Operations

Price Wars! Battles That Nobody Wins

Posted on December 1, 1990 by Scott Fletcher, LCT Editor/Publisher

An official count of commercial limousines in the United States is virtually impossible, but we estimate that the total is in the neighborhood of 35,000.If each of these vehicles averages $4500 per month as our annual survey of limousine operators includes... total sales for the industry will exceed $1 5 billion this year. Few other industries can match the growth of this one over the past ten years.

And the use of limousines, sedans, and vans should become increasingly appealing in the ’Nineties as private transportation becomes more expensive and less convenient. At tie same time, price wars are gnawing away at profitability for operators.

In our seven years of monitoring hourly rates for stretch limousines. 1990 is the first year showing no increase! In fact, the average rate for a stretch limousine in our sample dropped from $51 to $50 per hour. Meanwhile, inflation adds a steady 5 percent to overhead each year.

Operators frequently complain to us that they simply can’t make a decant profit in this business anymore. Beyond that, slim profit margins invariably downgrade the level of equipment and service provided to the consumer. Nothing could be much worse for an industry as dependent on referral and repeat business.

An operator from Cincinnati recently told me that he has finally decided to give up his limousine business after ten years of price wars in his area. “Iknew many of my competitors don’t have insurance and don’t operate legally,” he says, “but the public doesn’t care. I used to have a good base of corporate clients, but now they use the gypsies too. And the really stupid thing is that these people don’t make a profit either. They put themselves out of business with their rates as well as everyone else.”

In our opinion, today’s limousine operators cannot afford to operate illegally. And they cannot afford to compete with those who do. We feel there should be more effective enforcement of licensing and insurance requirements in the industry.

We also feel that, although markets differ, your hourly stretch rate should be closer to $55 than $45. For that rate, the consumer should be able to expect reliable service in a vehicle no more than two years old.

With the restated 1990 Lincoln Town Car, new limousines are easily recognized by the public 1990 Cadillacs can also be recognized fairly easily. These vehicles represent the newest and best form of ground transportation available. Let’s set some standards. Let’s end the price wars. Let’s make some money.

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