Luxury Coach & Transportation

March 2015

Magazine for the professional limousine, charter and tour industry.

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Page 35 of 109

32 LIMOUSINE, CHARTER & TOUR MARCH 2015 WWW.LCTMAG.COM FINANCE & VEHICLES S uppose you bought a 2012 Chevrolet Suburban at the start of 2013 for $32,800 with 23,400 miles. Two years later, you sell the Suburban for $18,000, with 135,000 miles. Sound like a good deal for a limousine feet operator? For Houston operator Erich Reindl , such deals are standard operating proce- dure in keeping sedans and SUVs stocked in his 37-vehicle chauffeured feet. He buys newer pre-owned vehicles when they come available based on price, not whether he needs them that moment. Re- indl calls it a fip-and-hold strategy. "We usually have one or two cars sitting at the offce here," says Reindl, who start- ed Avanti Transportation in 1994 and ad- opted his cash-only strategy in 2006. "They can afford to sit for a few months until we sell one. I'm fipping cars all the time now. You can get a better deal on cars when you are not in a hurry to buy something. You have a better negotiation standpoint." Reindl still buys all of his vans and mini-buses new, but like many operators, works out a formula for pre-owned ver- sus new feet vehicles to ensure minimal overhead and maximum profts. Finding A Fleet Formula Operators will tell you there is no right or wrong approach to vehicle purchasing, since the proft-purchase business model at limousine and bus companies run the full gamut depending on local market factors. A chauffeured company heavy on corporate and VIP clients who want the newest and best vehicles must always buy new, especially if it turns the feet over every two to three years to keep a current feet image. However, for small- to medium-sized operations in second-tier or lower popu- lation centers with less discriminating cli- enteles, pre-owned feet vehicles can pro- vide the fnancial wiggle room for revenue and sales growth. "I let someone else take the deprecia- tion hit," says Jeff Wright, owner of Pinna- cle Car Services in the northwest Arkan- sas town of Rogers. He runs a 23-vehicle feet about 65-70% pre-owned. Wright buys sedans and SUVs with about 50,000 miles and keeps them several years. "We've run those vehicles until they no longer represent the quality they should. I sell them for pennies on the dollar, but I can usually run them about one to two years after they are paid off in full." With his larger vehicles, such as mini- coaches, stretch limousines and shuttles, Wright buys his models new. "I see it's better to buy that equipment new and get the full warranty because I'm putting fewer miles on vehicles," says Wright, who just bought two 29-passenger mini- coaches from International. Wright breaks out his P&L based on ve- hicle type, not individual units. He looks at overall sales volume per type category to assess proftability. "For 10 years, we've been growing market sales and share and still running a proftable company," says Wright, who worked in corporate man- agement positions for Sam's Club/Wal- Mart in nearby Bentonville before starting Pinnacle in 2005. "If you are growing top line sales, you are making best decisions for customers all the time. I look at sales volume daily and run spreadsheets to track it week by week, month by month against the previous year." Profting Per Vehicle At Rose Chauffeured Transportation in Charlotte, N.C., owner and founder H.A. Thompson has seen phenomenal growth in his charter bus division since starting it in 2008. His two-pronged strategy in- volves buying used Van Hool buses and then breaking each out as its own proft unit. Rose has paid $150,000 to $250,000 per bus, compared to new bus prices that can reach $650,000. As a result, Rose has grown from one to 18 charter buses in just seven years. "There is an abundance of used motor- coaches which drives the prices down," Thompson says. "In no way should any limo operator venturing into motor- coaches even think about new motor- coaches unless they are fush with cash or have lucrative (service) contracts." A new $600,000 motorcoach should be earning about $30,000 per month in revenue to be proftable, which can be accomplished through contracted daily commuter service, he adds. When a limousine operation buys its frst motorcoach, it should be ready to buy its second a few months later, based on strong cash fow from the frst, Thompson says. "When you move 100 people, you better have two motorcoach- es available. You also need to be careful about breakdowns." Overall, the 56-vehicle Rose feet is 36 vehicles are pre-owned and 20 new. For example, the company recently bought a one-year-old Suburban with 17,000 miles from Enterprise Rental Car that cost about $10,000 to $12,000 less than new sticker price. Rose operations manager Tom Holden cautions that vehicle purchasing varies from large to small markets, with travel distances, client volume and brand pref- erences as major factors determining whether a vehicle should be bought new or pre-owned. "We spent the last 15 months drilling down and categorizing our business in multiple departments, including inde- pendent contract, local farm-out, and farm-out out of town," Holden says. "We've dissected the numbers down to the penny in our books." This simplifes feet decisions: If a ve- hicle hits proft benchmarks, you keep it. If it doesn't, get rid of it. Thompson and Holden are strong proponents of dissect- ing P&Ls down to per-vehicle. "We look at all costs, line item by line item, so we know exactly to the penny how much money we make or lose," Holden says. "It is shocking evidence. Some departments make a lot more than you think." Holden calculates that a Cadillac XTS livery sedan costs about $1.37 per mile to operate in their market. Multiply that by miles driven, add in your desired proft margin, and that gives you a baseline rate. Searching For Deals One operator who never buys any vehi- cles new is Val Newton , owner of Regal ILLUSTRATION: KEVIN HAEGELE, LCT ART DIRECTOR N H A E G E L E , L C T A R T Fine Tuning Profts On A Limo Fleet With more competition in ground travel, operators must closely track tighter margins to stay proftable while balancing new versus pre-owned vehicles. By Martin Romjue, LCT editor

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