NOV. LCT: A group of bus and limousine services headed by CLT Express Livery finds ways to adapt to a consolidating marketplace.
[Note to Readers: Below is an extended website version of the Q&A published in the July issue of LCT Magazine. The digital edition is out today].
On labor, technology, corporate travel and leadership within the Industry, LCT Publisher Sara Eastwood-Richardson’s exclusive interview with Scott Solombrino, CEO of Dav El/ BostonCoach Chauffeured Transportation Network and longtime National Limousine Association board director, gleans valuable insights to our industry's next big move.
Sara: The gig economy is the latest term being used to define a class of workers either freelancing (an independent contractor who works on projects for multiple companies) or as independent contractors (typically refers to a person who does freelance work for just one company). What's our next big move with respect to labor and this growing gig economy?
Scott: Companies wanting to cash in with big profits on the backs of unsuspecting and unprotected workers will only create a bigger problem on our government's tax base as tens of millions of people aren’t accounted for. None of these gig economy companies are contributing to the country’s infrastructure bills including social
security, FUTA, FICA, Medicare or sales tax. They don't pay any local taxes. Additionally, these companies are all incorporated offshore. So the bigger problem for the U.S. is if you take all those tax revenues out of the system, how do you run the country? And that's why this is going reverse. I believe the government
is catching up to this nonsense that the gig economy is any different than the traditional economy.
The government passed laws that required corporations to insure their employees to have healthcare. The gig economy does none of that, so you have more uninsured people who are in the gig economy. It's time to wake up and say, "Wait a minute. You are still an employee. You have rights. You have entitlements. You're entitled to get overtime. You're entitled to be covered by workman's compensation if you get injured. Otherwise, who’s going to cover you if you get into an accident and can't work anymore? Who's going to pay your insurance? You don't have a pension option. You can't unionize."
All of these basic labor rights were the basis of the labor movement for the last 50 years in the U.S. It has all been eroded and so when regulators are looking at this, they're now saying, "You're not different. You're still driving people for money. Or you're still booking a hotel as if it's a hotel. You have to comply with the same rules as everybody else."
That has been the position we have taken at the NLA to try to get the government to focus and say, "It's not different. You are breaking the rules." And we think there's traction out there at the state level and the federal level and we think it's going to reverse itself. We think ultimately, we'll prevail.
Sara: Employee retention continues to be an industry concern. However, with all the bad press surrounding TNC labor issues, do you see this as a temporary problem for us?
Scott: Well, here's what's going on with Uber in the chauffeured car industry. Three years ago, we all lost people to Uber and Lyft. And three years later, they've all come back. Nobody's leaving traditional companies today to go drive for Uber. And there's a couple of reasons why. Number one, nobody wants to ruin their
personal car. They put on so much mileage in a year, and the chauffeurs’ car becomes worthless. Most car leases are three or four years. You put on 100,000 miles in one year and you still owe three years' worth of lease payments. What do you do? So, the first thing is people destroyed their personal car. The second thing is people had no health insurance and of course under Obamacare everybody's required to have health insurance.
The third thing I'm hearing from drivers that come back is they hated working with the client base they were driving. Nobody wants to drive 20-year-old drunken girls on Friday and Saturday nights at 3:00 in the morning who are throwing up in the back of the car.
And ultimately, people came back saying, "I made no money. My expenses exceeded what I was making in revenue. My car is destroyed. And I owe all kinds of expenses I'm never getting reimbursed for. Why would I want to keep doing that? My average pay was $4 an hour."
Dav El/BostonCoach has a couple of hundred former Uber drivers with a new appreciation for our company.
Now, here's the good news for the chauffeured car sector. Uber and Lyft have created a whole new class of people who like driving people. Your entry-level chauffeur now might be a former Uber driver. They actually have experience, they know their way around town and they like to interact with people. So Uber and Lyft have created a new workforce class for us.
Sara: Do you see any reason why owners of chauffeured services allow their inventory and their drivers to be used for Uber?
Scott: No. I think anyone who does business with these companies is absolutely killing their own business by distraction. Stay focused on building up your own client books and perfecting your service levels. Ultimately, the Ubers and Lyfts of the world do not need us. They will “use” our inventory if their workforce
depletes and that’s it.
Remember, there are 95 million Americans not working because they choose not work. The Uber and Lyft driving staff is in that number because the Bureau of Labor Statistics only reports people that are W2 employed who are working real jobs in their statistics. So the 1099 category doesn't come up in the unemployment rate; it
doesn't exist. Helping them is not helping anybody but Uber and Lyft. I think it's a mistake.
Sara: The truth about tech. What's our next big move as an industry? The why, when, who and hows?
Scott: It's very simple. There are three companies that produce $600 million in revenue a year and are the primary drivers of our industry commerce. They are DavEl/Boston Coach, Carey International and Empire CLS Worldwide Chauffeur Services. Those companies must decide on what platform is going be “the” platform.
Sara: So you're suggesting it be one network?
