Rental proves key to delivering a high-quality product

Zink Covell spends $90,000 annually on equipment rental and depends on the expertise of its rental dealers

Rental isn’t an option at Zink Covell Excavating; it’s a vital part of the company’s outsourcing strategy and something it simply can’t do without. To put it another way, Jeff Zink, owner of the utility and earthmoving contractor, says using rental equipment and advice from rental dealers is very much like using subcontractors to cost-effectively deliver a high-quality product.
"You cannot possibly have expertise in all fields," says Zink, "or all the equipment you need at all times to meet all of your needs. There’s always a need to outsource and rely on rental dealers for their knowledge and equipment."
Located near Detroit, Zink Covell specializes in site preparation and underground utility installations for commercial and residential markets. The company also subcontracts street paving work for new housing developments and various municipal projects. Founded in 1997, Zink Covell has 26 employees and realized revenues in 1999 of $6 million. The replacement value of the company’s fleet, which includes excavators, wheel loaders, backhoe loaders, dozers, motor graders and a rock trencher, is approximately $2.6 million. Annual rental equipment expenditures are approximately $90,000.

New directions
The majority of projects Zink Covell handles are in and around Monroe County, Mich., which is experiencing explosive growth as the suburbs of Detroit expand to the south and the suburbs of nearby Toledo drive progress north. Rapid expansion has resulted in prosperity for Zink Covell, and more importantly, new opportunities.
According to Zink, Monroe County has grown to the point that land has become a precious commodity. In fact, land is so scarce, builders have begun to develop areas that were previously considered too difficult. The problem is a large layer of bedrock that stretches across the county. For Zink Covell, working in that bedrock meant finding new ways to excavate, which, in turn, required exploring new machines and methods.
In 1997, Zink began exploring rental options for working in the bedrock. He knew a rock trencher was the obvious answer, but didn’t want to purchase one because bedrock-related work was sporadic at the time. In addition, the work requires a substantial equipment investment, and the company considers the trenchers to be maintenance-intensive.
Once he decided to rent the rock trencher, Zink knew he needed expert advice.
"With a rock trencher, you can make a ton of money, or lose a ton of money," he says. "Fortunately, we’ve got a good relationship with the local Vermeer dealer, and they were instrumental in helping us get started with rental."
Specifically, Vermeer Sales & Service of Findlay, Ohio, helped Zink account for all the costs associated with renting a rock trencher in order to make a profit.
"Not only did they rent us a machine that fit our needs," he says, "they made us feel a lot more comfortable going into these jobs knowing we had everything covered and we weren’t going to lose our shirts."
Eventually, demand for rock trenching grew to the point that Zink decided it was time to talk rental-purchase.
"They gave us a dollar figure to buy out the machine that we couldn’t believe and we decided we couldn’t afford not to own it," he says. "Fortunately, we’ve had work for the machine, and we’ve been able to keep it busy."
Zink says the ability to rent the rock trencher allowed the company to explore new opportunities without over-extending itself financially. It also gave the company a new market niche that keeps crews hopping.
"As far as we’re concerned, rental is more than just filling a need," he says. "We use it to try things out and expand in new directions."

New challenges
While growth opportunities are key, Zink says rental is an integral part of the company’s equipment management strategy, because it allows the firm to overcome a never-ending supply of challenges.
"When you dig into the ground, you encounter new surprises every day," he says. "For example, you’ve got this whole plan about how you’re going to equip the job and then all of a sudden you get some weird weather and ground conditions change."
Zink says unexpected site conditions often require a new approach. There are also times, he says, when weather is not the problem, but the job itself is unique and rental equipment is needed to supplement the firm’s fleet.
For example, Zink Covell recently excavated a hole for a pumping station that had a depth of more than 35 feet. To do the job, the company rented an extendible-boom excavator for digging and a second, large-capacity excavator for picking and placing large trench boxes.
"We never know what to expect in this business," he says. "Rental allows us to adapt our equipment fleet as we go. There is no other way we could do it."
Rental is also ideal for equipment that is not used often enough to warrant purchasing. Vibratory compactors are a typical example of low-utilization equipment at Zink Covell. The company’s decision to rent rather than own vibratory compactors is heavily influenced by the availability of quality rental machines.
"If they weren’t readily available for rent, we would almost be forced to buy them," says Zink. "It’s much more cost-effective to rent them when you only need them three or four times a year."

