Three Burning Questions, Answered

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

Have you ever wondered what it would be like to sit down with a few of the industry’s top professionals and just ask them whatever was on your mind?

LCT recently went face to face with three of the industry’s most high profile executives — Jonathan Danforth, president and CEO of Boston Coach, Scott Solombrino, president of Dav El Chauffeured Transportation, and Doug Werdebaugh, senior VP of Carey International — who lent their business acumen to answer a few of today’s most pressing questions.

How Does the Housing Market Affect the Industry? Q. Let’s talk about the housing market right now. We keep nibbling around the word “recession” and we’re dealing primarily in the corporate market, so what’s on your mind?

A. Well, what’s on my mind is that Countrywide, the largest mortgage company in the U.S. and a longtime client, laid off 12,000 of its employees (20% of its work force). Those 12,000 people all have homes in northern California and paid a lot of money to have them. Those homes will now go on the market and housing will devaluate. The question is, in the next few months how much of a shoe will drop on Wall Street with the layoffs and the departments that will be eliminated in all of this? How will all of this affect the already weak housing market? Will it spill over to Main Street, where people will start to curtail spending and start to create a stall in the economy?

The issue is not resolved and things are going to get worse before they get better. You know, I’ve been around 30 years and have seen this a couple times in my career. I worry about that because it will definitely affect corporate policy and corporate spending. If it’s not sustainable, and I think that it’s not, I think that we’re on one level and its going to plateau down another level. The question is, how deep will it go? Out of that 12,000 people, 10% of them are chauffeured car users. • SCOTT SOLOMBRINO

I’m more concerned about the effects in what you see in the slowing M&A (mergers and acquisitions) on Wall Street as a result of what is happening in the mortgage industry. Wall Street is going to get away from the mortgage industry because it is too risky right now. What is that going to do with the M&A market? Well, let’s just say it’s what has been driving our economy. We are starting to see that slow now. However, we’re sticking to our knitting and aren’t out sweating things.

That is not the number one thing in our industry that scares me to death right now. What scares me to death is if another airplane flies into a building. It has taken us five or six years to get over that and I don’t think that we are ready for that again. I think that we have to keep in mind what you were talking about, but in general, I think that an airplane would be the worst thing that could happen to us again. • DOUG WERDEBAUGH

The Green Initiative Q. How do you see the green movement affecting the industry? A lot of people are running out and buying hybrids without a real plan.

A. There are a lot of things you have to take into consideration in regards to a carbon neutral strategy. In my view, one E85 vehicle or a biodiesel in your fleet doesn’t make a press release and it doesn’t make a strategy on hybrid initiatives. First and foremost, I think everybody needs to understand when it comes to green initiatives there is no regulation. With the exception of the Bloomberg initiative in New York, there are no requirements in our industry to go by, so we can’t be very reactionary in regards to how we respond to it.

I think Carey’s approach to that has been to stand back and wait and develop a carbon neutral strategy that’s much more than just the vehicle. We are always going to have emissions in our business. The question is, can we contribute to that by developing a carbon neutral strategy that is broader than the vehicle itself? For instance, how many Styrofoam cups does your organization use a day?

We’ve retained the services of a company that is helping us develop a strategy that will not only work toward developing a vehicle plan, but also help us contribute to the environment by offsetting some of the emissions that our business creates. I think that type of approach to the green initiative is more of a well-thought-out approach than throwing a bunch of E85 vehicles in every store, simply to react to what our customers are requiring. They are also asking those questions, as you are all well aware, so for us that strategy is a very broad one. • DOUG WERDEBAUGH

We’ve gone on an education campaign. Having been in the L.A. market since 1972, our studio clients came to us first to suggest what we could do to be in line with a carbon neutral strategy. We tested every major vehicle line out there and came to the conclusion that some of them were nonapplicable to our company, one of them being the Toyota Prius. Our insurance people didn’t like the ratings on it. We didn’t think it was safe and we weren’t convinced it was the right strategy.

