We’re in the next great evolution of the industry.

It seems that things are stabilizing from the panic we saw just 18 months ago. Operators have generally cut back as much as they can at this point and are learning how to be efficient with less.

This evolution is also true for both new and used vehicle sales. The popular ones are changing, and operators are adding larger vehicles, such as limobuses, to their fleets. While in the past it was far more likely for a startup company to buy used, established operators are increasingly turning to pre-owned to save cash or to have more manageable monthly payments.

We spoke with several of the industry’s leading lenders and dealers about some trends they see emerging in 2010 and beyond. Here’s their assessment on the buying and leasing front, as well as their prognostications for the coming year.

Trend 1: Operators are keeping core vehicles longer.

If you’re like many operators across the country, you’re probably sporting an older and higher-mileage fleet than you have in the past. The time of replacing a fleet every 3 to 4 years has likely increased by a year or more. Dealers are noticing that instead of selling, their customers are looking closely at their fleet maintenance schedules to squeeze some extra life out of their existing equipment.

“The vehicles being traded are the highest I’ve ever seen with 200,000; 300,000; or even 400,000 miles,“ says Bill Cunningham of Acton Lincoln Mercury in Massachusetts.

With a virtually unchanged body style from Lincoln since 2003, keeping Town Cars longer than ever means operators are not sacrificing the look of a new vehicle while paying down an older one. Cunningham adds that service is just as important as the vehicle sale.

“Find a good dealer and work with him,” he says. “You never want to work with a dealer who only wants to sell you a car once.”


Trend 2: Used vehicles are in higher demand than new ones.

Many of the industry’s largest dealers and financing companies are noticing that operators are more interested in used vehicles than brand-new ones, especially sedans and SUVs.

“Operators are looking for [model year] 2006 and newer Town Cars with up to 100,000 miles on them,” says Cunningham. The benefit of purchasing used over new usually comes down to a lower price with some risk, but many of these vehicles also carry the balance of the of 3-year/150,000-mile factory warranty.

Jay Glick of Limosdirect.com in New Jersey adds one caveat: “We’re seeing that older cars are less able to be financed,” he says, referring to those vehicles that have over 100,000 miles and are older than 4 to 5 years. Still, the price points of used are several thousands less than new, and some have such low mileage that they still have the new car smell. However hot the used car market is right now, new cars are still selling. In fact, Don Coolbaugh of Advantage Funding in New York notes that 70 to 80 percent of his business in 2009 was driven by new vehicle sales. Several dealers also mentioned that they are having a hard time keeping new sedans, SUVs, and limobuses on their lots. For dealers sitting on inventory, new cars can be a tremendous value for operators right now—if you can afford it.

Trend 3: The market is thawing.

While the last half of 2008 and most of 2009 were difficult, some dealers and lenders noted that there was a glimmer of hope during the holidays. “The phones started ringing again in December,” says Dan Dyson of Brenner Financial. He notes that while volume is down, operators are buying again. “The purchasing of everything across the board is down,” he says. “But there is a little more optimism.” Rick Eichner of City Limousine Sales in New York agrees. “The end of the year is usually quiet, but I think operators are starting to get restless and are looking to replace some vehicles. They’re looking to low-mileage, non-stretched SUVs and sedans. The market is starved for quality and newer used vehicles because [very few operators] are trading them in.” Those, unfortunately, are the vehicles that operators are running longer. But Jim Bolinger of Westwind Limousine says he’s seeing more late models than ever, including repos. “There are so many quality late-model [vehicles] out there at great prices, so why would operators buy new?” He, Eichner, and Cunningham have all seen sales rise in the last few months. “January is usually soft, but we've had a great start this year. People have waited so long that now they have to upgrade their equipment.”

Trend 4: You can get financing, but the criteria are stricter than in the past.