Green-grass test
Like other contractors, Zink Covell uses rental to sample various types and brands of equipment. But Zink says rental affords the company much more than an opportunity to kick the tires. Specifically, he says it provides a litmus test that helps the firm determine whether the grass is greener on the other side.
"There are always times," he says, "when contractors ask themselves, ‘Where are we going next?’ In fact, we’ve rented equipment more than once and said, ‘Boy, owning that machine will really help us diversify.’ Then, after we get the equipment, we find out it’s not a fit at all because it’s maintenance-intensive or the operator’s learning curve is too steep. Sometimes you have to rent a piece of equipment just to find out you want nothing to do with it."
At Zink Covell, the fleet acquisition strategy is to purchase used equipment that is under warranty, rather than buying new. As such, the demos that are traditionally offered to companies that purchase new equipment are few and far between.
"We don’t have companies lining up at our doorstep and asking us to take a free test drive," says Zink. "And that’s fair. Could you imagine a used car dealer telling customers to take a car home for a month and let them know what they thought of it when they bring it back?"
Instead, renting equipment for extended periods allows the company to test a machine’s capabilities.
"By renting," says Zink, "you’re able to find out a lot more about what a machine can and can’t do. The conditions on the job may change and maybe you’ll find that you need a 20-ton machine and not a 15-ton machine that you thought would work fine."
Zink also rents to allow the company to weigh all of the owning and operating costs for a piece of equipment before purchasing.
"One thing we do here is take a hard look at the total cost of owning that machine," he says. "We consider the maintenance and the insurance that goes along with owning it. Sometimes, when we do the math, we find we’re better off renting."
Zink Covell uses rental-purchase options and has used the option to acquire virtually all of its fleet. According to Zink, the rental-
purchase deals available today are too good to pass up.
"We have such a good relationship with our rental dealers," he says. "Sometimes we get the entire rental cost applied to the purchase price."
Zink says the company is fortunate to be in a highly competitive rental marketplace, which keeps rental rates down and makes rental-purchase options all the more attractive. The typical rental-purchase option in his area is 80-20 — 80 percent of the rental cost applied to the purchase price. However, Zink Covell often secures a rental-purchase with a 90-10 ratio.
"Our philosophy is not to try to twist the rental dealer’s arm to get the best possible deal," he says. "We know they’re in business to make a profit, and there’s nothing wrong with that. What we’re more concerned about is having a good working relationship."
Zink Covell rents trenchers from Vermeer Sales & Service, while its other equipment rentals are through Buck & Knobby Equipment, the local John Deere dealer. For smaller equipment, including generators and pumps, the firm rents from United Rentals.

Service outweighs price
While Zink appreciates attractive rental rates and rental-purchase options, he says good dealer service outweighs both.
"Our philosophy," he says, "is that everyone inside and outside Zink Covell is a partner, and if we all work together, we’ll come out ahead in the long run. We don’t just rent equipment; the dealers we have a relationship with provide a level of expertise that complements our staff."
The company relies on rental dealers to provide answers to questions about safety, capacities, production and maintenance, among others.
"There’s no doubt in my mind that there is much more attention paid to contractors during a rental process than in a sales situation," he says. "The rental dealer is selling a service, and the service has to be excellent, because the market is so highly competitive."
Zink has found relationships are what separate one rental dealer from another, and special attention is given to contractors who are considered repeat rental customers.
"I believe preferential treatment still exists," he says. "There’s a big difference between, ‘Yeah, we have the machine for rent. You can come and get it any time,’ and ‘Yeah, we have one for rent. We’ll throw it in the back of the truck and have it to you in a few minutes.’ How can you place a value on that, especially when you have a crew down? I can think of more than once when our rental dealer got us out of a jam."

Conservative approach
Heading into next year, Zink Covell plans to maintain a wait-and-see approach. According to Zink, the future looks solid for the company, but all indications are that things may slow from a record-setting pace to a healthy pace.
Zink says the company is comfortable with slow, steady growth, and there are no immediate plans to alter that course. Yet, at the same time, the company is always looking for new opportunities.
"Directional boring is something I think we might begin to look at," he says. "That would be the next logical step for us. And when we do, we expect to be renting the equipment and relying on the expertise of our dealers."

-- Mike Grennier