Large rental houses and equipment-as-a-service providers continue to see double-digit growth on the back of large profit margins and equipment dealers could turn those developments into another high-margin profit center.
Gross margin for a rental fleet represents one of the largest profit centers for large equipment rental companies such as United Rentals, Sunbelt Rentals and Herc Rentals.
However, many equipment dealers do not have rental fleets and rent-to-rent equipment in their product mix, Larry Kaye, chief executive of equipment consulting firm Script International and former board member of the American Rental Association, said during a presentation on Jan. 16 at AED Summit 2025.
United Rentals, Sunbelt Rentals and Herc Rentals had earnings before interest, taxes, depreciation and amortization (EBITDA) of 45.9%, 45.8% and 46.2% respectively, according to the companies’ 2023 earnings data shared by Kaye. Meanwhile equipment dealers reported only an 11.3% EBITDA, according to AED’s 2024 Cost of Business Survey data presented by Kaye.
Despite the rental market signaling strength through the large rental companies, 65% of dealers in the 2024 AED survey stated that they expected to have no rent-to-rent revenue or lower rental revenue in 2024, compared to only 13% forecasting higher rent-to-rent revenue, Kaye said.
“It’s astounding to me, with the market going like this, that there’s [nearly] 40% people who just don’t want to be in the game again,” he said. “They’re not keeping up with what’s happening outside and choosing not to participate.”
Return on rental assets limiting dealer upside
Beyond earnings, return on assets landed at 9.6% for United, 7.9% for Sunbelt, 9.4% for Herc, and 6.5% for AED dealers who participated in the survey. Dealers in the survey have also reduced their rental equipment inventories from 30.7% to 25% since the start of 2019.
While equipment dealers reduce inventory amid lower returns and declining rental performance, the wider equipment rent-to-rent market continues to see improving performance and the rent-to-sell market remains stable, Kaye said.
Higher margin leads to opportunities
In rent-to-rent, all dealer gross margin in 2023 came in at 33%, while best-in-class gross margin came in at 37%, according to the AED study.
For dealers looking to grow their business, higher-margin items are a start, Brian Tibble, vice president of sales at EJ Equipment, said during the summit.
“There’s some low hanging fruit, parts and service, you take a look at the higher margin items in your business, and that’s where you want to focus first to see what else you can pick up there,” he said.
While the service sector still has higher profit margins compared to rental, at 56.2% in the AED survey. Meanwhile, the parts gross margin was 29.2% compared to rent-to-rent at 33%, showcasing how large rent-to-rent can be.
Still, growth, especially geographical growth, depends on relationship development and budgeting, Tibble said.
“We had a specific strategy to leverage our relationships with the manufacturers and with customers that EJ had, and that’s necessary to do to try and grow the business, especially geographically,” he said.
The third annual Equipment Finance Connect at the JW Marriott Nashville in Nashville, Tenn., on May 14-15, 2025, is the only event that brings together equipment dealers and lenders to share insights, attend discussions on crucial industry topics and network with peers. Learn more about the event and register here.