If you’re buying a vehicle, whether new or used, the most important words to you and the lender right now are down payment. “Twenty percent has always been the magic number,” says Eichner. “With less than 20 percent, an operator is in a negative equity position right from the start. Twenty percent down gives everyone a piece.” If you’re turned down, however, you may have to wait it out a little longer to establish credibility with the lender. Coolbaugh says that we are moving toward a “more natural” environment for lending, where the lender and the purchaser have a true stake in the equipment.

Some lenders focus on the credit score, but Coolbaugh says it’s more than just that number. “We’re more concerned with the entire package,” he says, including personal and business credit, years in business, the company’s balance sheet, and the pay history. He also adds that 10 to 15 percent down is about the norm for his customers.

Dyson also looks at the company’s entire financial health before making the decision to lend. “We’ve always been conservative with our lending,” he says. “We look to the company’s experience and cash flow, as well as the organization of these records and [the owner’s] willingness to provide them. We want to see the tax returns for the past 2 years and that they have a handle on their in-house financials. We haven’t changed our lending practices much because we’ve always looked at the overall picture of the company and the owners.” Dyson generally requires a 10 to 20 percent down payment, based on type of vehicle and length of financing. For Bolinger’s customers, he's seen a trend toward “alternative” methods of financing, such as smaller and local banks and especially credit unions, all of which are largely based on customer relationships.

Glick also notes that banks are much more skittish when it comes to high-end loans, such as brand-new limobuses, unless the operator has a decent down payment and a solid company and business plan in place. The fact that banks are willing to lend, however, is enough to spark hope.

Trend 5: Shorter finance terms are becoming
the norm.

While many of the industry’s reputable lenders and dealers lean conservative when it comes to financing vehicles, there are always vulture lenders out there that encourage longer terms of 60 or even 72 months. They will entice operators with lower monthly payments, or operators will insist on longer terms instead of building equity in their vehicles. “Savvy operators only finance their vehicles for 36 months or less,” says Eichner. “The payments are higher, but when they go to sell in 3 years, they don’t owe more than what the trade-in is worth.” Although the terms ranged from 12 to 48 months for most lenders, all of them agreed that anything over 48 months will bury an operator should he need to sell. It’s hard to argue with experience.

Trend 6: “No money down” is falling out of favor.

Far worse than financing a vehicle for more than 48 months is purchasing the vehicle without one red cent down. Some operators may remember a time when no-money-down, application-only loans were available to anyone with a pulse. It wasn’t all that long ago, after all. Say goodbye to overcapitalization, or funding 100 percent of the vehicle purchase.

“Financial companies are smart enough to know not to go back to the way it was,” says Glick. The reason is simple: Too many folks borrowed too much without having any stake in their purchase. In many businesses, the limousine industry notwithstanding, equipment and vehicles were floated on lines of credit that were “doable” when the economy was growing and expanding, but devastating when business slowed significantly and suddenly. A year after the contraction, some are still walking away from their pricy loans because they can’t make the payments. If “credit” was the buzzword during the first decade of the millennium, this decade will likely be dominated by the word “equity.”

Trend 7: Carrying less debt is making a comeback.

During her Keynote Address at last year’s Limo Digest Show, personal finance guru Suze Orman touted the benefits of going to cash instead of financing with credit. Our own Dean Schuler, monthly columnist of “Signature Livery” and franchisee of Carey New Orleans, has for years noted that he only purchases vehicles outright with cash. And likely many of the industry lenders you’ve dealt with over the years have encouraged you to take the shortest finance terms possible and with a healthy down payment.

While cash-only may not be a possibility for all operators, some dealers have noticed that paying cash, especially for used inventory, is happening more frequently than it did in the past. Those who can’t buy the car outright are ponying up larger down payments to minimize how much they finance. In the sage words of Jay Glick: “Egos don’t pay the bills.”

There is another benefit to using cash: Operators are less prone to making impulse purchases for fad vehicles. Less easy credit and more down payment forces operators to crunch the numbers and gut-check true demand before adding an expensive mistake to their fleet.

Trend 8: Lenders ARE willing to work with their customers in hot water.

