Sam Mallikarjunan of HubSpot can help you prepare your business for inevitable future shake ups.
"I started in the limousine business twenty years ago by leasing a limousine and hustling the airports,” recalls Don Grabowski of Starlite Limousine in Los Angeles. “In those days, there were no laws against it. In fact, security people would even help you get customers.”
The car was a 1971 Cadillac Formal Limousine. The rate was $10 an hour or $50 a mile – whichever was greater. With one of the only limousines in town, Don’s service caught the eye of Neil Diamond…then Mac Davis…then Alice Cooper…and so on.
Over the years, Don gradually moved from the driver’s seat to the office. Twenty years in the business have not slowed him down noticeably. Neither has cancer. Although his son David Johnson now manages Starlite Limousine from day to day, Don still spends part of every day at the company he started in 1970.
Starlite’s fleet of 30 vehicles was one of the largest in Los Angeles three years ago when Don’s cancer was diagnosed. He has since undergone two major operations. The operations did not eliminate the cancer, but they made him well enough to resume normal activity. At the same time, Don’s wife was also undergoing cancer treatment. Her six-month fight ended last year. Meanwhile, David adjusted his career plans and dedicated himself to helping run the livery business.
Don’s illness coincided with market pressures that dictated a downsizing of Starlite’s fleet to 15 Lincoln Town Car sedans and DaBryan stretches. Don and David also had a custom computer program designed which greatly increased operating efficiency and information access. Today, Starlite is a prime example of a well-managed medium-size livery service.
Don’s first stretch limousines were a pair of new 1978 Moloneys. “We had the first presidential stretches in Los Angeles,” he says. Customers were initially surprised by the new cars and some even refused to ride in anything so conspicuous.
In addition to conventional stretch limousines, Starlite also runs a few corporate stretches which have the same interior room but lack the entertainment features. While some operators feel that corporate stretches are not versatile enough for everyday use. Don and David feel there is a distinct market for corporate stretches in Los Angeles.
A key area of vehicle cost control for Starlite is that vehicles are taken home by chauffeurs between runs. Starlite has never operated a garage or service facility. Maintenance is done by a local mechanic who specializes in limousines. Chauffeurs simply stop by the office once a day to up trip sheets and drop off cash and credit card slips.
This program allows Starlite to operate from an office of about 1200 square feet in Los Angeles suburb that rents for under $3000 a month.
At the same time, Don admits that vehicles receive slightly more use than if they were housed by the company. Chauffeurs are allowed a certain amount of personal use, and daily odometer readings help avoid unauthorized use. “You have to know that your drivers are reliable,” says Don. “We have about 25 drivers and they have all been with us for a long time. We haven’t had any turnover for at least a year.”
Starlite charges $35 an hour for a sedan, $40 an hour for a corporate stretch, and $50 an hour for a presidential stretch. Don likes to wait for the competition to raise their rates before he does. It has been about a year since the last increase but Don sees an increase in the near future.
Don prefers to buy vehicles rather than lease them. “I think it costs more to lease,” he says. “If the overall lease cost comes to more than the finance through a bank, then buy it.” Don plans to add 1990 Lincoln stretches to the fleet by the end of the year.
Since the beginning of the company, Starlite chauffeurs have been treated as employees rather than independent contractors. They all work full time and average 40 hours a week. Starlite provides health insurance for all employees – including Don and his family.
Chauffeurs work rotating schedules with four days on and two days off. Vehicles are turned in to the office and reassigned on off days. During work days, chauffeurs still have the option to refuse trips. “If they’re doing something, we’ll work around them,” says Don. “It works both ways, we work with them and they work with us.” Chauffeurs are paid from the time they leave home until they return.
David Johnson has basically assumed responsibility for running the operation since his father’s illness. He manages the office from day to day, handles the bookkeeping, and keeps his eye on the bottom line.
David emphasizes the importance of managing fleet size and fleet age. “I know when our main business peak periods are, and I know when it’s time to cut the fleet down and sell older vehicles that are costing us money. You try and drop your fleet down during slow periods to save on insurance and overhead. Then you build it back up to cover peak periods.” David finds that maintenance costs tend to rise rapidly after a vehicle has been in service three years.
“We try to keep an idea of how the industry is moving,” David continues. “Right now, we’re seeing an increase in sedan business among corporate clients. I keep a tally of daily sales, plus a record of sedans alone. Even though the industry goes up and down, our sedans are always busy. We have three sedans right now and we are going to purchase more.”
Don and David found computerization to be an expensive but worthwhile project. Their original custom computer program had to be completely redone so that it worked essentially the same as the manual system.
“We find that there are fewer errors now such as orders being misfiled and things like that,” says David. “Each order is taken on the computer and, at the end of the day, it’s transferred into the accounting computer which will give us a tally of bulk sales entered. I also have a complete back-up system on this computer which gives us a total readout of all orders each day. This provides a back-up to make sure things aren’t lost.”
David monitors a receivables report every other day. Collection letters are mailed out to accounts reaching 60 days. “Nobody goes over 90 days,” says David. “If they’re over 90 days, they automatically lose their account until it’s brought up. Then we give them a second chance but, if they do it again, we suspend their account.”
David also has reports which allow him to monitor the profitability of each vehicle. “I know the number of hours a car needs to work per week to break even,” he says. “I know each vehicle’s actual income per week, and I also know which vehicles are costing me more money. I have records on my computers that show exactly what each vehicle cost me in maintenance. So at the end of the week or month I know how much each car grossed and how much it cost me at the end of the month.
The Bottom Line
“The industry changes so fast,” says David, “that you have to keep an eye open and try to stay one jump ahead of it. Sedans seem to be the way to go right now. Being involved in your local limousine association is one way to keep informed of what’s going on in the industry.
“And keep an eye on your costs,” he continues. “In this business, there are so many different costs that they can easily put you out of business.” Yellow Page advertising is one way that Don and David feel some operators waste money. “It’s a passive form of advertising,” says David. “I would feel that better types of advertising would be periodicals, newspapers, and things like that.
“Another thing is that even smaller companies should invest in a two-way radio because that’s the best form of communication between you and your drivers. It’s the biggest asset we have as far as communication. And, of course, telephones in each new car. We put our telephones in the back because it cuts down on personal use by chauffeurs.”
Sam Mallikarjunan of HubSpot can help you prepare your business for inevitable future shake ups.
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