Rental businesses enjoy heavy equipment demand: Volvo Rents sees big opportunity in local market

November 7, 2005

As central Indiana's construction market continues to gain momentum, Volvo Construction Equipment Rents Inc. hopes to get up to speed by opening as many as three franchised Volvo Rents stores by the end of 2006.

The stores rent small to medium-size equipment from Volvo Construction Equipment and other manufacturers to a range of customers-from professionals to do-it-yourselfers.

And Indianapolis has it all.

"Between 2005 and 2008, Indianapolis [construction spending] is projected to grow 5 percent," said Nick Mavrick, Volvo Rents' vice president of global strategy and marketing.

In fact, spending has climbed that much already this year, reaching $4.2 billion by Sept. 30, according to industry publication group McGraw-Hill Construction. More than half was non-residential construction.

Dick Kagy, president of local equipment rental company Airworx Corp., can attest to the growth.

"In the last four years, this is the busiest this market has been," he said.

Kagy said now would be the ideal time for Volvo Rents to enter the market-despite the potential for additional competition. About three dozen outlets already rent construction equipment in the Indianapolis area.

"With this current construction activity, there is a shortage of equipment," he said. "All of our competitors and us included are very highly utilized at the moment."

Volvo Rents hopes to open its first central Indiana location sometime next spring, but it is still actively looking for franchisee candidates.

The company's franchise model offers candidates financing plans to get started. To qualify, franchisees must have a liquid net worth of about $500,000. Loans available through Volvo average $2 million to $4 million per store.

Franchisees pay a $45,000 starter fee that includes software, marketing materials and operating manuals. Mavrick said franchisees should expect to spend $3 million to $4 million on equipment inventory.

Ongoing expenses include royalty fees and national advertising fees.

Kagy isn't worried about Volvo Rents as a potential competitor.

"We have a pretty loyal customer base," he said.

Also, Airworx specializes in renting construction lifts, while Volvo Rents will offer more excavating and ground equipment. And like many local firms, Airworx rents and sells new and used equipment. Volvo Rents will only sell used equipment after a certain period of time or hours of use.

Volvo Rents' Mavrick is confident Indianapolis can support multiple locations.

"Indy accounts for 1 percent of all construction spending in the United States," he said.

Volvo Rents uses McGraw-Hill Construction forecasts to determine the best places to expand its franchise. The company has 67 locations in the United States and Canada and also is expanding in Chicago, Boston and Denver.

After the first Indianapolis store opens and establishes itself in the community, Mavrick said Volvo Rents will look to add more locations.

The future certainly looks promising, considering the $900 million stadium/convention center and other major projects in the works. Still, Volvo Rents expects to find its clientele among the smaller construction and contracting firms.

"We're looking to sort of humbly enter the market," Mavrick said. Volvo Rents locations typically build a small, loyal customer base, he said. "Fifteen percent of customers generate 80 percent of the market," he said. "We're looking to target frequent renters." The company is looking at Marion, Hamilton, Johnson and Boone counties for its first location.

Potential Volvo Rents customer GM Construction spends at least $250,000 renting equipment each year. Company President and CEO Charles Garcia said the current construction market could benefit from more equipment rental outlets, but he expects the market to reach its peak in the next eight to 12 months.

As the construction industry grows in Indianapolis, GM Construction has yet to experience problems finding the rental equipment it needs.

"We are purchasing more of our own equipment to offset that possibility," Garcia said.

GM Construction rents equipment that it does not consistently use, such as backhoes, concrete forms and excavating equipment.

Garcia said his company would consider using Volvo Rents when it opens, but GM Construction likes to support locally based businesses such as Airworx and Sunbelt Rentals.
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