There is one metric that controls everything in the equipment rental business, and that is utilization. It leads fleet managers, influences quarterly reports, and is considered the most important measure of business performance. The logic behind this is simple if a piece of equipment is rented out, it’s making money. If it’s idle outside, it’s consuming part of your budget. But what if that belief is misleading?
Imagine if your most popular machine, the skid steer that has not been in the yard for more than a day in half a year, was the one causing the most damage to your profit? This scenario is called the zombie asset paradox, where such units are mistakenly seen as profitable due to their constant rental, but in the actual sense, they are quietly killing your profits.
The Illusion of “Busy”
To get real insight into zombie assets, it is necessary to diagnose more than just rental frequency. Say we have a 3-ton machine, e.g., loader number 101. The customers are very satisfied with it. It is always rented, and the report about your utilization reveals a remarkable 85% use of time. Unit 101 appears like a champion at first sight on paper. But busyness does not guarantee profitability.
The engine hours of this machine are piling up fast due to its continuous operation. This quickly brings it to a major maintenance cycle. But, since there is still great demand, your maintenance team may postpone the planned preventive maintenance PM to accommodate just one more rental.
Here is the point at which the figures become risky. The depreciation of old, heavily used machines does not rise slowly, it rises sharply. The price of spare parts for a unit that has worked for 5,000 hours is significantly higher than for one that has done only 1,000 hours. Also, the chance of a major breakdown rises significantly. Eventually, Unit 101 breaks down at a job site. Now your company is responsible for:
- Emergency repair in the field has higher labor travel costs
- Renting a replacement unit from a competitor to satisfy your client
- Losing credibility, customers remember downtime, not months of smooth service
When you subtract these hidden costs from the revenue it generated, you may discover that you essentially paid the customer to use your equipment.
The Data Gap: Financial vs. Physical
Zombie assets are a result of the fact that financial data and operational data very seldom communicate with each other. The majority of leasing firms have the accounting system monitoring the revenue, while the maintenance system records the costs without any regular synchronization.
- Finance sees that Unit 101 brought in $4,000 last month.
- Maintenance sees that Unit 101 requires $2,500 worth of repairs.
- But if these numbers aren’t combined immediately, nobody sees how thin the profit actually is.
And another large blind spot, the replacement cost. If the price of Unit 101 five years ago was $50,000, your ROI model might still be using that figure. But today’s replacement machine might cost $75,000 as a result of inflation and stricter engine regulations. Your rental rates being the same, your high-use machines are consuming themselves quicker than they can earn for their next replacement. In other words, you are losing your equipment at a rate that your budget for replacements can’t keep up with.
Hunting the Zombies
How then can you identify a zombie asset before it depletes your earnings? It is necessary to move from time utilization to dollar utilization and full lifetime costing. This involves examining each asset separately, not by group but by serial number. The total cost of ownership TCO that you have should cover:
- Purchase price financing
- All repair and maintenance expenses
- Depreciation
- Insurance and yard storage
- Transportation and delivery efficiency
When you map TCO against total revenue for each unit, you’ll likely see a curve. On the left are under-used machines. But on the far right, among your top performers, you’ll find the zombies, the units where the TCO quietly surpassed the revenue.
The Fix: Dynamic Rotation and Rate Engineering
Once you identify a zombie asset, you have two paths restore it or remove it. Curing a zombie usually entails giving it an enforced break. The major maintenance that has been accumulating, and that is intended for restoring its reliability and slowing down the continuous degradation may cause you to temporarily take it off the rent. On the other hand, a different tactic is dynamic pricing. When Unit 101 is experiencing a very high demand, then it would be unreasonable to rent it out at the same price as the other units, which are not being occupied. The rate hike thus not only culls the base but also enriches the profit.
Killing a zombie means selling it. Offloading the asset while it still has strong resale value can prevent deeper financial losses.
Conclusion
The margins in the rental business have become very small. Instinct or simple utilization numbers are not sufficient anymore. A full, unified view of each asset, financially and physically, is necessary for success. Therefore, rental companies going for the modern edge rely on the latest equipment rental software. Not just for contract generation, it includes all costs, all hours, and all dollars in one single source of truth. Nowadays, a company that is not using its assets effectively is a company that is surviving because of luck.