Scott: Oh, I think you're going to see coalescing with regards to on-demand. Absolutely, positively. In my opinion, the big companies have no choice but to get together. The TNCs are eating away at our client base and what we have to get to ultimately is on-demand. I will concede here that many of our customers don’t ask for on-demand and don’t care about that component. They just want booking ease. However, things are trending and changing every day towards on-demand and to ignore it and pretend it's impacting our business is simply a fool's game.
Sara: Well, you have to get the technology first.
Scott: We believe we have the technology. I think in the coming months, there's going to be an announcement where the industry will have two choices. If you want to survive, you're going get on the platform the big three have adopted. And if you don't want to survive, if you're on your own, good luck. You might be able to run a nice, five-car business for a few years and live happily ever after, but you're
never going to have any opportunity to participate, I think, in the global corporate market.
Sara: Are you in a position to say the company that you, Gary and David are interviewing or disclose the technology?
Scott: Who said it's a company? Maybe it's something different. Maybe it's not a company. Maybe it's our own technology? Maybe that's a better approach. Maybe it's a combination of a company or a couple of companies' technologies plus our own platform. We don't know that answer yet. That is what we are working on now. We all know time is of the essence. One thing we're not going to let happen is having third parties get between us and our customer base. We don't want somebody dictating to us saying, "You have to use our tools to get to your customer."
We have to have our own organization similar to what Orbitz was to the airline business where the airlines all got together to aggregate their own capacity. We believe we can do that in chauffeured car and protect operators from third parties. Now, maybe some of the third parties that are out there will be driving it
behind the scenes because they have technologies that will be useful, but there's no way I see people getting between us and the customer. That's a bad strategy for the industry.
Sara: Talking about our industry's next big move from a tech standpoint, Uber's next big move claims they're going into reservation based, 30 days out-based platforms and they feel pretty confident they can do that. Obviously, that's not a reaction to anything but the Lyft announcement that they're testing out in San Francisco through their employees, a reservation based system. So not to be outdone by Lyft and Uber says, "We already have it, we're doing it." So what does that tell you about Uber and what Uber's next move is and why are these people...why are Lyft and Uber pursuing the business travel market in the first place? It's a $2 billion piece of the pie.
Scott: Receipts and expense management are just as important to corporations as the delivery of service and if you can take taxi and automate that, and it becomes an expense item on somebody's expense report, people are happy. So TNCs forced the “taxi” industry to improve the interaction with corporations to provide better receipts - and I don't mean receipts on a little piece of paper the cab driver writes on it because that's nonsense. I mean a credit card receipt. Corporate America has wanted that for years. Now they have that option if they're using TNC. So I think the piece of pie is a lot bigger than people are estimating.
The response from the chauffeured car industry is three years late. We should already have developed a platform three years ago and gone to corporations and said, "We will give you GPS following on your phone, we'll give you immediate receipts that goes into Concur, and goes into all the other expense formats, IBM,
etc., and we will integrate with you so we can give you a more transparent receipt financial experience for your traveler." But we didn't do that. The industry was too busy fighting amongst themselves and basically being in denial thinking Uber was never going to enter the corporate market. I'm not surprised they're
taking pre-reservations. They want to be all things to all people, because the difference between profitability and not profitability at Uber is a very small number, so they have to figure out how they can make every vertical profitable in order for the whole company to cover their expansion and their losses that they're doing in China and India and all the other stuff that's happening. So why would they not go into pre-reservations? Of course, they would. By the way, is it really that hard to do? I'm kind of shocked they didn’t do it three years earlier!
Sara: I guess if you can book out your cottage on your estate three months out, why couldn't you book a car?
Scott: I mean, it's so stupid to think otherwise! To their credit, they now have made great strides in the corporate market and our best argument is duty of care because chauffeured car has a better duty of care and so does taxi. The problem is corporations care about one thing. They care about money and convenience,
and duty of care is on the bottom of the list. It's supposed to be at the top of the list, but the last three years of my discussions and meetings with people in the corporate markets have proven to me nobody really cares about duty of care, because they look the other way and allow their employees to participate in these
types of transportation options that have no duty of care. No background checks, no drug testing, no insurance requirements, no inspection of vehicles. I mean, just think of the insanity so that corporate people allow their employees on their liability policy getting in Uber or Lyft vehicles on any given day.
Sara: Agreed. Cyber hitchhiking is all the TNC platform is. It's literally a guy pulls up with his own car, you jump in, it's a random guy, reporting to no one and if you get to your destination great. If you don't, you know, it's just one of those things. If you're a woman or these moms putting their kids in the car, it's just bizarre, because when you stop and fundamentally understand the business model, it is nothing more than hitchhiking in a stranger's car. Nothing.
Scott: Well, the NLA invented the term digital hitchhiking. I mean, we put it in a PSA long ago. We've said this from day one, but corporate America hasn't really understood what that meant. Now, I think we've made some progress in some companies where they're banning Uber and Lyft and saying, "There's no way, it's not a reimbursable expense, you can't use it, it's not duty-of-care compliant." Now, there's other corporations that are saying, "We want to make our life easy. Use whatever you want and we'll reimburse you for it." The problem in the chauffeured car industry is until you give people an alternative that meets the same criteria of why users want to use those products, you will not succeed. And that's why we're out of time and the time for action is right now. We have to coalesce together and we have to come up with a solution and I believe we're on a pathway to do that.
