This classification covers establishments primarily engaged in renting or leasing (except finance leasing) heavy construction equipment, with or without operators. Establishments primarily engaged in financial leasing are classified in SIC 6159: Miscellaneous Business Credit Institutions.
All Other Heavy Construction
Construction, Mining and Forestry Machinery and Equipment Rental and Leasing
The U.S. Census Bureau estimated that the heavy construction equipment rental and leasing firms generated over $18.5 billion in the mid-2000s. The number of establishments in this industry grew from 4,390 in 1988 to 5,790 in 1995, before declining in next ten years to approximately 4,900 establishments as the industry began to feel the effects of consolidation. In the mid-2000s, the heavy construction equipment rental and leasing industry generated approximately $11.2 billion in revenues, had a total average annual payroll of more than $2.8 billion, and employed almost 68,000 individuals.
This industry is concerned only with equipment rental and leasing arrangements that qualify as "operating" leases. Operating leases are generally short-term arrangements that allow contractors to acquire equipment for a fraction of the asset's useful life. "Financing" leases, on the other hand, are longer term arrangements that allow contractors to acquire equipment over a period of steady payments.
Construction contracting companies (lessees) lease or rent heavy equipment from leasing companies (lessors) under the assumption that higher productivity and profits are derived from equipment use, rather than from ownership of the equipment. In other words, companies that lease and rent equipment believe that they can generate greater returns by investing capital in business ventures other than equipment ownership. In contrast, firms that rent or lease equipment to contractors do so under the assumption that they can garner greater returns by investing their resources in, and managing, equipment — not building with the machinery.
One advantage accorded the lessee is flexible terms. Arrangements can be adjusted to the user's unique market conditions, cash flow expectations, equipment needs, and tax situation. Leasing or renting also allows the lessee to defer the risk of losses caused by obsolescence inherent in the purchase of heavy equipment. Furthermore, leasing frees the lessee's capital for investment in other ventures that would normally be consumed by the hefty down payment and debt burden usually required by purchase agreements.
Lessors benefit from the leasing arrangement because they typically have greater expertise in the equipment market than their clients and can more efficiently manage investments in expensive equipment. In most cases, lessors can offer equipment to the lessee for a price that is highly competitive to what the lessee would have to pay if it financed a purchase. Advantages that lessors cultivate include greater bargaining power when purchasing equipment, an increased ability to liquidate used equipment, lower financing costs, and lower equipment maintenance fees. Lessors can also benefit more than many lessees from various tax laws that apply to leasing, such as depreciation allowances.
The principal types of equipment leased and rented by firms included bulldozers, cranes, and earth moving equipment. Earth moving equipment includes a wide range of machinery such as tractors, trenchers, scrapers, graders, and crawlers. Miscellaneous pieces of construction machinery such as tunneling equipment, well drills, loaders, cutters, compactors, excavators, oversized trucks, and portable mixers rounded out the industry's offerings. While some companies owned and leased many types of equipment for various heavy construction activities, other firms specialized in renting equipment for a specific line of work.
The largest manufacturer of the leasing industry's equipment in 2006 was Caterpillar Inc., which was also the largest supplier in the world. Other large manufacturers included Komatsu, CNH Global, Terex Corp., and John Deere. These companies, along with 700 others in the United States, accounted for most equipment sales to leasing companies, as well as 70 percent of all worldwide equipment sales.
The two basic divisions of the market for which leasing companies provided equipment were public and private. Private heavy construction activities included commercial and industrial projects...