Operations

Acquiring Vehicles In a Recovering Market

Posted on July 12, 2013 by

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It’s been a long, difficult path back to where the vehicle leasing and purchasing market stands today for the chauffeured transportation industry. Since the economy tanked in 2008, operators have been running their fleets longer and harder than ever. Now that the economy is turning around and stabilizing, the cash flow has loosened a bit and provides operators with opportunities to freshen up their vehicles.

During the tough times, the strong operators reduced their fleets to a more manageable size, while weaker operators went out of business, says Don Coolbaugh, vice president of sales of Advantage Funding. So did manufacturers and dealers. “Everybody pretty much ran their equipment for as long as they could,” he says. “There were no new equipment purchases and everyone was going for used equipment.”

But this industry has one of the quickest turnover rates for vehicles. Since the fleet is actually the essence of the company, it’s important that they be as pristine and comfortable as possible for clients. “There is only so long [operators] can sit on their hands. Now you have all this equipment with up to 400,000 miles on it, and they need to replace them,” Coolbaugh says.

As the banks have loosened their lending practices, vehicles are starting to move again towards chauffeured transportation. Interest rates are hitting all-time lows for commercial operators, says Bill Cunningham, general sales manager of Acton Fleet Sales/SoCal Penske Professional Vehicles. “The rates right now are phenomenal. People with good credit can borrow money in the threes.”

Credit is available for people if they qualify, says Jared Zimlin, business development director of Priority One Financial Services. “The only hangover, if you will, from the recession is that if you had a company that had trouble in the past and they’re trying to get back on their feet again, they are having a tougher time,” he says. “They’re looked at like startups again, so there is still that barrier for that kind of customer.”

Types of Vehicles

As operators move to replenish fleets with new vehicles, they’re finding that the landscape of available transportation vehicles has shifted from pre-recession days. Priority One Financial is making its foray into the chauffeured transportation industry from a background in financing RVs, boats, and trailers for commercial use. “We seem to be getting more shuttle buses and Sprinter vans,” says Zimlin, who noted that their typical client operates a smaller fleet with one or two vehicles.

Bill Cunningham, general manager of East Coast operations for Acton Fleet Sales/So Cal Penske Professional Vehicles, has been financing cars in the chauffeured transportation industry for 24 years, and is meeting the demands of this new growth stage in vehicle financing.

Bill Cunningham, general manager of East Coast operations for Acton Fleet Sales/So Cal Penske Professional Vehicles, has been financing cars in the chauffeured transportation industry for 24 years, and is meeting the demands of this new growth stage in vehicle financing.

“Equipment changes have been a drastic change,” Coolbaugh adds. “It really is interesting to see what type of vehicle operators are going to purchase as we move into this expansion phase. Will it be the MKT or will a new manufacturer take the lead?” With the retirement of the Lincoln Town Car sedan, companies such as Toyota, BMW, and Mercedes-Benz have released models that are vying for market share.

The market is calling for more SUV-type vehicles, along with the rise of corporate transportation vehicles such as Sprinter vans and motorcoaches. Yet industry standards are still doing well, not just in vehicle quality but in available financing as well.

“I’ve been doing this for 24 years, and right now you’re getting the best out of Ford and General Motors,” Cunningham says. “We’re not losing people like we were. There are a lot of operators who have some credit, and they also have a little money to put down if needed.”

Creative Financing

The vehicle turnover rate for an average operator is about three years and four months, so new cars are frequently needed. Kenneth Schapiro of AAA Worldwide Transportation in Clinton, N.J., says his company adheres to a three-year limit on vehicles. The vehicles can get up to 200,000 miles in this time, so to keep providing customers with the high-quality experience AAA prides itself in, the company sells the cars after three years and then re-ups.

Schapiro’s company opts to purchase its vehicles over lease, but one thing that proves important for either case is for operators to find specialized finance departments that know the industry. “That is the biggest key,” Coolbaugh says. “The commercial operators need specialists, and we have been specialists for more than 18 years. We understand the equipment and collateral, and we understand the credit requirements.”

Chauffeured transportation companies need new vehicles for two reasons: They are replacing older vehicles, or they are expanding their operations and increasing fleet size. In either case, it behooves the operator to look into a company experienced in livery vehicle finance because there are often special incentives and benefits laid aside they might not otherwise know about.

Cunningham walks his customers through this process every day at Acton Fleet Sales/So Cal Penske. “In the car world, a potentially giant profit center for dealers is the financing of cars, where the longer we have them finance for, the more money we can make. But for livery vehicles, this is about the worst thing you can do. We prefer 36 months and strongly suggest a short term if they can handle the payments, because the vehicles are going to be turning over and losing value quickly.”

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