Sara: Managed travel. What's the next big move?
Scott: There are all different theories on managed travel. One thing I will tell you is managed travel thrives in down economies and the economy is slowing. You can look out there and see it. You can feel it. There have only been 32 additional public offerings this year. It's the slowest year on record and Wall Street is the biggest driver of global corporate travel of any specific vertical. The last jobs report only created 38,000 jobs. It was supposed to create 180,000.
When you're in any type of environment where the economy slows down, people start to refocus on managed travel because they want to cut costs. The only way you can cut costs is you have to manage the travel tighter. Whether it's Wall Street or any other industry sector, travel is always the thing they look at first.
Sara: The country broke a record this year in the number of non-startup businesses. People have been de-incentivized by this President’s policies.
Scott: Agreed. No one's going to start a company in the state of California unless you're insane because California has the most outrageous anti-business laws of any state in the U.S. The message of this administration has been, “Don't go into business because if you do, we're going to overregulate you and make your life so difficult you have no chance of success. “
And that's why there's a great hope out there that something's going to change from a regulatory perspective. You cannot regulate people into the ground. And California's a perfect example of that – people are leaving California in droves. It's overly regulated, it's out of control and it's unbelievably costly as compared to
operating in Florida or New York or Washington or pick another city. Overregulation is killing business. And that's the fundamental difference between Democrats and Republicans.
The problem for the chauffeured car sector is that to fight our TNC battles, we have to go to our allies that are Democrats because they're the only people that really understand the labor issue. They care about workers and workers' rights and worker's compensation. The Republican side would love to deregulate everybody and have no rules. So we find ourselves in a very, very awkward place. We have to go to places where we think we can get the most support to solve the labor issue so these companies are operating on an even playing field. Remember, the TNC has a 40% advantage on pricing over us because they pay no labor expenses. Now, on the economic side, the last thing you'd want is more regulation. Chauffeured car is highly regulated. We're overregulated.
The industry has to make a decision: What's more important? And I would argue the enforcement of the labor laws and getting labor to get involved in this fight is more important than deregulation of other parts of our industry.
Sara: Leadership. Okay, what's the do or die for us from a leadership level?
Scott: If your business is down 20%, 30%, 40% due to forces beyond your control, it's time to exit and get involved with a larger organization through critical mass through better technology platforms that can potentially compete to survive this.
In my opinion, the industry needs to consolidate. We need to do so on tech platforms and on how many operators are out there. Since there aren’t enough incentives for new companies to come into the market, I predict the industry will shrink pretty quickly. However, that will create two problems: 1) We will have
less people controlling more revenue which is always dangerous; 2) We will have fewer companies that can participate in the overall fight for survival to get the TNCs regulated at our level. So it's a double-edged sword.
Now, when the industry gets together on the technology piece, we will all see the beginnings of what I would call a renaissance in chauffeured car. But we're in the Dark Ages right now. There's nothing good happening in chauffeured car right now as a sector. We have to turn this around and get to the light. And the way we're gonna do that is through collaboration, cooperation, coordination. There has to be unity. People have to get on the same page.
We have two choices. We either gotta get on the lifeboat off the Titanic or we can continue having dinner in the dining room as the boat's going down. I think the industry will run to the lifeboat. The problem is there's not gonna be enough room for everybody. The industry has to consolidate.
Sara: Well, my final question, because this was a leadership question and so from an ownership standpoint, what's the next big move? What if they aren’t losing money and love what they do and have no interest in selling out or closing shop?
Scott: We must function as a collaborative group. We can have small companies do small deals together. People are going have to pool resources at some point here so there's nothing wrong with smaller companies aligning. There's nothing wrong with mid-sized companies merging. The big companies aren't going buy
everybody. What you might see is the big companies start to consolidate who they use in those smaller markets so they can pick a winner in the marketplace. So think of this. What if three or four of the big companies all bought the same services from the same four or five companies in a secondary market to ensure that they financially survive? That might be what you see coming down next.
I think the industry has to get creative. And that's what's next in my opinion for the chauffeured car industry. Becoming more clever than the TNCs. We have to think way out of the box and out of our comfort zones and put aside all of our tribal disputes. We have to work together to collaborate.
If the industry doesn't wake up and take teamwork seriously, we're going to pay a price. You can no longer be a stand-alone. Those days are over. We have to work together all the way down to the small car operator level and find ways everybody can make money and be able to be competitive in this very, very difficult
environment and I'll leave you with this one last thought.
That said, it’s my opinion that if we're not in the “on-demand” business as a sector in the next six months, all this will be for nothing because the consumer has spoken. On demand is here to stay and we have to find ways for us to be able to compete and deliver a high level of service with our duty of care attached to it.
That is what will separate us from these TNC companies. That's the one thing chauffeured car has always done better than any other sector including taxi. Chauffeured car has always cared.
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