Going Global

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

Dave Brodoway has seen the demand for limousines in his native province of Alberta grow to the point where he feels confident in grappling with a Mammoth.

Brodoway added the F650 Craftsman Mammoth – one of the largest limousines worldwide and the largest in Canada – to the fleet of his company, Executive 4Star Limousine, in December because of demand from client groups. “The groups just keep getting bigger and bigger,” Brodoway says. “You could get away with a 60-inch stretch, then 120-inch. . . the Mammoth is 40 feet long, and eight feet tall,” he says of the massive limousine, nicknamed the “Hummer-killer.”

Operators such as Brodoway are examples of how the demand for limousine service — and corporate chauffeured transportation — has steadily grown in nations outside the U.S. While current economic upheavals may spook the industry in the short term, global potential growth presents long-term opportunities for U.S. chauffeured transportation operators and manufacturers.

Brodoway started his limousine service in the town of Lethridge, Alberta (pop. 80,000) in 2000, offering service with a six-passenger 1989 60-inch Lincoln stretch. He now has a fleet of four 140-inch Ford Excursions, one Cadillac Deville sedan, a Chevrolet Venture passenger van, and the Mammoth. Based one hour north of the Montana border, Executive 4Star frequently gets spillover demand from Calgary, two hours away.

“Calgary is a big oil hub of Canada,” Brodoway says. The entrepreneur gets requests from customers including Calgary-based companies asking for his Mammoth. In addition to a growing wedding clientele, his company also must meet demand for high school graduations each spring in Calgary.

International Pavilion Operators such as Brodoway are seeing increased opportunities from growing global wealth and appetites for luxury service abroad. To that end, the International LCT Show 2008 offered a first-ever International Pavilion on the trade show floor during the annual LCT event. It serves as a networking hotspot for American and foreign operators to make connections and possibly either form or enhance global affiliate networks. They also can check out the latest in limousine and livery vehicles on the trade show floor.

Dean De Beer, CEO of TriStar Worldwide Chauffeur Services in the U.K., says the number of international opera- tors attending the show grows each year. “With globalization and the buoyant economy, more people have been coming,” he says. “The global limousine and chauffeured business will grow,” De Beer says. The U.K. market is second only to the U.S. “The U.K. is more attractive because there are no language barriers,” De Beer says.

Outside of the U.K., foreign chauffeured transportation tends to be concentrated in key financial center markets such as Frankfurt and Geneva, where it is an important part of the business culture but not yet to the same extent as the U.S., De Beer says. Other markets ripe with potential include China, India, and the Middle East, “where the economies are absolutely booming,” De Beer says. “Those are the new frontiers.”

The International NLA so far has 103 members, De Beer says. “Business relationships have been increasing,” De Beer says. “We’re seeing the globalization of business travel. U.S. operators need service providers in European countries.”

New Markets and Business Models The quickening pulse of global transactions and deals necessitates more intercontinental business travel, and with that comes more need for chauffeured services, especially in the corporate sector. “As the investment potential flows into these foreign capitals and countries in respect to private investment, we find our customers are asking for more chauffeured ground transportation,” says Richard Kane, president and CEO of International Limousine Service Inc. of Washington, D.C. “Some markets five years ago were not existent.”

The most notable growth has come from China, India, and Dubai, Kane says. The Far East has been increasing more on a percentage basis than anything else, he says. “The challenge for operators is with the dollar; it becomes challenging to your pricing model,” Kane says. “You have to be sensitive and have a plan in place to deal with currency, and how it affects the price quoted and what comes back to you as a bill.”

Kane, who runs the largest chauffeured transportation company based in the nation’s capital, says international reservations comprise about 5% of ILS business. “There is a lot of potential for growth,” Kane says. “Every operator has to be prepared for foreign clients.”

