Vehicles

How To Choose & Buy Vehicles At The ILCT Show

Jim Luff
Posted on February 1, 2012
The 2013 Cadillac XTS livery sedan and the 2013 Lincoln MKT Town Car will be vying for operator attention on the trade floor of the 2012 International LCT Show at the MGM Grand in Las Vegas Feb. 13-15.

The 2013 Cadillac XTS livery sedan and the 2013 Lincoln MKT Town Car will be vying for operator attention on the trade floor of the 2012 International LCT Show at the MGM Grand in Las Vegas Feb. 13-15.

The 2013 Cadillac XTS livery sedan and the 2013 Lincoln MKT Town Car will be vying for operator attention on the trade floor of the 2012 International LCT Show at the MGM Grand in Las Vegas Feb. 13-15.
The 2013 Cadillac XTS livery sedan and the 2013 Lincoln MKT Town Car will be vying for operator attention on the trade floor of the 2012 International LCT Show at the MGM Grand in Las Vegas Feb. 13-15.

While moving around the trade floor of the 2012 International LCT Show, there are two basic indicators to consider adding a new vehicle to your fleet.

The most basic business theory is the “supply and demand” theory. If the demand for a certain type of vehicle exceeds your ability to deliver without farming jobs because you don’t own a certain type of vehicle, it might be a good time to review. If you are taking two to three orders a month for a limo bus and farming them out, you probably don’t need your own limo bus.

However, under the second indicator, if there are a limited number of specialty vehicles in your area and your affiliate always seems to have one available, maybe there is an opportunity. You may be able to provide better, more efficient marketing to develop a clientele for the specialty vehicle. There would be more risk and work involved to make this purchase succeed but it certainly could be done.

What to buy: A Town Car, SUV, or bus?
In the late 1980s and early 90s, the choices were limited to buy a stretch limousine or a Lincoln Town Car. With the Town Car yielding to the MKT Town Car, the choice for sedans has widened to include products from Ford, Lincoln, Toyota and Cadillac. There are many manufacturers vying for the dominant market share of the former Town Car. Complicating the decision is the increased demand by business travelers to order SUVs instead of Town Cars. The field here has widened from the popular Chevrolet Suburban to include the GMC Yukon Denali and a handful of other SUVs. They are sold in “stock” condition or tricked out by an aftermarket coachbuilder who makes it more functional for the needs of the corporate executive seeking space and amenities without the glitz of a stretch limousine.

The prevalence of buses of all types further complicates fleet mix decisions. Entering into the bus business is not for the faint of heart. The entries range from a 14-passenger standard van to a 55-passenger charter coach. The decision to buy any of these vehicles should be based on the type of clients you serve, the requests they regularly make, and new markets you want to pursue with your new vehicle. There must be a demand for the type of equipment you offer. If people are not breaking down your door asking for a certain type of vehicle, odds are they are not going to do so simply because you acquired it.

To lease or buy?
This is probably one of the most debated topics in the industry. Only your financial advisor could accurately answer this question, as there a many variables to using a leasing company versus a finance company. There are plenty of both in our industry that are present at limousine shows, and most coachbuilders will assist with financing the sale of their product whether you decide to lease or buy. You also may choose to explore your own financing through credit unions, your bank, or third party companies.  Having a letter of “pre-approval” from your third party financer can clearly improve your bargaining position with a coachbuilder since financing of luxury limousines and buses is certainly a higher risk while in a poor economy.  

While both types of financing offer a predetermined amount of payments to be made, in a lease, you will typically make your first and last month payment. In the above limousine example, this would be $3,000. If you were required to put 20% down on a loan, you could need $17,000 on an $85,000 loan. Money like that is hard to come by these days. A lease allows you to walk away and pay an early lease termination fee if things don’t work out. With a loan, you are stuck with every payment until the loan is paid off. You may be able to deduct the interest of the loan depending upon where you obtained the funds. For instance, using a real estate line of equity to purchase the car from the dealership could provide great tax advantages if you have that type of real estate credit line available. Under the terms of a lease, the entire lease payment may be considered a write off as it basically amounts to a month-to-month rental over a certain period of time. Leases can end with a “fair market value buyout” or a “dollar buyout.” The monthly payments will change depending on the buyout method. In a FMV buyout, the lender will determine the value of the vehicle based on the age of the vehicle, miles and condition. If you want to keep the vehicle, you will have to pay for it through a cash payment or additional financing of the buyout amount. You also may elect to pay $1 to buy the vehicle in the end of the lease, but your payments will be higher.

The most important consideration here is the total amount of payments you will make to own the vehicle. In a purchase plan, you will add the base price, taxes and fees plus the total interest amount you will pay over the life of the loan to arrive at the total cost.  Lease plans do not have an “interest rate” as loans do. They have a “lease factor rate.” To arrive at the total cost for a lease, add up all the payments you will make towards the lease plus documentation fees and add either $1 to the total or what you estimate the car to be worth at the end of the lease based on average miles you might accrue in each year. In most cases, a lease will have a higher total cost but less out-of-pocket expense to get into the vehicle you desire.

Shopping around
Shop for financing first based on an estimate of the type of vehicle you want to purchase and which method of financing is best for you. Obtain a preapproval letter from your lending institution. Shop for the vehicle you want and allow the coachbuilder to present financing options for you but feel free to let your sales representative know that you are “pre-approved.” The builder may have dealer incentives to make their financing better than what you obtained on your own. If your own financing proves to provide a more affordable solution, the builder will work with your financing people during the transaction.

DO THE MATH

Any new addition to the fleet must generate enough revenue to pay for itself. These simple illustrations will give you a general idea of feasibility in your purchase. They are basic and do not include calculations such as maintenance, depreciation or replacement cost offsets.

8-passenger limousine

  • Monthly payment = $1,500     
  • Insurance payment = $300    
  • Total monthly investment = $1,800    
  • $1,800.00 / $75/hour = 24 hrs./month minimum charter hours required.

25-passenger limo bus

  • Monthly payment = $3,800
  • Insurance payment = $700
  • Total monthly investment = $4,500
  • $4,500/$200/hour = 22.5 hrs./month minimum charter hours required

You can further break these requirements down by week. Multiply the minimum monthly charter hours required by 12 months and divide that number by 52 weeks. In the above limousine example, a minimum of 5.5 charter hours would be required to meet the investment expense. This does not include wages, fuel, payroll taxes, oil changes, licensing and taxes or any other operational expense.

Related Topics: buying guide, How To, ILCT 2012, industry vendors, new vehicles, vehicle leasing, vehicle purchasing, vehicle turnover

Jim Luff Contributing Editor
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