Before you invest your hard-earned dollars to expand your fleet or upgrade existing equipment, first invest a little time in careful planning.
Shop from a position of power by learning what separates one vehicle from another, setting up financing ahead of time, and bringing a well-maintained trade-in vehicle to the table.
Successful operators create formulas for when and what to buy. They get the best financing rates by aggressively shopping around. They consult books, check references and call friendly competitors for input.
Your vehicles are the single largest investment you make in your company – so it’s worth taking the time to get the best deal.
- Work to shrink the length of your financing commitment
- Make sure you compare apples to apples when evaluating your financial options.
- Be honest and forthcoming with your dealer and lending institution.
- Track the number of jobs and gross revenue of work you farm out. If the potential income is sufficient to turn a profit, buy or lease a car.
- Floor models at trade shows are often excellent deals.
- Fix and replace even minor problems before selling the vehicle. Buyers who see minor problems assume larger ones are looming.
- Don’t let fads dictate what you buy and don’t buy with your ego or heart.
First, Get Your Financing in Order
Plan your car purchases as you would any other major business decision – it’s all about money.
Operators who plan ahead and arrange their financing before sitting down at the bargaining table have greater leverage when negotiating with a coachbuilder, dealer or private seller. They also have a better understanding of what they can afford.
The following nine tips will help operators get the best deal when leasing or financing.
Put down as much money as you can afford and finance over the shortest period of time. You will get a better rate, pay less interest and be less likely to end up upside-down - meaning that you owe more than the vehicle is worth when you try to sell it.
Don’t finance a vehicle for five years if you can only run it in your marketplace of three years.
Work to shrink down the length of your financing commitment, rather than the amount you pay per month.
Choose a finance company that knows the industry and can provide multiple references from satisfied operators.
Call those references and ask how each transaction went.
Did any of the operators feel like they were being taken advantage of or pressured to sign a deal that would have left them in a bad financial position?
Shop for financing and cars at the LCT Show in Las Vegas this February.
Make sure you compare apples to apples in evaluating your financing options. Most importantly, compare the bottom line numbers of the finance packages you are considering. Add up your total costs over the life of the loan or lease. Also compare the number of payments, percentage rate, restrictions, and any additional amounts that you might owe.
Learn about the laws and regulations in your state. When you lease a vehicle from a company based in a different state, you could be liable for taxes you hadn’t factored into the cost. You also might have problems registering your vehicle. For example, you can’t operate in Arizona with California plates, McCoy says.
Ask the leasing company how many vehicles it has leased in your state and again, get references.
Lenders Respond Better to a Professional Package
Put all of your financing information into a nicely bound, organized package. Use it to get offers from a variety of companies.
Your package should include:
- Your credit score, also called credit report, which you can get from a financing source or via any number of online sources at minimal or no cost.
- Two to three years of tax returns.
- A financial statement prepared by an accountant.
- Business references.
- Three months of bank statements.
Buyers with marginal credit often have difficulty getting the money needed to expand their fleets, but may have better luck if they are placing old vehicles, according to Peter Corelli of Lakeview Custom Coach.
“If you can show that upgrading equipment will save you money – by reducing repairs and downtime – you’ll have a better shot,” he says.
Corelli adds that operators with marginal credit must show some level of consistency in making payments on time and provide supporting materials like financial statements.
Leasing vs. Financing
Obtaining a car loan will save you money, but many operators are forced into leases
Financing a vehicle is preferable to leasing, but many smaller operators don’t have the resources to obtain a loan, industry officials say. A down payment that is often 10% or more and a sterling credit history are often required to obtain a livery vehicle loan.
The major lending institutions providing limousine operators with loans, including Ford Motor Credit and JP Morgan Chase, require high credit scores and that the businesses they are lending to have been in business for a minimum of five years.
That leaves a lot of operators – especially new ones or those with low credit scores or bad payment histories – turning to leases.
“Leasing allows people to get into the business with little money down,” says Eddie McCoy, president of FastTrak Livery Systems and a former operator. “If you work hard and make money on that car, it could be worth your while [to lease]. But your inevitable goal should be to buy.”
Livery leases are obtained through a broker or middleman, who guarantees the loan to a lending institution. The broker charges a fee or higher rate to earn a profit.
Those leasing a car can pay between $2,000 and $10,000 more over the life of a vehicle, depending on their credit rating, than they would if they were able to purchase one, McCoy notes.
Consult an accountant or financial planner before seeking a loan or a lease and consider the following 13 tips.
- Be honest with your salesperson or financial consultant. Submitting a credit application means you agree to a credit history report, which is reviewed by the salesperson and bank.
- Shop around, but be careful not to make too many formal loan or lease applications; too many inquiries can negatively affect your credit rating.
- You can raise your credit score by hiring a professional to investigate and repair a history damaged by excessive late payments or other irregularities.
- Check past interest rates that you have received. If a new rate is higher than a previous one, tell the sales person. Derogatory credit may increase your rate; an increase in the prime rate can also affect it.
- Review your credit report for items that do not belong and have them removed. Look for entries from people with the same name that are not you. If you find proof of incorrectly recorded information, submit it to the credit bureau.
- Compare bottom line figures from different lending or leasing institutions. One may have different down payment and term conditions, another may offer a better rate but requires more money down and a shorter term. Another may offer a higher rate and a longer term, but adds higher finance charges.
- Read all documents before you sign. Ask for copies of everything, especially documents that are not in duplicate or triplicate.
- You must disclose to lenders that a vehicle was being used for commercial purposes. Lending institutions may ask a purchaser to pay off a loan if commercial use is not disclosed before the deal closed.