Short-Term Caution, But Long-Term Gain Ahead While the U.S. chauffeured transportation industry and livery manufacturers can remain confident of long-term demand in a growing global economy, they should prepare for some short-term shocks in the global financial system. The Jan. 21 global market meltdown — and subsequent lurches on U.S. equities markets — serve as an example. “With the U.S. economy weakening, international prospects will weaken because American companies cut back,” says Scott Solombrino, president and CEO of Dav El Chauffeured Transportation Network. He spoke recently during a phone interview aboard a coach ride to Boston.

Solombrino says the biggest users of corporate transportation abroad are American corporate travelers. “It has become uniquely American around the world,” he says. A recession or temporary slowdown, coupled with a weakening dollar, could further diminish demand for chauffeured transportation, Solombrino says. “What I think we’re faced with is a major consumer credit crisis seeped into housing and consumer markets,” Solombrino says. “That will affect people’s mental state on how rich someone really feels. That will slow down consumer spending.”

Dav El gets 15% of its business from clients seeking chauffeured travel reservations overseas, Solombrino says. The company is seeing a 30% to 40% drop in foreign reservations by U.S. corporate travelers in the first part of this year, he says. However, some of that drop can be offset by more international visitors doing business in the U.S. “We’re seeing a rise in international travelers coming from abroad to use U.S. chauffeured transportation,” he says. “Now we’re seeing much more aggressive business executives using the chauffeured cars. They have the exchange rate on their side.”

Solombrino advises against American companies actually opening up for business in foreign cities. “These are very closed markets,” he says. “You’re not just showing up in Shanghai and saying I want to take over the market.” He adds, “Every time the local company will win. But Americans have the expertise, knowledge, and understanding that is valuable to a foreign company.”

Solombrino says U.S. operators should look for alliances and affiliate arrangements. “Chauffeured transportation will always be local,” he says. “So you want to take a different approach. You can have great relationships and joint ventures, but you don’t want to be the majority owner of it. You don’t want huge exposure to markets with different standards and rules.” U.S. operators should be cautious in the short term about doing business, “but still recognize the growth potential of these markets when the economy goes straight,” Solombrino says.

Weathering the Storm Music Express, with branches in Los Angeles, San Francisco, Washington, D.C., and New Jersey, so far has been able to maintain its corporate services for clients reserving cars abroad, says Cheryl Berkman, president and CEO of Music Express. “I think there are unbelievable opportunities out there,” Berkman says. “Their dollar is a lot stronger than ours out there.”

Music Express conducts a strong business with affiliates, especially in Asian and European markets. Music Express West connects entertainment industry clients to foreign res ervations each day. So far, that market has remained stable despite volatility on global currency and equities markets, she says. “At this point, it really hasn’t affected us,” Berkman says. “We’re so diverse in our clientele. A few months from now, it might be a different subject.”

Now that the crippling Writers Guild strike in Hollywood is over, Berkman expects overall upward trends to continue with studios and production companies needing ever more chauffeured transportation to accommodate movie and TV shoots abroad, and international corporate deals.

Don’t Ignore the Insurance Richard Kane, president and CEO of International Limousine Service Inc. of Washington, D.C., cautions that a key issue for American companies entering affiliate arrangements with operators overseas is insurance coverage. “Most policies have to be reviewed to make sure you are not exposing your company to a void in coverage because you’re dealing with a client in a foreign country,” Kane says. “You need to get a rider that includes international coverage.”

Kane advises operators to make sure a policy covers general liability and the first part of underlying coverage, which is about $1 million. “Ninety percent of policies only cover North America for underlying,” he says. The NLA has to make sure operators know about the details of insurance liabilities and coverage options. “Every country has different policies and laws,” Kane says. “You really have to be savvy.”

Small operators should refer their occasional international clients to a larger network that is covered, Kane says. “Make sure you do all the homework. You have to explain in writing the scenario that you potentially could be involved with,” Kane says. “Have them respond to you in writing. Be in a position to say you did or did not need the coverage. Communicate in writing to confirm what’s needed.”

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