more attractive. However, with interest rates starting to drop, and another rate cut by the Federal Reserve this year could motivate more users to buy the equipment they are renting, Luke Smith, West region sales manager at Wells Fargo Equipment Finance, told Equipment Finance News.
“If you think rates are going to drop within the next couple months, it might make economic sense to rent that machine for a few months and then convert that to a purchase. So, we do expect to see a lot of rental conversions.”
— Luke Smith, Wells Fargo Equipment Finance
December typically sees the most rental-to-sale conversions because businesses can take a depreciation expense to reduce taxable income, Smith said. Lower rates will be an extra incentive to obtain a loan and buy the equipment being rented, he said.
Growing confidence
Equipment financiers’ confidence reached a 32-month high in September in light of reduced rates and economic improvements, according to the Equipment Leasing and Finance Foundation. Thus, heavy-equipment dealers are also preparing for an uptick in rental conversions before yearend, Rob Jackson, director of sales and rental at Raleigh, N.C.-based Gregory Poole Equipment, told EFN.
“We’re looking at the number of rental purchase options that we have out there, which has grown in the last six months,” he said. “Our hope is that customers will be a little bit more confident to either buy some used gear or convert rentals that they have. And we’ve started to see a little bit of improvement in our quote activity over the last 30 days.”
Uptick in leasing
While some customers might not be ready to buy equipment if rates fall again, they could be ready to consider leasing options for equipment they’ve been renting if it means lower operating costs, Kris Realander, sales manager at Morrisville, N.C.-based Triangle Equipment Group, told EFN.
Equipment rental agreements are often short term, spanning several days or months, and allow users to forgo maintenance costs. Equipment leases typically span multiple years, with the option to renew or purchase at the end of the lease. Unlike rentals, financing is sometimes required for leasing.
“Leasing definitely comes into play because you’re not actually paying for the whole unit,” Realander said. “You’re just paying for the portion that you’ve signed the contract for, whether it’s a 24-, 36- or 48-month lease. … So, we can effectively drop their cost of operation and increase their company’s margin by putting them from rental to lease. And that’s a very good transition for a lot of people.”
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