Industry Research

The Limo Industry’s TOP 20 Issues in 2003

Posted on May 1, 2003 by LCT Staff - Also by this author

The chauffeured transportation industry faces in 2003, as it has in years past, a variety of daunting challenges. From obvious, in-your-face factors like the economy, insurance and fuel costs, to long-standing concerns like rate integrity, interstate commerce and airport issues, operators have much to deal with as they go about their daily business.

The following are the top 20 issues facing the industry, as determined by LCT and members of its Editorial Advisory Board.

1. The Economic Climate
It would be impossible to start a list of industry issues in 2003 without addressing the economy and how it has affected chauffeured transportation providers.

The business travel industry is facing tough times as corporations stick to tighter budgets and use technologies like video conferencing to cut back on travel expenses. The airlines, since the events of Sept. 11, have experienced at least a 20% drop in sales. This, in turn, has directly affected operators whose primary source of business is airport runs. In addition, the losses in the stock market have been unwelcome news in an industry that closely parallels the Wall Street’s ups and downs.

Analysts have mixed opinions about when the stock market will once again show consistent gains instead of persistent losses. Accounting scandals, questions about corporate ethics and the war on terrorism helped to deflate a market that only two years ago seemed poised to reach highs never thought possible. Weak unemployment numbers are further keeping investors jittery.

On a global level, declines are reported to be in the trillions of dollars as many stocks continue to trade at price levels not seen in at least a decade. Investors continue to wait for the proverbial “next shoe” to drop. Recovery, it seems, will be slow, with the full impact of the recent war in Iraq only adding to the uncertainty.

2. Insurance Woes
Everyone’s favorite topic, insurance, is unquestionably one of the biggest issues of this or any year for this industry. Rates for most operators have risen between 20% to 150% or more during the past two years and are expected to get worse before they get better, according to some insurance agents.

The insurance carriers, suffering from investments gone bad, insurance fraud issues and savage losses from unsafe drivers, are bailing like rats over the side of a sinking ship, and operators are left with few choices, except to pay huge premiums. Those that are sticking around are trying to recoup lost earnings and get back on their feet by raising rates across the board and taking out their woes on even the safest of operators. One limousine operator in New York, with only one loss for approximately $10,000 in the past five years, saw his insurance rates double overnight.

Some of the industry’s associations, such as the Limousine Associations of New Jersey, are looking at developing a self-insurance program. But this requires a huge amount of capital and there’s no simple formula for making it happen.

3. The Cost of Fuel
A very close third to insurance in importance, rising fuel costs are causing a lot of trouble for operators who are already counting every penny. Some operators are adding fuel surcharges to their clients’ bills (see page 16); driving slower and more carefully also helps. But the impact has been devastating.

Associations are seeking out bulk-buying opportunities and smart operators are trying to develop discount programs with local gas stations. But it’s not easy to bounce back from a major expense that operators simply have no way of avoiding.

4. Technological Innovations
Whether it’s a next generation computer program with seamless online reservations, dispatching and accounting features that better connect you with your clients, a new, Internet-capable wireless phone, or GPS vehicle tracking or flight tracking, technology continues to have a major impact on the chauffeured transportation industry. Improved efficiency is an obvious benefit, but with each new technology comes new possibilities for better customer service as well.

5. Airport Security & Parking
Construction projects were once operators’ biggest complaint about airports. But these days the focus is on government-imposed security measures and the lack of convenient parking and access to terminals created by them.

Many of the nation’s local limousine associations were formed expressly to deal with airport issues; others have developed airport committees, communicating on a regular basis with airport officials.

But even for the associations with airport committees, it never seems enough. Many operators have been forced to step up their meet-and-greet programs or risk losing business. Unfortunately, when clients have to walk a half-mile (or more) to their vehicles with bags in tow, it forces them to ask, “Isn’t there an easier, more economical, better way to do this?”

6. Driver Safety
With insurance rates where they’re at, chauffeur training has rightfully so become a major issue. Whether it’s defensive driving classes, daily reminders that keep safety on the minds of chauffeurs, or a dispatcher who vigilantly makes sure no one spends too many hours on the road, driver safety is too important an element in the operation of a successful limousine company to leave to default.

Some operators use veteran chauffeurs to develop in-house programs; other companies use National Safety Council-based programs or hire specialists in the field. Still others are using technologies – such as a miniature video system that’s triggered by erratic driving or an impact, recording everything the drivers sees – to monitor chauffeurs.

7. Operator Consolidation
As the industry struggles against a faltering economy, a growing number of companies are merging with competitors or being bought out and folded into other companies. By consolidating staff, fleet and client base, these operations are finding relief from strangling bills, and some of the owners are actually making a profit again. Some of the stronger companies, which are buying out other operators one after the other, may be seen by some as vultures. But they actually turn out to be saviors to someone who has run out of choices. The difference between being carrion and a partner is a solid, fair contract.

8. QVM/CMC Compliance
Even as much of the industry has tried to shy away from superstretches that are not built to Lincoln or Cadillac’s specifics due to potential safety issues, consumer interest hasn’t seemed to wane.

It seems that most industry associations, the majority of the industry’s largest operators and many of the top coachbuilders want nothing to do with these massive, freakish automotive monstrosities, but whenever the limousine industry is profiled – on the History Channel (see page 60) or MTV, for instance – the hot tub and water bed equipped, tandem-axel limousines steal the show.

Lincoln has responded by adding new vehicle options and crash testing longer limousines, New York’s Taxi & Limousine Commission passed a law banning them and federal regulators have promised to do further research. All the attention has forced the non-QVM/CMC manufacturers to build safer cars. But are they doing enough? The controversy continues.