The market for the Prius is not consistent. I think we overshot the boundary that we asked for. We have customers in L.A. who use the Prius to do the press release and then get in a full-blown Escalade to go A/D (as directed) for the rest of the day. We think that’s now caught up with everybody. That game is over.

So in our partnership with GM, we came up with another strategy and went to E85 vehicles early on in the game. We are now going on to a new hybrid line that will be coming out soon, the 2008 Escalade hybrid SUV. • SCOTT SOLOMBRINO

Our philosophy is that it’s a real mission for Boston Coach, a very important mission, and it transcends vehicles. It’s much bigger than vehicles. At our affiliate network meeting I presented a sustainable initiative expert to talk about carbon emissions and fuels. The bottom line is that we’ve got to shift the mindset. There are a lot of different initiatives, but it was way bigger than vehicles.

And what we’re doing at Boston Coach, which I think parallels what Doug’s doing, is looking at a real plan. A plan to be able to not just say this is what we’re doing, but actually do it. A grassroots effort is what’s going to make a difference. • JONATHAN DANFORTH

What’s the Big Deal About AVIS’ “WeDriveU” Program? Q. With Avis looking at jumping into our market, people are worried that Hertz and others will follow. What do you think about car rental companies and their push into the chauffeured vehicle market?

A. Car rental has absolutely entered our marketplace. When you look at the gross revenues of these companies, Enterprise does $14 billion, Hertz does $9.5 billion, and Avis does about $6 billion. These companies have had stagnant revenue for years. It’s a business that hasn’t grown because their market has matured and they are all looking at new ways to expand. They see a $2 billion chauffeured car market and see an opportunity because they all have what it takes to be in the industry — vehicles, agreements with auto manufacturers, and massive sales departments. They have agreements with every airline and hotel program in the world, and since they are at every airport in the world, they have the best locations you can find. The key point is that with what they already possess, they don’t need to buy any company to be in our industry — they already have the key ingredients!

My point is that they are going to come. But I also think that they aren’t the only ones. I know that there are airlines that are looking and I know that there are Fortune 10 companies that have called looking for consulting agreements because they want to take all of their transportation in-house now. I believe that trend is out there and that people need to pay attention to it.

Back to AVIS and the other rental car companies. You don’t want to be competing against these companies when they start their chauffeured car wars and attempt to bring the price down to $10 per hour to hack each other to death. • SCOTT SOLOMBRINO

My belief on that is just a little bit counter. I would like to be specific to Avis’s “WeDriveU.” We don’t see anything threatening about it at all. It’s nothing more than just another product offering. You have to look at the business in general.

When you look at the rental car business as compared to the luxury chauffeured car business, we’re just polar opposites. They are in a position where their revenues are down, as Scott said. They’re not like us, which is a highly fragmented business, but rather in an industry where they’re in a consolidation mode. The only way they’ve been growing is by stealing market share from one another. This is just a way to diversify their revenue stream. • DOUG WERDEBAUGH

Q. Don’t you think that this waters down the industry’s premium service?

A. In some ways it does. But I don’t think it will have the impact most people think it will. The two industries are just too far apart. • JONATHAN DANFORTH

Q. They tried this in the 1970s. At that time they just jumped in and jumped back out again. So is this just another example of that?

A. At the time, nobody followed on with it. I’ve had enough conversations with people to get the understanding that they look at chauffeured car as a loss leader to help develop better corporate relationships for rental car revenue. They’re not convinced they have to purchase anybody to do it. They have a lot of looksee’s out there to find that if there’s a market out there, that they’re the ones who can develop it.

I don’t think people realize how much business rental car companies do with corporations that are our clients. Hertz does more than $100 million a year with IBM. If they decide to take the $10 million per year worth of chauffeured car and give it away at 50 cents on the dollar just so they can have it in-house, it would create a price war that, if we tried to compete in, would wipe us out. • SCOTT SOLOMBRINO

For more insight and valuable information, you can purchase the full audio version of “Changing Times, Changing Strategies: A View from the Top,” recorded at the 2007 LCT Eastern Conference, by visiting www.lctmag.com.

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