- Contact a dealer or lender if you are having trouble making payments. This can prevent damage to your credit score.
- Beware of balloon leases where you must make a large final payment to own or trade up. If you decide not to buy, you can be held responsible for excess mileage, and wear and tear.
- Beware of penalties for paying off loans or leases prior to the termination date.
- Beware of mileage restrictions that could mean hefty charges at the end of a lease.
- Check with the local Better Business Bureau to see if any complaints have been filed with the leasing company.
Two of the limousine industry’s leading independent dealers offer an interesting contrast:
The customers of Universal Limousine Distributors in Wayne, N.J., tend to be larger companies and to buy vehicles rather than lease, says President Toni Trabb.
She said that 75% of her limousine customers buy their cars and 90% of her sedan customers buy.
By contrast, the customers of Lakeview Custom Coach in Oaklyn, N.J. tend to be smaller operators, Seventy-five percent of that company’s limousine customers lease, rather than buy, says President Peter Corelli.
What, When and How to Buy
Track revenue lost to farm-out and don’t let your ego or fads dictate what you buy
Operators are making educated choices about when and what vehicle to buy by developing strong farm-out relationships with competitors and following customer requests.
A tax break that allows operators to write off 100% of a commercial vehicle weighing over 6,000 pounds – if the purchase is made by year’s end – has influenced some buying patterns. But the decision of what and when to buy is generally best made by understanding your clients’ needs.
The following 12 tips will steer you up in the right direction:
- Track the number of jobs and gross revenue of work that you farm out. Once the potential income is sufficient to turn a profit, buy a car.
- Floor models at trade shows are often excellent deals because multiple vendors are competing for your business and no one wants to pay to ship their vehicles back home.
- Err on the side of being conservative when adding a new type of vehicle. Choose vehicles that will suit your client base. If you serve corporate clients and want a limousine, buy a shorter stretch.
- Don’t let fads dictate what you buy.
- Don’t buy with your ego or heart – use your head. You don’t need the biggest car on the block, just the most profitable one.
- Re-sale value can influence your buying decision. It may be worth paying more for a vehicle that is worth more when you sell it.
- Check the books released by National Automobile Dealers Association for resale values. Visit www.nada .org for more information.
- Service after the sale is important. “If I need a part, I want it sent overnight so I can get my car back up and running. That’s even more important than a warranty,” says FastTrak’s Eddie McCoy.
- Look for a coachbuilder with a conveniently located service center.
- Check industry forums where people share gripes. No builder is perfect, but trends are a red flag.
- You can get better deals on longer limos because profit margins are bigger on longer cars and coachbuilders have more room to negotiate. Lakeview Custom Coach’s Peter Corelli points out.
- Find out which limousines are consistently purchased by the same operators. If a large operator runs only vehicles from one coachbuilder, ask why.
“Fads always start off at the extreme and end up somewhere in the middle. If you are in the business for the long haul, you don’t want a 220 superstretch. It has a limited audience and it’s not easy to find a place to get it serviced.”
PETER CORELLI, PRESIDENT
LAKEVIEW CUSTOM COACH
Buying Longer Limos
“Manufacturers will only build so many short cars a month – they are a loss leader,” Corelli says. “The difference e in price to the coachbuilder is really just some metal and wiring between a 120 and a 72-inch stretch.”
The ‘When to Buy’ Formula
Limousine operators are developing formulas for determining when to expand their fleets.
Mathew Smallwood, president of Elite Coach in Raleigh, N.C., for example, runs reports from his back-office software system that tells how much business he farms out.
“We try to get $5,000 per vehicle per month,” he says. “If I do $5,001 in farm outs, I’ll buy the car.”
Smallwood, who runs vans and sedans, looks for two or three-month trends and ignores occasional spikes, such as those caused by a major sporting event like the Super Bowl or a large local convention.
Nick Tropiano, president of Tropiano’s Limousine in Philadelphia, says he bases his purchases on the number of jobs framed out over a period of six weeks to two months.
“If I give 10 to 12 jobs per week away for an extended period of time, I know I have to make a purchase,” says Tropiano.
He says he averages 70,000 miles on his sedans and replaces them every three years.
Buying & Selling Used Vehicles
Used vehicles allow many operators to expand their fleets. Those who take care of their vehicles get a far greater return when it’s time to sell. Here are some tips for buying and selling used vehicles.
5 Tips for Buying
- Condition is more important than mileage when buying a used vehicle, according to Peter Corelli of Lakeview Custom Coach. “Low mileage, decent limousines are not easy to find,” he says. “If that’s what you’re waiting for, you could be waiting a long time.”
- Make sure the seller kept accurate service records.
- Get the vehicle inspected by a professional mechanic.
- You can save money buying a used vehicle from another operator, but you have little recourse if you have problems with it.
- You are better off with a slightly older vehicle than a late model limo from a coachbuilder that is no longer in business.
“If the coachbuilder is no longer in business, you need to get a great price because if you have a problem, you have nowhere to go for help,” Corelli says.
5 Tips for Selling
- Properly maintain your vehicle.
- Keep all service records.
- Don’t let any problems go unattended – whether it’s a dent or mechanical issue. Little problems tend to snowball if not fixed immediately.
- Change the oil every 3,000 miles, “Regardless of what the manufacturer tells you,” Corelli says.
- Fix and replace even minor problems before selling the vehicle – including missing screws or damaged upholstery. When buyers see minor problems, they assume larger ones are looming.
“Someone who’s educated is going to come in and add up all those numbers when he’s purchasing that vehicle from you,” Corelli explains. “If there’s $600 worth of work, he’s going to want $2,000 off the vehicle.”