Limousine Industry Riding Out Rough Times : Services: To survive the recession, companies have compensated by shrinking their fleets and shifting to sedans. But profits remain slim.
Like almost everyone else who works in Southern California’s limousine industry, Jim Baron looks back on the 1980s as a decade of life in the fast lane.
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Baron, now an executive at the biggest limousine company in Southern California, Burbank-based Music Express, still chuckles when he recalls his first job as a chauffeur in 1980. One of the best-known rock stars of the era summoned Baron and his limo not to go for a ride, but to fetch an order of Pioneer chicken and Haagen-Dazs.
“This is insane,” Baron remembers saying to himself. “This guy is spending $100 to have chicken and ice cream delivered to his house.”
So far in the limo trade, the 1990s have meant an end of the opulence. The recession wiped out many of the limousine industry’s best customers, including legions of investment bankers, and ushered in an ascetic business climate that compelled even thriving companies to cut back.
A soft job market has meant fewer ordinary folks taking limos to parties, proms and weddings. And today’s rock stars, though they still spend much of their lives in stretch cars, are apt to find less ostentatious ways of having their meals delivered.
“The roaring ‘80s were great,” said Chris Hundley, 38, owner of The Limousine Connection, a mid-size company based in North Hollywood. “But in the ‘90s you have to be lean. We’re working twice as hard to make half as much.”
The powers that have reshaped the limousine industry are surprisingly varied and complex, and they go beyond the simple fact that a sour economy has meant fewer companies and people who can afford limousine service.
Just as the recession started, Ford Motor Co. redesigned its Lincoln body styles with a more rounded look, forcing many limo companies to spend hundreds of thousands of dollars buying new limos to prevent their fleets from looking outdated. Then, in 1991, a federal gas guzzler tax kicked in, raising by about $2,000 apiece the prices of stretch limousines, which currently cost around $65,000.
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What’s more, corporate clients that survived the recession are increasingly opting for shorter sedans or town cars. These vehicles are chauffeured, but they cost one-third less than the $50 to $60 an hour that customers pay for stretch cars. From the outside, the sedans look no different from the cars on display at any Lincoln or Cadillac dealership, an important consideration in these downsized days.
“Everybody I book for would die before they would have a stretch limo pick them up,” said Dana Mohn, who handles travel arrangements for executives at Schroder, Wertheim Investment Services in Beverly Hills. In sharp contrast to the ‘80s, executives “don’t want to be seen stepping into a stretch limo,” she said. “Sedans are less obtrusive.”
This shift to sedans put even more pressure on strapped limo operators to update their fleets.
Many local limo companies couldn’t navigate these changes and folded. Some large companies, including Music Express, are actually doing better now, partly because they scooped up the business dropped by others. But for most companies, it’s meant a nerve-racking test of their survival skills.
In the ‘80s, “everybody wanted to travel in high style,” says David Johnson, president of Starlite Limousine Service Inc., based in North Hills. “Twenty-five-year-old executives drove around in BMWs. Everybody borrowed as much as they could and lived on credit. Now we’re having to pay the tab.”
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The price has been steep at Starlite, once one of the largest limo companies in Southern California. In the mid-1980s, revenues topped $2.5 million, Johnson said, but they have since dropped to about $700,000 a year. Nearly $500,000 in annual revenues evaporated when a single account--Drexel Burnham Lambert Inc., the Beverly Hills-based junk bond factory run by Michael Milken--went out of business, Johnson said.
And while it was once common for Starlite’s corporate customers to allow middle- through upper-management employees to travel by limo, “now it’s just a select few in upper management,” Johnson said.
Starlite has shrunk its fleet from more than 30 cars to nine, and the number of chauffeurs has dwindled from 38 to 10. Cars are replaced every five years instead of three, and the company’s computer system hasn’t been upgraded since 1988.
To cut costs, Starlite left its 1,800-square-foot headquarters in Sherman Oaks and moved into a 600-square-foot space in North Hills. And while reduced rates were rare in the ‘80s, customers practically demand 20% discounts these days, Johnson said.
Despite his troubles, Johnson remains stubbornly committed to the industry, and he said the company is seeking a merger partner to shore up its client base.
