Judging by some of the numbers revealed in the seventh annual Limousine & Chauffeur Operators Survey, that theory is already affecting both operators and coachbuilders in this $2 billion a year industry. The signs are there; annual stretch limousine sales are down 21 percent from last year; the number of commercial limousines on the road has leveled off; for the first time in five years there wasn’t any growth in the number of livery services; and the average hourly rate for a stretch limousine dropped – all harbingers of an increasingly competitive industry.
The industry continues to mature. For the first time in five years, there was not a significant increase in the number of new livery services in North America. Many entrepreneurs are finding out that running a successful livery service requires dedication and commitment.
The majority of livery operators are involved in the day-to-day operation of their business. In fact, nine out of ten respondents to the survey list themselves as the owner of the company.
Limousine operators themselves are an extremely diverse group. Nearly one in three operators (32 percent) runs another business in addition to the livery enterprise. Some of the more interesting secondary endeavors include automobile repair, taxi service, landscaping, funeral home ownership, gun dealing, wedding chapel ownership, car sales, car rental, cleaning, radio station operation, messenger service, and parking service.
Operators are becoming aware of the advantages of working out of their homes. For the first time, this year’s survey tried to determine how widespread home offices are in the industry. The survey revealed that 50 percent of operators work out of their homes. This figure also sheds light on the average size of limousine fleets, which remain predominantly small.
According to data derived from the Limousine & Chauffeur subscription list, 76 percent of operators have fewer than live vehicles in their fleet. Operators with six to 10 vehicles make up 14 percent of the industry; 6 percent of operators have 11 to 24 cars, and only 4 percent run large fleets with more than 25 vehicles. A typical operator has twice as many stretches as sedans, and very few formals of vans in his fleet.
The same trend holds true for van and bus fleets. Many operators realize the advantages of diversifying their fleet to include not only stretches and sedans but also vans and buses. Of the operators who utilize vans, 85 percent operate less than five buses; 8 percent operate six to 10 vans; 4 percent run 11 to 24 vans, and 3 percent have more than 25 vans.
Two out of every three operators (67 percent) own their vehicles while the remaining third leases cars. Companies that lease limousines tend to have large fleets of about six vehicles.
Limousine fleets are aging rapidly. Currently, the average limousine on the road today is approximately 2.3 years old. Only 35 percent of limousines are less than two years old-this is compared to 48 percent last year and more than 60 percent in the 1988 survey. Just over half (51 percent) of today’s fleet is between two and five years old.
Many operators have dwindling profit margins because they have lowered their hourly rates in order to stay competitive. The result is they have less capital available to update their fleets. More than two-thirds-69 percent to be exact-of operators keep their limousines for two to five years. Moreover, 13 percent keep vehicles for five to seven years. Only 15 percent of operators replace their cars in less than two years. Again, in the 1988 survey, 50 percent of operators reported they rolled over their fleets every two years.
When a client hires a limousine he expects to get a clean, new vehicle. However, the trend in the industry is toward older vehicles, and operators unable to modernize their fleets may lose business. “My clients get bored with the same limousines,” says one operator. “I’ve got to constantly update my fleet in order keep that business.”
A clear indication that operators are increasing their efficiency is a jump in the average annual miles per vehicle. Operators report that limousines stack up 41,375 miles per year, compared to 38,600 miles last year.
Operators are also squeezing more runs out of their vehicles. This year, the average limousine went on 43.7 trips a month. This is compared to 41.6 trips per month during 1988. Finally, even though their fleets are aging, 79 percent of operators allow their clients to smoke in the limousine.
Making a Profit
One shocking statistic in this year’s survey is that the average hourly rate for a stretch limousine decreased to $50 from $51. The rate, which has steadily increased for the past five years, is a key indicator of the industry’s health. This year’s decrease shows that operators are lowering their rate-and their profit margin-in order to get runs. Numerous operators have stated that illegal operators and decreasing business have been the catalyst for this drop.
Meanwhile, sedan rates remained steady around $37 per hour. There was a jump in formal limousine hourly rates to $43 per hour from $41 last year.
The average gross monthly income per car is currently $4,521 according to the survey. With approximately 35,000 commercial limousines on the road today, that means the livery business is nearly a $2 billion industry annually.
“My business is growing,” says one 25-car operator in New York, “but the small one-and two-car operators cannot make it today. Especially if they are operating legally with the proper licensing and insurance.”
This is especially true it small operators are not able to build a strong corporate base. Currently, operators claim that 44 percent of their business is corporate in nature-an increase from 36 percent last year. This market is reliable and steady. Meanwhile, operators report that 10 percent of their business is derived from hotel/resort clients. Three out of every four respondents offer a preferred rate to special customers.
A large part of every livery operator’s budget is dedicated to an extensive vehicle insurance policy. The average operator carries $1 million in liability insurance with a $1,200 deductible. Insurance remains a problem among operators-85 percent of the operators responded they are interested in an economical group insurance plan. Operators also report that 13 percent of their budget is spent on marketing.
One way operators today are increasing efficiency is through computerization. Among the respondents, 56 percent said they now use computers in their business. Of those who are utilizing computers, nearly half (46 percent) use the computer to manage their payroll. Forty percent use it for billing purposes; 37 percent for reservations; 25 percent to tract maintenance, and 22 percent to handle trip tickets for the chauffeurs.
The training and management of chauffeurs will always be a vital part of the livery business. According to the survey, the average company utilizes nearly twice as many part-time chauffeurs (11) as full-time (six). This is a common thread in the business-many operators have only a few limousines and therefore only need a part-time chauffeur to fill in occasionally. Operators realize that the position of chauffeur is not a career job for many; consequently, turnover is high.
Locating dedicated chauffeurs can be a problem; and once they are found training them is even more difficult. Many operators prefer having new chauffeurs who have not worked previously for another company. This way, they can teach a chauffeur who doesn’t. Fully, 62 percent of the survey respondents have their chauffeurs participate in a training program. Also, 52 percent of the respondents provide their drivers with a training manual.
One of the most debated issues in the industry is whether to treat you chauffeurs as employees or independent contractors. Currently, the National Limousine Association is battling with the IRS to gain an “industry exempt” status that would allow operators to treat their drivers as independent contractors. The NLA has conducted studies in Atlanta, Chicago, and Massachusetts and determined that the majority of operators treat their chauffeurs as independent contractors, which is less expensive and less cumbersome for operators. The IRS has not yet made a decision. Meanwhile, in some states such as Arizona and Hawaii, every operator is required to treat chauffeurs as employees. The respondents to the survey indicate that 54 percent of them utilize employees while 46 percent use an independent contractor arrangement.
Chauffeuring continues to be a mate-dominated profession. Some operators indicate their corporate clientele will not use female drivers because they are embarrassed by having a woman open the car door for them. Nearly half (48 percent) of all respondents do not have any female chauffeurs. Of the companies that do have women behind the wheel, only 6 percent of the drivers are female.
According to the survey, the average chauffeur is paid $7.52 per hour, plus gratuity. Chauffeurs who are classified as employees also must be offered overtime in many states. Also, the state of California recently enacted legislation requiring all chauffeurs, regardless of classification, be covered by worker’s compensation. (See Association News in this issue.)
More than half of the respondents (51 percent) sometimes include the chauffeur’s gratuity in the bill. About 37 percent always include the tip in the final bill, white 12 percent never include the tip, believing that the inclusion may reduce the chauffeur’s performance.
Statistics presented in the Operator Survey are estimates derived from a mass mailing to operators on the Limousine & Chauffeur subscription list and distribution of the survey at the Limousine & Chauffeur Show in Las Vegas.