Industry Research

State of the Industry: A Time To Be Bold

Posted on May 1, 2008 by LCT Staff - Also by this author

This year’s top industry speech started with an understatement and ended with a rallying call.

“We are living in interesting times,” said Scott Solombrino, president and CEO of Dav El Chauffeured Transportation in Boston. “There are all kinds of challenges.” After running through the fi ve key issues facing the chauffeured transportation industry in 2008 — 1) political strife, 2) union threats, 3) a weakening dollar, 4) the green car movement, 5) and rental car competition — Solombrino urged the industry to remain vigilant, competitive, and hopeful. “Unity will help us get through the down economy,” Solombrino said. “Every day there is an opportunity regardless of the news.”

Solombrino drew on his 30 years in the chauffeured transportation industry to put pressing issues into perspective for hundreds of International LCT Show attendees gathered for the opening session on March 17 at the Mandalay Bay Hotel and Casino in Las Vegas.

“We are here to service people who have created wealth for decades,” Solombrino said. So what do we as an industry do when there is a fi nancial calamity? he asked. “We get up and go to work every day. . . We get on the road.” Just as the industry survived the economic downturns of 1981, 1987, 1990-91, 1998, and 2001, it will get through the tumult of 2008, he said. “The issues never go away, and we never go away,” Solombrino said.

So how does the industry move forward? Solombrino asked.

1) Political Pettiness and Strife The chauffeured transportation industry needs to look past the emotional political issues of war and social confl ict, and focus on what’s good for business, Solombrino advised. Since Democrats took control of Congress in early 2007, Washington politicians have been in lockdown mode, unable to pass much legislation or compromise constructively, he said. Meanwhile, government has stagnated while an agitated electorate hungers for change. Into this mix comes an election year.

He referred to all three presidential candidates — Sens. Hillary Clinton, Barack Obama, and John McCain — as “three blind mice.” But Solombrino unleashed his harshest criticisms at the two Democratic contenders.

Clinton and Obama draw strong union support, and likely would follow a Democratic push to do away with secret ballot union elections in the workplace and instead substitute an option for workers to simply sign an authorization card, Solombrino said. “That’s undemocratic, but Democrats are pushing the bill.” An Obama presidency and its accompa nying liberal economic policies of high taxation and spending and class warfare rhetoric would be “a disaster for the chauffeured transportation industry,” Solombrino said. “Oh, you’ll get change all right,” Solombrino said. “The only change you’ll get is at the local grocery store — as you are unemployed.”

Solombrino warned that McCain voted against President Bush’s pivotal 2001 and 2003 tax cuts that helped spur a post-9/11 economic rebound, and said McCain cannot be considered a true conservative Republican. While not enthusiastic about any of the three candidates, Solombrino did offer industry operators a hint: “Remember, you choose the person who does the most for the business and the economy, and the least for the unions.”

2) Unionizing Threats Aggressive unionizing and its crippling attitude of entitlement would seriously hurt the chauffeured transportation industry and its ability to remain a quality premium service, Solombrino said. Although unions are declining and have been losing infl uence and members for years, they still act aggressively where possible, he said.

“Unions have targeted the chauffeured car industry,” Solombrino said. “Many large companies have been going through a union campaign. They get to keep coming back each year. It’s a dangerous movement. If a large company unionizes, others might succumb.”

However, Solombrino said one silver lining may be a stronger labor pool. Whether a Democrat or Republican is elected president, the United States likely will tighten borders as unemployment rises. The chauffeured transportation industry will have a larger and better labor pool to recruit and choose from, he said.

3) Dollar Doldrums Beyond politics, Solombrino stressed the need for a stronger dollar, and called for the economic policies that would bring it about. All commodity prices are tied to the dollar, he said, and if the dollar continues to weaken, causing fi nancial markets to price commodities in the Euro currency, then that would be “a disaster for our economy,” as it would drive the costs of all goods and services much higher, he said. The weaker dollar also has brought more foreign travelers to the U.S., but made travel abroad for Americans more expensive.