If you listen to CNN or read some of the nightmare stories online about good people losing their homes or cars after their income dropped, you’d think the banks were all out to get us. It could be true for other industries, but the major leasing and financing companies in our industry report that they are working with operators. Coolbaugh notes that he has seen a 30 percent increase in refinancing this year. “If you’re at the end of your rope, you absolutely have to get in contact with your creditors immediately,” he says. “Call before you can’t make your payments, not after they are past due. Be upfront with lenders and keep the dialogue open. We’re committed to this industry, and repos are bad for everyone. There’s less hope for those who run away [from the loans.]” Lenders can also assist in finding someone to take over the loan or to help the operator sell the vehicle. “We’ll do what we can to lessen the impact,” he says.

Trend 9: Trade-in values are fluctuating.

So you probably think that your used Town Car or SUV has a low value because the market is saturated with used vehicles, right? You could be wrong. “There’s a shortage of used SUVs,” says Coolbaugh. “The prices for used are about 10 to 15 percent higher because there is such a demand for them,” and there’s not enough product to go around.

Eichner also notes that the pricing on non-stretch SUVs and sedans has increased. “We’re paying more for [trade-in] Escalades with low mileage,” he says, adding that the demand is still very high. It was up and down all throughout 2009, but for the most part, demand has remained steady and prices have been fairly consistent. If it drops again, used prices will fall in lockstep. The price of limousines, however, has remained low as new and used inventory is high and demand is down.

One other practical trend that has emerged is trading in two or more older vehicles—usually ones that are already paid off—for just one new vehicle. Since some operators really want to downsize their fleets, the twofer is a good move for those in that situation. Dealers note that operators are often buying a new car with the trade-in of the vehicles, but not always; some are upgrading to a newer used model. Some others are trading in stretches and moving up to limobuses.

Trend 10: The global market for used cars
is problematic.

Once upon a time, Europe was hallowed ground for older (model years 2001 and less, approximately) and high-mileage vehicles that operators in the United States didn’t want. Exporters couldn’t keep up. Since the economic crisis has impacted the entire planet, Europe has lessened the demand for these vehicles to have a second life—and any sort of profitable resale value. Glick says the demand for these vehicles has flat-lined in Europe. “There are more limos than there are customers,” he says. “There is very little demand globally. Until the industry resets, I think it’s going to be a mess.” The sweet spot for trade-ins seems to be 2006 or newer with low miles. Anything older and the resale value is iffy.

Trend 11: No, they don’t want your stretch either.

Perhaps one of the more gloomy turns in the past 15 to 18 months (or longer) has been the drop in interest of stretch limousines. It wasn’t exactly sudden, but the downturn exacerbated the problem. Unfortunately some dealers and builders are sitting on some new stretches that they have been unable to sell as buyers jump to new and used sedans, SUVs, and limobuses. There are a host of factors that are contributing to it, such as the reduced global market, the surge in limobuses and other vehicles that passengers can stand in, the limit in number of passengers as compared to other vehicles, the corporate trend of understated and less flashy transportation, and the slow recovery of the retail market. Newbie operators who typically purchased used stretches are now buying sedans and SUVs, just like the rest of the industry.

Coolbaugh says that this shift could be a positive thing for the industry and coachbuilders. “The stretches will probably be exclusively built to order in the future,” so the builders won’t be sitting on inventory that they can’t move. The market’s not dead, but it is smaller than it once was.

Trend 12: We will see some stabilization in 2010.

All lenders and dealers agree that we’re in a much better place than 2009, but that the growth will be small at best. “Volume and work is coming back for the corporate markets and some funeral operators, but retail may not come back for a while,” says Eichner. Coolbaugh notes that SUVs and trucks are stabilizing the used car markets, while Cunningham is encouraged by the recent up-tick in sales. “I’ve seen some life in the New York and Boston markets, as well as Florida and Texas,” says Cunningham.

Dyson is cautiously optimistic, but sees some light at the end of the tunnel. “2010 will be better than 2009,” he says, “but only marginally. This is going to be a slow recovery, but at least we’re moving in the right direction.” LD