9. Price Wars
The cost of doing business has increased dramatically during the past decade, but operators do not seem to be charging accordingly to make up for it. This is causing profit margins to dwindle, often to depressing proportions.

To make things even worse, rate integrity continues to be a major issue. Unfortunately, this issue will probably never go away in an industry that is sensitive to bargain-hunting clients and that has such massive turnover every year. Why? When a new limousine company is started, it can take quite a while before the owner realizes he is losing money every week.

In the meantime, these people threaten every operator around them as they undercut prices to get any work they can to keep their vehicles rolling. No operator is able to maintain 100% bulletproof pricing all of the time, but successful operators agree you have to make a profit.

If you can create greater efficiency and reduce operating costs, it sometimes makes sense to lower rates to pick up work – but before you drop your rates again, check your profit margins. The fact is if you can’t make money, you’re better off getting a job at the local drug store.

10. The Internet
Even in this day and age, there are still plenty of operators — and we’re talking about some pretty successful people — who don’t know how to attach a file to an e-mail. There is no denying the importance of the Internet, and its significance will only grow as faster connection speeds allow for richer Web sites and improved online commerce.

It won’t be long before even the smallest operator has a Web site. More than ever, it’s becoming a strange balancing act of keeping up with the Joneses and differentiating yourself from your competition. Is your site professional looking, easy to navigate and drawing people to your company? It had better be.

11. Operator Networks
Are the major international networks a positive influence on the industry? Most highly successful operators lean on one or more of the networks, in one way or another, to service their own clients in other cities.

A lot of smaller networks have also been popping up in recent years, sometimes piggy-backing on the bigger networks until they can build a strong enough group of affiliates to go it alone. Regardless of your opinion, it seems inevitable that more and more companies will join the networks.

12. Security
With the fear of terrorism looming and the world political climate in its current state, it’s no wonder that people are concerned about security issues. Operators nationwide are responding by launching new security-based divisions, and Lincoln is introducing a factory-built armored car this summer, so it’s obviously an important trend. From movie stars, pop artists and foreign dignitaries to corporate executives, the rich and famous want to be safe and are willing to pay big bucks for security.

13. The Gas Guzzler Tax
Probably the single longest- running battle the industry has been facing in Washington, the Gas Guzzler Tax just doesn’t seem to want to go away. Experts have been brought in, tenacious lobbyists have hounded countless politicians, operators and coachbuilders have rallied together, lost focus and re-aligned themselves. The argument is solid: Limousines should not face a gas-guzzler tax; they carry multiple passengers and therefore actually get better gas mileage on a per-person basis than most regular cars carrying one driver. And yet, here it is, still. Well, maybe later this year … or next.

14. Interstate Commerce

Possibly the most significant national law ever passed through the efforts of the limousine industry, HR2546, the Real Interstate Drivers Equity Act was signed into law by President Bush last autumn.

HR2546 prohibits states, other than a home licensing state, from requiring fees on vehicles that provide prearranged interstate transportation service.

Some areas of the country are still trying to come to grips with how operators crossing state or county lines should be regulated, but the law has offered a great deal of relief and has had a major impact.

15. Safety Legislation
In cities and states around the country, legislation that is meant to raise the bar for safety in the chauffeured transportation industry is being fought for and passed. Unfortunately, people’s assessments on what is and isn’t safe can differ, especially when these changes can affect the cost of doing business.

However, proper insurance minimums, mandatory drug testing and background checks, regimented chauffeur training, and the elimination of un- or under-licensed operators all seem to be part of what the majority of the industry is striving for.

16. Professional Stature
The chauffeured transportation industry finally has significant representation in Washington.

The number of weekend warriors who do only wedding and prom work seem to be shrinking by the year – even smaller operators are seeing the necessity of keeping vehicles moving all week long by going corporate. If going corporate has forced a lot of operators to mature and develop better habits as business owners, it’s certainly a positive result.

17. The New York TLC
With HR2546 passed, things have never been better between the New York’s TLC and operators in surrounding areas, including New Jersey, Connecticut and counties in New York state.

Of course, nothing good ever happens quickly enough. But just the same, lines of communication remain open and most people at least seem to be using the same book, even if they’re not all on the same page.

Associations seeking Tier One Base Licensing – which allows point-to-point pickups and drop offs within New York – are having a difficult time, but negotiations continue and hopes remain strong.

TLC Commissioner Matthew Daus still hasn’t figured out how to enforce his law against the city’s non-QVM/CMC superstretches (enacted last summer), but no one expected that to be an easy task.

18. Fleet Diversification
What was once called the limousine industry is now better described as the chauffeured or luxury transportation industry. For most operators, limousines are only one segment of their fleets, which now include sedans, vans, SUVs, minibuses and full-size coaches. Many of these vehicles allows operators to maintain a high level of elegance while remaining flexible for different tastes and needs.

19. Expanded Services

To make up for lost revenue and to offer clients a one-stop shop, many operators are broadening the scope of the services they provide. For many of the larger operators, the biggest trend has been the expansion of airport meet-and-greet programs that tie into transportation coordination for large events. However, even smaller operators are examining their operations and looking for ways to keep their vehicles rolling.

Corporate-based businesses are seeking out more retail work and vice versa. Still others are looking to make the best of seasonal booms and holidays. Smart operators keep an ear to the ground and learn about activities and venues in their local areas that could generate additional business.

20. Sales Tax Exemption
Ever since the Limousine Association of New Jersey was able to get an exemption from paying sales tax on the purchase, lease, rental and repair parts of limousines in June of 2001 for operators in the Garden State, other organizations have been trying to do the same.

The LANJ had good timing and tapped into the resources of some of the industry’s biggest operators. Unfortunately, it’s probably not likely any other association will have similar luck at a time when state and local governments are facing severe budget setbacks and are unlikely to consider any new tax breaks.

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