4) Grass Getting Greener? Solombrino deftly pointed out the absurdity and the necessity of the green car movement so far. The green car movement gained momentum in 2005 when prominent Hollywood celebrities, activists, and studios wanted to go more green to make a statement, Solombrino said. They talked of carbon credits, offsets, and footprints, while fueling the ascendance of the trendy but tiny Toyota Prius. Solombrino said a “push back” soon emerged from many chauffeured vehicle clients, who would ask to be dropped off and seen getting out of a Prius, but then afterward would want to be picked up in a Cadillac SUV. “The Prius is not good in a crash,” he said. “They were meant to be driven four hours per day, not chauffeured all day.”

Yet despite Hollywood hypocrisy and Prius inadequacies, the Green movement will remain strong, and the chauffeured transportation industry will need to adapt, Solombrino said. Green vehicles eventually will include more models that are hybrid, propane gas, natural gas, and hydrogen, he said. “We all have to get there and we better do it sooner, than later,” he said. “We have to get ahead of this cause, and do what we can do to green our companies.”

5) Rental Car Competition Looms The chauffeured transportation industry reached a watershed last year when Avis invested $120 million in Boston-based Carey International. “They strategically entered our space and they are not leaving,” Solombrino said. “Rental car is here to stay. There are more deals coming. We must battle with mega corporations.”

Solombrino explained that rental car companies want to get into the chauffeured vehicle business because they grew by consolidation and then stagnated. Now they are looking for new markets and investments. The rental car industry has four or fi ve major players constituting a $29 billion market, compared to about $2.5 billion for chauffeured transportation, Solombrino said.

“The rental car industry is not doing well,” said Solombrino, referring to its defl ationary pricing pressures. “They have stagnated. It cost $29.95 a day to rent a car in 1972 and if you can fi nd the right deal, it still costs the same today.”

Rental car companies already retain wide distribution, employee, and infrastructure networks, being able to capitalize on their economies of scale, Solombrino said. “For them to own a chauffeured car component, it gives them an all-in-one-package for Fortune 500 companies,” he said in an interview after the International LCT Show. The rental car companies could potentially discount their chauffeured services to keep their rental car business, he added. The competition could eventually be healthy for the chauffeured transportation industry as long as it continues to innovate and excel with customer service, Solombrino said.

Regardless of what the rental car industry does, chauffeured transportation will still be competitive, Solombrino said. He issued a “call to arms” for operators to run their businesses tighter and more aggressively, and to remain on the offensive. “They can’t smell fear; they can’t smell blood in the water,” he said. “You will compete with excellent customer service.” He concluded: “Chauffeured car will not go away anytime soon. A little recession will not get us down.”

2008 INDUSTRY FACTOIDS The 2008 State of the Industry presentation at the International LCT Show yielded some up-to-date facts about operators and the wider industry. Some highlights:

OPERATORS: WHO ARE YOU? • 80% of you are males. • You are 42 years old. • You have been in this business for more than 11 years. • You have 14 vehicles. • You have 19 employees.

WHAT TYPES OF VEHICLES ARE YOU BUYING? • Last year, you bought 2,450 traditional new limousines. • You also purchased 525 custom conversions. • The total number of new sedans leased or purchased added up to 4,728.

WHAT IS YOUR TYPICAL WORKLOAD? • You process more than 12 reservations per day per reservationists, and average more than 100 trips per vehicle per week.

HOW BIG IS THE LIMOUSINE AND CHAUFFEURED TRANSPORTATION INDUSTRY? • There are 9,400 owners/presidents. • There are 122,000 full-time and 85,000 part-time chauffeurs. • Chauffeured service generates $2.4 billion per year in gross revenues. • There are 131,600 vehicles in service today.

WHERE DOES YOUR REVENUE COME FROM? • Weekday work: 52% of all industry revenue comes from business/corporate travel. • Weekend work: 38% of your money is made doing weddings, proms, leisure travel, and nights out. • Tours and transit work: 10% of gross revenues are being derived from bus tours, paratransit, and funeral work.

WHAT FACTORS ARE HURTING THIS INDUSTRY’S BOTTOM LINE? • Fuel: This time last year, oil was $45 a barrel. Today it’s more than $100. • Labor costs: Overtime laws have changed the face of compensation. Lawsuits are more common and more costly than ever. And what if the industry falls prey to being unionized? • Pricing pressures: Gypsies are on the rise and so is competition for premium service. • Taxation: Everyone tries to make a buck off of small industries, including government. Will the next president hurt or help the chauffeured transportation industry?

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