Golf Course Builders Association of America

Presented by:David Zipps- Cat

John Hale – John DeereJohn Washburn – Sunbelt Rentals

John

Equipment SymposiumAnnual Summer Meeting – St. Augustine, FL 1:30 – 4:30pm

The Rent v. Buy Decision

www.gcbaa.org

Structural Change – Ownership to Rental

• Equipment rental increasing in popularity

• Penetration estimates vary, but industry experts agree we are near 40%

• What is driving the shift?– Life cycle cost associated with ownership– Availability/OEM capacity– Access to Capital– Rental industry that is far more reliable than not too distant past– Recovery or not??

A General Rule of Thumb

• Equipment utilization is >65% = Own

• Anything less…

RENT IT

The Cost of Ownership

• What is the cost of owning equipment?– Cost of the asset– Depreciation– Interest– Preventive Maintenance – Repairs– Transportation– Storage– Inspections– Insurance

Total Cost of Ownership:

Ownership CostsOperating Costs

Administrative Costs

Total Cost of Ownership:

Ownership CostsOperating Costs

Administrative Costs

The Cost of Ownership - Example• Consider the initial investment on a hypothetical piece of equipment

– Purchase cost of $100,000– Used price after 5-year lifecycle of $25,000– Depreciation of $75,000

• Now, add these costs– Interest of 6%– Insurance, taxes and associated fees of $6,000– Wear parts of $18,000– Preventive maintenance of $8,000– Repairs of $25,000– Administrative cost of $8,000

• Now, add more costs– Transportation– Operator– Fuel

Note: cost estimates based on equipment usage of 2,000 hours annually

Additional Considerations• Financing equipment reduces your cash flow

• When owned equipment breaks down, you may need to rent it

• Repairs will require a maintenance staff or hiring an outside firm

• Transportation will require the right truck size and a driver with a CDL

• Project Backlog

• Target Fleet Mix (owned versus rent)

• Government compliance– Tier 4– Environmental regulations

Does Renting Make Sense?• Conserves capital

– No large outlays of cash are required

• Minimized Headcount

• Saves the storage costs

• Gives you the right equipment for the job– Fitting the equipment to the application

• Controls your inventory– Only have the equipment on hand when required

• Reduces downtime– If equipment breaks down it is repaired or replaced within four hours

• Leverages efficiencies– Take advantage of on-line tools to manage inventories, pay invoices, etc.

John Washburn, Vice President of Sales

THANK YOU!