For better or worse, production of the cornerstone of our industry,
the venerable Lincoln Town Car, ended two years ago. And that means the
luxury transportation industry is in a revolutionary phase of change,
because our workhorse is slowly disappearing. As we move forward with
new vehicle implementation, the industry is faced with the uncertainty
of what to do next.
This phase is further complicated by outside factors, such as increasing Corporate Average Fuel Economy (CAFE) standards at the end of this decade, which will inevitably reshape the vehicles and choices we cautiously debate today. Internal factors are equally difficult to project regarding these future assets, as we must estimate reliability, earning potential, durability, and longevity with respect to the former standard, the Town Car. The method of acquiring a new vehicle is the simple part (you buy it), but the answer to the proper replacement is as varied and complex as the number of options available. Research and development (R&D), specifically project portfolios, will facilitate the transition if you plan properly.
When thinking about what will replace the Town Car in your fleet, the most important variable for consideration is your target demographic—specifically, your best clients. Keep in mind that as an industry, we spent roughly two decades lumping all of our clients into a one-size-fits-all sedan, and are now forced (or have the opportunity, depending on how you look at it) to make a decision about sedans on a company level, rather than industry-wide. It is true that there have always been other options, but the industry did not fully buy into them. Clients still refer to all black cars as “Town Cars”—the vehicle became a commodity, and now it is gone. This is the ideal time to get to know your clients better, and find out what your market will handle, as well as what your clients really want.
Look at your target demographic, and you will see that it has changed over the service life of the Town Car. Client expectations are changing as Baby Boomers are retiring and Generation X and Y are quickly becoming the corporate and leisure travelers in your vehicles. Now it is less of a competitive advantage than a necessity to appeal to the different preferences of your client base. Understanding your clients is paramount in maintaining relevancy in your market, and researching your key demographic will invariably show a wider range of viable options than a single vehicle replacement. The variety of available sedan offerings allows us to provide a diverse range of cars within a single fleet. However, there is a caveat. If you are not doing R&D and getting to really know your best clients, you are missing a chance to capture niches within your market during this revolutionary replacement change.
With all this talk about change, you may be wondering, “How do I get to know what my clients want?” Take this opportunity to build upon the relationships you already have with them. Look at your client list, and reach out to your best clients; do not forget your affiliate network. You will need to start your research evaluating potential vehicles. Don’t be afraid to look outside the box, especially when considering your local clients. The traditional manufacturers may not provide the best options for your specific fleet application, but you must consider your client expectations and preferences they have shared with you. For example, your national affiliates will likely buy into something different than your local leisure clients will, but you will only know what it is when you ask them.
Ultimately, you must do your due diligence prior to presenting them with options, e.g. read about consumer reviews, drive them yourself, and consult your employees’ and maintenance department’s views and concerns—and then present these options to your clients to gauge their thoughts on your research. Next, you will need to beta test the potential replacements (rent/borrow/short-term lease them to try them out in your fleet and introduce them to your clients and employees) prior to making a purchase decision. That is basic R&D. However, developing a project portfolio is a bit more comprehensive, as you can then use it to consider more segments of the demographic.
You may find, depending upon your responses and your resource pool for acquisition, that there are several different vehicles available to your fleet renewal project. With market uncertainties and new technologies, the strategic innovations you implement will vary according to your clients and the target demographics of your current and future growth area. For example, the Generation X and Y travelers are more concerned about environmentally friendly transportation, and although they may not be willing to pay more for it, the option may appeal more to them; brand equity will benefit from the goodwill effort of environmental responsibility. Therefore, capturing a first-mover competitive advantage with technologically advanced vehicles will set you ahead of the fast-following competition. During your research, you should come up with many questions and concerns that will fit into the project mix. You will need to factor in the level of technical and market risk you are willing to take with fleet renewal, and apply this to your decisions.
