Credit Crunch and Low Hourly Rates Plague Industry

Posted on November 1, 1991 by Scott Fletcher, LCT Editor/Publisher

I have never heard more livery operators and coachbuilders comment on the difficulty of locating financing for the lease or purchase of a new limousine. One coachbuilder told me this week that his average financing approval rate is about one prospective customer out of every five. “It’s not that these people don’t have good credit,” he said, “but they usually can’t afford to pay all of their taxes and other fees up front.”

He then pointed out a second major problem for prospective buyers. “In many cases, people still owe too much on their ’86 or ’87 limousine to be able to trade-in for a new one.” In fact, it is not uncommon for the owner of a two or three-year-old limousine to owe more than the vehicle’s market value.

This phenomenon is a widespread problem in the livery industry. The scenario often involves a longterm lease or loan in which the buyer has made a minimal down payment. As limousine owners walk away from situations in which they find themselves owing more than a vehicle is worth, banks and leasing companies unwillingly become used limousine brokers. Because this is unprofitable, these institutions tighten limousine credit so that even successful and stable livery companies find it difficult to expand and update their fleets.

For those who haven’t, sold a stretch limousine for awhile, it might be worth checking the Used Limousine Trading Post in the back of this issue for the approximate value of any vehicles to be replaced in the near future. If the amount still owed on a vehicle is more than it’s worth, the deficit might be corrected by sending a little extra toward the principal each month between now and trade-in time.

On the positive side, the current credit crunch should mean that fewer potentially troublesome loans are being approved. This should mean fewer repossessions and better credit conditions down the road. Although the livery industry is currently struggling to make capital improvements, this is probably a healthier era than when anyone with a pulse can buy a limousine.

Livery Rates Stable While Revenue Falls

According to our sister publication Auto Rental News, the rental car that cost $69 per week ten years ago is available for $59 today. With inflation running approximately five percent a year, one might have expected today’s rental car rate to be more than $100 per week. Instead, rental car revenue today is really about half of what it was ten years ago.

By comparison, the livery industry has at least maintained its $45 per hour rate for stretch limousines over the past ten years. At the same time, allowing for inflation, the rate should be more than $70 per hour just to remain even with 1981 in real revenue. When limousine rates remain stable, revenue effectively declines five percent a year.

Today’s airlines face a similar situation. Robert Crandall, chairman of American Airlines, claims that the airline industry has not yet recovered from the Gulf War which sidelined much of the traveling public. Actually, industry analysts say that airlines are not having trouble filling planes, but sharply reduced airfares make it nearly impossible for airlines to make money. The problem isn’t really the Gulf War, or the economy, or fuel prices... it’s an overcrowded marketplace that makes air travel an undervalued and unprofitable commodity.

Livery companies face the same problem. Limousines operated profitably at $45 per hour in. 1981. But, according to our estimates, every vehicle in the fleet must bill over 100 hours a month at $45 per hour just to break even today. I hope the livery industry does not have an average hourly rate of $45 or $50 through the end of the ’Nineties. The past ten years was long enough.


View comments or post a comment on this story. (0 Comments)

More News

TNC Bills Move Forward In New Jersey, Pennsylvania

Legislation containing new regulations, taxes, restrictions, and compromises are moving to state senates.

Long Island Wine Council Restricting Limos Coming To Vineyards

Some in the council are urging curbs on stretch limousine weight and limits on number of passengers.

TNCs Close In On Permanent Approval In Pennsylvania

Without a license extension from the PUC or a bill from the legislature, Uber and Lyft will be required to halt all operations.

FMCSA Acts On Rules Related To Bus Operations

The federal agency will discuss vehicle lease and interchange rules and helps former military personnel get CDLs.

Philadelphia Operators Face Double Vehicle Fee Hike

Without warning, the city’s parking authority jacked up vehicle assessment rates.

See More News

Facebook Comments ()

Comments (0)

Post a Comment



See More

See More

See More

See More

LCT Store

LCT Magazine - October 2016 $12.95 COVER STORY: * Leverage Tech To Levitate Your Operations * *


Experience the three annual industry events for networking for business, showcasing vehicles and products, and getting the tools for success.

Read About Your Region

What’s Happening Near You?
Click on any state to see the latest industry news and events in that region.

More From The World's Largest Fleet Publisher

Automotive Fleet

The Car and truck fleet and leasing management magazine

Business Fleet

managing 10-50 company vehicles

Fleet Financials

Executive vehicle management

Government Fleet

managing public sector vehicles & equipment


Work Truck Magazine

The number 1 resource for vocational truck fleets

Metro Magazine

Serving the bus and passenger rail industries for more than a century

Schoolbus Fleet

Serving school transportation professionals in the U.S. and Canada

Please sign in or register to .    Close