The rental boom has made manufacturers more reliant on large-scale capital expenditures, forcing them to dig deeper to find contractor business. Volvo Rents, for example, has been on an aggressive buying spree since mid-April 2011, when the company decided to run company-owned stores in addition to its franchise network. The subsidiary has been broadening its geographic footprint ever since, snapping up mom-and-pop businesses at a dizzying pace.

Still, manufacturer-branded rental franchises, such as Caterpillar, Volvo and Komatsu, often "are less about competing than trying to fill the demand to be a one-stop shop for customers," according to Adam Fleck, an associate research director with Morningstar Inc. "It's more of a pull than a push model. A used car eventually leads to new purchases, with better trade-in opportunities. It makes sense to keep those customers within your eco-system," he added.

Others in the rental business are also facing a bright future, with total industry revenue expected to hit $53.1 billion by 2016, ARA says. There will be 13,975 domestic construction equipment rental locations by year's end, or 145 more than in 2011, adds Manfredi. Rental locations will each generate over $2 million in revenue this year, he notes, which is nearly $200,000 per store more than in 2011.

Opportunity for Market Penetration

"There is a real opportunity for rental businesses in this industry to gain further market penetration by aggressively selling the value of equipment rental at this point in the economic recovery," says Christine Wehrman, ARA executive vice president and CEO. "[We] solve immediate issues when people are dealing with capital availability and downsizing of owned fleet due to economic reasons."

Credit is a huge factor that plays into the rent-or-buy decision, experts say. In some cases, "a contractor may be receptive to making an equipment purchase, but because of financial stresses from prior-year losses, they may not qualify for traditional financing," explains Sidney Sexson, senior vice president at Wells Fargo Equipment Finance.

Rentals also bypass otherwise pricey retrofits needed for new emissions compliance, as federal, state and local authorities require clean diesels and other eco-friendly machinery. Later-engined machines falling under the Tier 4 federal emission standards "cost roughly 10% to 15% more than earlier model-year counterparts," Sexson adds. "Being new on the market, there is a general apprehension as to how well they will perform."

Renting can shield contractors from downtime. Although equipment rentals are only 1% to 3% of a project's total cost, a non-functioning machine can cripple a job, Kneeland says. Contractors are gladly shifting that downtime risk to rental companies that can ensure round-the-clock service for non-stop operation.

"We tend to rent specialized pieces of machinery because maximum utilization is so important for cost-effective management. It also gives us a chance to try out new equipment before buying to see if it's a good fit," says Paddy Murphy, general manager for Aggregate Industries' Southwest region. "We sold $10 million of equipment in the last six months due to low utilization and the cost of ownership."

Meanwhile, the value of good-quality used iron has shot up, encouraging contractors to liquidate. Struggling to keep machines busy, fleet owners have sold assets as international demand and a weak dollar combined for lucrative paydays. Late-model earthmoving machines—such as backhoes, dozers and wheel loaders—have been in high demand overseas as manufacturers curtailed production during the recession, auctioneers say.