Vehicles

How To Make The Most Of Unprofitable Fleet Vehicles

Posted on December 18, 2014 by

SUV stretch limos like the one shown here can have a big effect on a limo company’s marketing, but it can be a struggle to keep the vehicle booked enough to cover all operating costs.
SUV stretch limos like the one shown here can have a big effect on a limo company’s marketing, but it can be a struggle to keep the vehicle booked enough to cover all operating costs.

A loss leader is not exactly the most welcome fleet vehicle. But often, a certain brand or vehicle type retains an allure for clients that can mean more long-term business. These vehicles can be labeled “must-have” vehicles, in that the operator wants to make sure they are available if needed or requested. Therefore, the operator must not be without these vehicles, even if they don’t pay for themselves when broken out as a single revenue unit.

While these are not profitable vehicles dollar for dollar, operators deem them important enough for the market and for image. Lacking such vehicles would be noticed by clients.

Benz In Back Pocket

J & B Executive Transportation in Detroit, Mich., keeps a 2014 Mercedes-Benz S550 in its fleet for VIP clients who prefer one. Although it attracts few local clients, owner Julie Dotan says it fulfills affiliate requests for a premium-level sedan. “The demand is not as high as we’d like, especially in Detroit where car brand loyalty is important. But when you need it, we have it.”

The Mercedes-Benz S550 sedan is kept in the J & B Executive Transportation fleet in Detroit because although it is not in high-demand, it is requested by affiliates and clients when they need that VIP service and upgraded vehicle.[inset] Julie Dotan, CEO of J & B.
The Mercedes-Benz S550 sedan is kept in the J & B Executive Transportation fleet in Detroit because although it is not in high-demand, it is requested by affiliates and clients when they need that VIP service and upgraded vehicle.[inset] Julie Dotan, CEO of J & B.

The vehicle has a higher insurance, gas, and maintenance cost than the rest of her sedans, so by having it in the garage much of the time, the company actually saves money on potential breakdowns. But if a call comes in for a sedan and the S550 is the only one on the lot, J&B will send it as a free upgrade. “We do the same thing with our SUVs,” Dotan says. “Some people will get lucky and get that free upgrade, but we’re not going to turn down a customer [who] has called.”

For now, one S550 is enough. Since the industry is rebounding from the loss of the Lincoln Town Car, Dotan believes operators will be running more diverse fleets as they try out different vehicles and brands. She thinks the Tesla S has the potential as a marquee fleet vehicle, and has noted some operators tell her they’ll soon be using Teslas to serve the same needs as Dotan’s S550.

Old-School Style

One class of vehicles that can be looked at as a “must-have” for some operators is vintage, which offers more unique types of classic and antique luxury sedans and stretches. Andrew Armitage of Vintage Chauffeuring in Minooka, Ill., stocks a fleet of classic vehicles, such as a 1941 Cadillac limousine and 1940 Buick Model 81, as well as modern sedans, SUVs, and stretches.

Andrew Armitage uses this 1941 Cadillac limousine for special events and weddings around the Chicago area.
Andrew Armitage uses this 1941 Cadillac limousine for special events and weddings around the Chicago area.
The vintage vehicles are ideal for weddings and special events, but they don’t get booked every day of the week. Armitage says one of the important lessons he has learned from working with the vintage vehicles is he needs to refrain from dropping his prices to match competitors. Instead, he tells clients what they get for the cost. Vintage sedans can cost more to operate and maintain than modern vehicles, and the prestigious look and feel needs to be factored into the cost along with general operating expenses when setting rates.

“I realized I was providing excellent value to my customers but not to myself,” says Armitage of his early days and modest pricing. “I found myself working very hard and delivering excellent value to my clients, but at the end of the month, the bottom line was not being met. I needed to learn to communicate with potential clients why my service was worth more than other less expensive options, and I changed my marketing efforts to focus on people who placed a greater value on quality than price.”

Armitage is adding more modern vehicles to his fleet to go after corporate work, but he knows the luster of a vintage vehicle will always draw some clients. With word of mouth his main source of referrals, doing a great job on a wedding with a classic car can impress potential new clients who might need transportation at their jobs.

Stretches & A Hearse

The two company hearses at Premiere Transportation in Albany, N.Y., are CEO David J. Brown’s irreplaceable loss leaders. They provide Brown with access to the funeral home market where hearses are requested regularly. The hearses do not not run enough to generate much profit per unit, but by having the hearses, Brown can easily accommodate any other transportation needs the funeral directors might have, which they often do.

The hearse is the loss leading vehicle for David Brown, CEO of Premiere Transportation in Albany N.Y., and the traditional stretch limo is the loss leader for Janet Cherrier, CEO of Premier Transportation in Minneapolis (no affiliation). These vehicles can be used in tandem for funeral work to help offset costs and increase profits.
The hearse is the loss leading vehicle for David Brown, CEO of Premiere Transportation in Albany N.Y., and the traditional stretch limo is the loss leader for Janet Cherrier, CEO of Premier Transportation in Minneapolis (no affiliation). These vehicles can be used in tandem for funeral work to help offset costs and increase profits.

“The directors might say they need two limos, a Sprinter van, maybe two six-passenger vans in addition to the hearse, and we have those so it’s a good vehicle to keep in the fleet,” Brown says.

The 10-passenger stretch limousines used to be his loss-leading vehicles, but now with the hearses and the funeral work, the stretches are getting more clients than ever before, Brown says. “The 10-passenger limos can now do funerals in the morning and then dinners and proms in the evening, so it’s made them much more lucrative.”

Janet Cherrier of Premier Transportation in Minneapolis, Minn., lists the stretch limousine as her main loss leading vehicle in the fleet. She even jokes that her nickname for stretch limousines has become “Swiffers” — because they just collect dust.

Cherrier has been focusing more on the corporate side of business, which is mostly airport transportation and meetings, so the stretch limousines don’t go out much. The limo buses and vans have surpassed traditional limousines for retail work at Premier, but since the company’s main clientele is corporate, the limo buses are also seen as a loss-leader, but less so than stretches. “I would say those are the two main vehicles for me,” she says. “The buses can be difficult to book because of how many people they can hold, and they are also more expensive for clients. But they’re in our fleet. We can provide them.”

The SUV Stretch

One of the most common “must-have” vehicles for limo operators is the classic SUV stretch. Jim Luff, contributing writer to LCT Magazine and also president of The Limousine Scene in Bakersfield, Calif., says the SUV stretch is popular with retail clients for weddings and bachelor/bachelorette parties, but most of the time, it sits on the lot.

“This is often a ‘must-have’ vehicle for operations that do a lot of retail work, but they are costly to operate,” Luff says. “Insurance is typically more because the average SUV stretch can accommodate up to 24 passengers, which for many states places them in the category of buses and requires more insurance.” This added cost makes it more difficult for the vehicle to maximize profits, and because of its large size and design, it does not get weekday demand. Large SUV stretch limousines typically run on busy Friday and Saturday nights, but lie dormant the rest of the days.

If a limo operation bills itself as a premier retail company, offering quality chauffeured service and entertainment-themed vehicles, it better have an SUV stretch. It is still a revenue staple.

To help remedy the costs, Luff advises SUV stretches be used often for charity events and to think of the vehicle as an extension of the company’s marketing efforts. “A great way to boost ROI on a vehicle like this is to offer it for charity auctions or for free limo ride giveaways,” Luff says. “Even if it’s not the exact vehicle that you’ll use for the charity, the SUV stretch will look impressive and draw positive marketing attention to your company.”

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