With fuel prices up, the economy slow, and credit markets squeezed, limousine operators are scrutinizing their fleets to get the most out of each vehicle. How is the economic downturn affecting vehicle turnover trends? Are limousine operators buying, selling, or holding steady? What’s a good strategy for vehicle turnover in the current economic climate? LCT talked to financial experts and operators to find answers to these questions.
Overall, it’s a tough economy and limousine operators are feeling the crunch. Barry Trabb, CEO of Universal Limousine Distributors of Wayne, N.J., says that July and August were “terrible months for the industry, but in September things started turning around.”
Michael Buccellato, principal of Lease Acceptance Corp. of Delray Beach, Fla., says that operators are holding onto their cars longer due to a few factors: First, they’re not as busy and therefore not putting as many miles on the cars. Second, gas prices are hurting some companies, and their credit is not what it used to be. Third, operators are waiting to see if there will be body changes in the next few model years.
Luxuries Less Requested
FRANCI OUZOUNIS, CO-OWNER with husband Teris Ouzounis of White Dove Limousine Inc. of Denver, says her business is also feeling the economic downturn. “We’re a luxury service, and when the economy is tough, people cut out luxuries, even corporate clients,” Ouzounis says.
Usually, White Dove replaces vehicles about every five years, and so far the economy has not affected turnover practices. This year, White Dove will replace its Hummer stretch with another big SUV or bus.
Tyler Lehmann notes that the retail side of his business, A Blackstone Limousine Inc. of Renton, Wash., has “stayed somewhat even this year. We didn’t see growth in retail.” He says that people are holding onto their money tighter and having fewer nights on the town.
Ready To Roll Transportation Inc. experienced a slowdown in July and August of this year, but year over year, numbers were up in August 2008 compared with August 2007. Even in an economic downturn, the formula for success is simple: “We’re always adding new clients, and if clients spend less, we simply get more clients,” president Gale Ricketts says.
Fleets Hold On to Vehicles
NOT ONLY ARE CUSTOMERS watching their wallets, banks are tightening their purse strings. Access to capital for purchases of limousines and buses has been harder to come by, says Donald Coolbaugh, vice president of sales at Advantage Funding of Lake Success, N.Y. “Banks are failing, and this has led to an incredibly conservative posture at most banking institutions, which makes acquiring new funds a hard task. However, good companies with personal credit will continue to be able to finance or lease limousines.”
Because money is harder to come by, many limousine operators are keeping vehicles longer than usual. Every operator LCT talked to emphasized that they maintained their vehicles meticulously, so “older” never means “run down.”
James Romero, owner and managing partner with Rachel Ricks of In The Scene Limousine in Tempe, Ariz., says, “The better we maintain our vehicles, the longer we can keep them after the leases are up. And if there’s no payment on them, that’s even better. Then we can keep growing. A lot of companies are running slightly older vehicles.”
A Blackstone’s Lehmann usually replaces vehicles as their warranties expire, about every three to five years. With the difficult economy, “it becomes a little trickier,” Lehmann says. “Its effects on our turnover might come into play next year.” However, A Blackstone plans on adding vehicles in early 2009.
White Dove vehicles do not tend to accumulate many miles, and the vehicles are “meticulously maintained,” says Ouzounis, so they remain in the fleet for as long as six years. This year, A Blackstone Limousine’s retail business held steady, says owner Tyler Lehmann. The company will add vehicles to its fleet in early 2009, but Lehmann says it’s “a little trickier” to predict when he’ll add more.
Matching Vehicles to Clients’ Needs
LEHMANN REPORTS THAT limousines and stretch SUVs are less requested, while Buccellato notes that buses and motor coaches often are sought for group trips and excursions to entertainment cities. Operators are listening closely to their clients’ requests and modifying their fleets to increase the most requested types of vehicles — a smart move in any market, but essential today.
Jodi Jones, vice president of Old Market Limousine Service (Papillion/Omaha, Neb.), says the company’s decision in the early 2000s to focus on corporate business has paid off: This year Old Market’s business is up 26%, Jones says. “We just purchased a new sedan in June, and we are deciding whether to add more sedans or SUVs.”
Old Market’s customers “don’t notice model year as much,” Jones says. “They focus on a clean, safe, tidy, chauffeur and vehicle.”
Romero has found that slightly older vehicles have a market niche all their own — for the price-conscious client. “All retail clients care about is the price. If you have a 2004 Hummer or a 2008 Hummer, someone will take the 2004 model because the price is lower, even $5 lower.”
Romero also has taken advantage of his clients’ interest in larger vehicles and added a 47-passenger limousine coach to the fleet. “No one has a vehicle that size and that nice in our area,” he says. The bus has been so popular that In The Scene may add other larger vehicles to its fleet this year.
Know Your Market
OF COURSE, CLIENTS in different geographical areas and industries have different needs. Keith Adler of Adler Financial Services in Boca Raton, Fla., says, “In some areas, the only operators adding cars are the ones that have to. But in certain specific markets, such as Hollywood, operators must have new vehicles. In New York City, some operators are selling their Town Cars and using green vehicles.”
Ready To Roll is one company whose clients expect the latest-model vehicles. That means vehicle turnover is constant, no matter what the economy does. “Our clients are in the entertainment industry,” says Ricketts, “and we have a niche in the fashion and modeling industries also. They want new vehicle styles.”
To satisfy its entertainment-industry clients, Ready To Roll replaces vehicles about every 24 to 30 months. “One criteria is body style change,” Ricketts says. “If we’re ready to sell a car after 24 months, but a new body style will be coming out in another six months, we’ll hold onto the car until the new style is available.”
THERE’S A LOT GOING ON that affects fleet turnover policies, and each operator has to determine an individual best course of action. Michael Buccellato of Lease Acceptance Corp. sums it up: “Manage your fleet. If your needs are different than they used to be, evaluate the situation and go from there.”
Trabb’s advice for limousine operators is: “Don’t refinance — don’t stretch out your payments longer. Hang in there; if you don’t have work for a vehicle, if business is down, sell the vehicle and lighten up your fleet to lower insurance costs and get rid of the car payment. Work smarter.”
Overall, the limousine operators contacted by LCT are feeling the economic crunch but are watchful and flexible. Most have a positive outlook, knowing that being the best in the business is what keeps them in business.
Says Donald Coolbaugh of Advantage Funding, “Experienced operators are cautious but have seen down cycles before, and adjust their fleets accordingly.”