There are five types of R&D Projects, which will be explained with basic examples of replacements for our industry. Keep in mind that individual companies can apply between one and five of the options, concurrently, and examples are simply representative, as the list of options is exhaustive. The quantity and scope of deployment is directly related to the level of risk mitigation within an individual company, along with the amount of capital resources available for allocation in those projects. As previously mentioned, these examples serve as a basis for forming your own individual R&D Project Portfolios and not as a prescriptive analysis that can be universally applied to the industry; the options are highly variable with respect to each company.
These are the options that will set the standard for an unclear future technological advantage due to research done now. The technology is uncertain, but there is a degree of confidence in the market and segments of the target demographic. Examples of positioning vehicles are gas/electric hybrids: Lincoln MKZ, Mercedes-Benz E400, and Toyota Avalon. Although the vehicles are familiar, the technology is more complex than in their gasoline-powered siblings, and the uncertainty is the concern about the electric components’ longevity in our industry. Furthermore, the electric technology is constantly evolving due to market pressures, so there is uncertainty regarding vehicle/technology obsolescence. These vehicles allow companies to venture into new market segments, and this positioning allows companies to satisfy new clients without betting on the wrong technology for the long-run.
These vehicles are the highest risk options, due to technology and market uncertainty. They bring great potential for new growth opportunities into niche markets, but they also run the risk of not being accepted by your client base. Stepping-Stone options are the electric vehicles, such as the Nissan Leaf and Tesla Model S. These are specialty vehicles with regard to their capabilities in our industry; their high risks include purchase price, real-world range limitation, and charging time versus utilization. The electric vehicle is a very sacrificial product, at this point, as the true benefit to the company is the goodwill earned from “greening.” This investment can grow the knowledge base, absorptive capacity, and technological and maintenance understanding without catastrophic results, if it is properly managed. If you’re going to choose this option, it would be best to find a grant to supplement the cost.
These are options that probe the market with tested technology. Scouting is best represented in our industry by diesel/biodiesel options. The technology is proven, and fuel is easily accessible, but the U.S. market has hesitantly accepted diesel after the debacle in the 1980s, which exemplifies the long-term effects of bad decisions during revolutionary change. Most diesel vehicle options in the U.S. have proven track records of longevity, durability, and better fuel economy than equivalent gasoline hybrids. Sedan examples range from the VW Passat TDI to the Mercedes-Benz S350 BlueTec. These options differ from positioning due to the potential growth in market opportunities, often at a lower cost in real-world use, even considering diesel costs.
This launch is only moderately risky, as the market is familiar with the brands, and vehicle similarity does not typically hinder client buy-in. This will be the most popular option, and U.S. manufacturers have a historical advantage, although competitive advantages can exist. Examples of this option include the Cadillac XTS, Chrysler 300, Hyundai Genesis, Lincoln MKT, and Toyota Avalon. Platform launches, when executed correctly, can continue to build future business provided the target market responds favorably to the offering, which accentuates the need for client consultation and beta testing. During research for a platform launch, consider what will replace these vehicles and transition clients into the next vehicles during the next revolutionary industry change, which is only a decade away.
In present context, this option would be doing nothing, adding more Town Cars, or using vehicles that should not be used as substitutes, such as SUVs. In mid-term context, incremental improvements work concurrently with New Platforms, such as the Cadillac XTS to the larger, as yet unnamed variant, or Hyundai Genesis to the Equus. In long-term context, it will mean incorporating all the derivatives of a model, e.g. gas/electric hybrid, diesel, diesel/electric hybrid, and electric. The options of incremental improvements are low-risk, and require the least investment, but reap the lowest gains in fleet diversification.
When moving forward with your replacement decisions, follow this checklist:
• Determine your tolerable level of market and technology risk.
• Consult your clients, your maintenance department, your chauffeurs, and your affiliates.
• Do not be afraid to operate a diverse fleet; just because you cannot use a vehicle for your affiliates does not mean you cannot use if for your local clients.
• Adhere to a strict budget for the initiatives.
• Do not take on more risk than your company can comfortably handle.
• Regularly evaluate the project!
• Remember that each option is competing against the baseline, and not against the other options—i.e., everything is weighed against the Town Car and the specific role application of the vehicle.
Contributed by Nathan Higdon