“I’ve been in this business for 20 years,” he said, “and I don’t plan to get out.”
Other operators haven’t been so persistent. The number of full-time limousine operators nationwide has dwindled from about 4,000 to 2,000 since the late 1980s, according to the National Limousine Assn., a trade group based in Washington, D.C. The number of part-time operators--those who survive mostly on weekend wedding and party work--has slipped from 8,000 to about 7,000.
In California, the number of licensed operators dipped during the early 1990s before recovering and settling at about 1,400 last year, the same as in 1990, according to the state Public Utilities Commission, which regulates the limousine industry. But the number of new licenses issued fell from 602 in 1990 to 406 last year.
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“The recession . . . cleaned out the lightweights,” said Harold Berkman, owner of Music Express and president of the National Limousine Assn. “Damn near every corporation cut down on anything that was not necessary. And certainly they can do without us.”
Even major film studios, long the biggest local customers of the limousine industry, have cut back on limo transportation up to 40%, according to executives at travel service firms that arrange limo transportation for studios.
The travel director at one studio, who asked that his name not be printed, said his company spends nearly $2 million a year on limo services. The actors, producers and directors who comprise the so-called “talent” side of the business are still shuttled back and forth in stretch cars. But “stretch limos are not allowed for 99.9% of our corporate executives,” the director said. “We don’t even like to call it limo service anymore--it sounds like you’re spending too much money.”
Music Express depends on studio work as much as any other company, but it has nevertheless managed to find ways to grow in a shrinking market. Berkman, 61, a former executive with MGM’s record division, founded Music Express 22 years ago and has built it into an industry giant, with operations in Los Angeles and New York.
While the vast majority of limo companies have fewer than five cars, Music Express has 65 just in Southern California. And while most companies operate with little more than a few cars and a phone, Berkman has his own repair shop, an advanced computer system for booking reservations and a satellite service that lets him track every move his cars make.
Though many clients have cut back, Music Express has hustled to find new customers to keep revenues climbing. The company also benefited from being among the first to recognize the switch to sedans, which now comprise 80% of the Music Express fleet.
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As a result, the company handled 58,036 jobs in Southern California last year, up more than 50% from 1991, and revenues have grown just as quickly. But profits are a different story, says Berkman, who sprinkles his sentences with terms of endearment such as “babe” and “doll.” Music Express has raised its rates less than 5% during the 1990s, he said, despite rising costs of gas, insurance, cars, computers and labor.
Sales “are up $700,000 from last year, but our bottom line is down $200,000,” Berkman said. “People think everybody in this business is a fat cat. But we’re just as hard-working as anybody.”
Smaller companies have had to find other means of keeping revenues from eroding. At The Limousine Connection, a 17-car company based in North Hollywood, revenues have rebounded to pre-recession levels, but not before they dipped 20% during the early ‘90s, said owner Chris Hundley.
Hundley gets his fair share of business from studios and other big companies, but he also depends on smaller customers such as Edward Blinn, a regional vice president with the Palace Brands wine and spirits distribution company.
In the late ‘80s, Blinn spent about $5,000 a year on limousines to take his best customers to such star-studded events as the Academy Awards and the Grammys. This year, he figures he’ll spend less than $1,000, mainly by doing more of the chauffeur work himself. For this year’s People’s Choice Awards, for instance, he and a few co-workers used company cars to pick up their corporate guests, saving Palace Brands about $2,000.
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In these penny-pinching times, “luxury items such as limousines, luxury boxes at sporting events and theater tickets are things that have been cut,” Blinn said.
Faced with shrinking business, Hundley has lifted his company’s revenues partly by buying three smaller companies and taking over their accounts. He has also pored over his business looking for ways to cut costs.
“We used to buy all of our gas at the carwash,” he said. “Now we have specific carwash accounts and gas accounts. We get a rebate of 2% or 3%, and the gas at the pump is less expensive to begin with.”
Saving a few cents on a gallon of gas wouldn’t have been worth the trouble for firms in the ‘80s. But these days there aren’t many orders for chicken and Haagen-Dazs.
