It's life in the slow lane for rental giants. (Trendlines).

Just a few years ago, we all heard the stories that rental equipment companies could not be hurt by recession or that the industry was virtually recession-proof. Those were the good old days, the consolidators had cash, bought everything in sight and life was good.

Today, life isn't

so good and many of the big players are hurting. We talked about rental equipment early last year, indicating that 2001 was going to be a slower year with a soft landing. Little did we know that the economy would fall into a recession or that we would be confronted with the horror of 9/11. These factors had a negative impact on the rental equipment industry and will likely continue to affect it for another few months in 2002.

Most of the companies in the top 10 had a tough time making money in 2001, and revenue growth has slowed for all. Every one of the top 10 companies in the industry has reduced operating profits in 2001 versus 2000. The largest rental equipment companies -- United Rentals, Prime/RSC and Hertz -- are holding on reasonably well.

It should be noted that total revenues for these companies did not change much in 2001, which is primarily a result of lower sales of rental equipment. Rental equipment companies rely heavily on sales of existing rental fleets to offset the cost of new equipment. When sales cannot be made profitably, they cut those sales down and let their fleet age. During 2001, most of the companies let fleets age.

As a result of the lower earnings and problems in selling equipment, all of the rental companies have had cash flow problems. Estimated levels of capital spending for rental equipment for 2000 and 2001 for some of the top 10 companies are shown below. If one adds the 2000 expenditures for the reporting companies, the total capital spending for rental equipment is over $2.0 billion. When looking at the same numbers for 2001, the total comes down to about $500 to $600 million. We don't know what Hertz has been doing with its operations this past year, but we estimate that its capital expenditures will also be down 50 to 60 percent. (Hertz was acquired in March 2001 by Ford, which has buried the Hertz numbers in its financial results.)

There has been one bankruptcy, as NationsRent, with revenues in the range of $600 million and 230 outlets in North America, filed for Chapter 11 bankruptcy in late December to restructure the company's debt. NationsRent reported a net loss of $52.2 million (including $10.9 million in restructuring charges) for the first nine months of operations ending September 30th, versus net income of $9.5 million for the same period in 2000. The company plans to continue its business through the restructuring period.

In early January, National Equipment Services announced that it had acquired Brambles Equipment Services, the North American equipment rental operations of Brambles Industries of Australia. Brambles had approximately $170 million in sales in fiscal year 2001 (ending June 30th) and brings 39 locations in 16 states and the province of Ontario to the NES operations. With this acquisition, NES becomes the fourth largest rental equipment company in North America, with combined revenues of about $800 million.

Despite the current gloom, I am optimistic about the future of the industry. By the end of the second quarter, we should start to see some improvement in business and the "bottom line" for a number of the bigger players.

We will continue to see some consolidation in 2002, and there is little doubt that over the next 5 or 10 years the industry will experience further rationalization that reduces the number of "mom and pop" locations. I believe that the top 10 companies will account for at least $13 billion by 2005 and each of the big companies will stretch to other world markets in the coming years.

CHARLES R. YENGST IS PRESIDENT OF YENGST ASSOCIATES, WILTON, CONN.

Rental Equipment Industry Revenues

                                   Est. Change in      Estimated
                                   Oper. Profits   Capital Spending
($-Mil)            Total Revenue        2000-2001     Rental Equipment
Company          2000     2001e          (%)             2000

United Rentals   2919     2900           (17)             808
Prime/RSC        1600     1840           (15)             500
Hertz            1250     1250            Na              435
NES               624      625           (45)             165
NationsRent       669      600           (70)             278
Sunbelt           575      600            Na               Na
Neff              260      225           (65)             110

                Estimated
                 Capital
                 Spending
($-Mil)           Rental      %     No. of
                Equipment
Company         2001e     Change    Outlets

United Rentals   215       (73)       740
Prime/RSC        230       (54)       547
Hertz            200       (54)       268 (*)
NES               25       (85)       200
NationsRent       20       (93)       230
Sunbelt           Na        Na        186
Neff              30       (73)        75

Source: Company information; Yengst Associates estimates (*) Does not
include locations in France and Spain. nc - no change Na - not available