Monday, October 25, 2021

cd-0313-logan-debt-i-s-small BY ROBERT LOGAN

 

Any reputable economics professor would tell you that the U.S. economy moves in up and down cycles, with some of those downs lasting a very long time like the one we have experienced since 2008. Every cycle has its own set of circumstances and varying degrees of contraction, but the results are generally the same: business slows down because of lower consumer spending. What is particular to chauffeured ground transportation operations during each phase of these economic cycles is what I come to define as the “rising tide” behavior. When the economy was improving and stretch SUVs were becoming popular in the early 2000s, a few operators found success with these types of vehicles and everyone else rushed to buy them, which created a “rising tide” of positive economic activity. The converse is also true. When the economy began to stagnate, many of these same livery operations who still held notes on these expensive and trendy vehicles suffered because of a major lack of rental activity and lower hourly fees, thereby creating an “ebbing tide” of economic misery. Many operators stuck it out with vehicles that sat parked, hemorrhaging money, hoping that the tide would change if they just waited long enough. Smarter operators saw the writing on the wall and started paring down their fleets when demand dropped, maximizing resale value and leaving them with the essential vehicles that fit their needs at the time.

Before my return to the industry this year in a vehicle sales position, I spent the last five years of my life working with Wall Street in the institutional bond market. While I am not here to offer financial advice, I did glean some insight that can help business owners in our industry. Imagine developing a successful marketing strategy that works for your business but not for your competitors. How is that possible?

Too many operators are led to believe that our industry is either feast or famine, and that all they have to do is to be patient for the return of a rising tide to make all of their business problems disappear. When the tide doesn't rise, what happens? Most successful operators weren’t immune to the downturn and lost some business during that time, but how they differed from their lesser-successful colleagues was the way they connected with clients to find solutions, and their ability to seek out unique opportunities in other segments of the market. Those who sat and waited for the wave of cash probably went out of business by 2010. There are three key points that every livery operation should consider implementing into their business operations. This is a more proactive approach that is not based simply on what your competitor is doing and/or waiting for a rising tide situation. In fact, these actions may develop into a strategy that only works for you in the economic backdrop that we face today and in the years to come, so while it’s good to watch your competitors, it’s important to understand your challenges and address them.

Step One: Competitive Intelligence
You can’t avoid it anymore; you must become your own economist. Since most, if not all, companies in chauffeured ground transportation rely on corporate travelers for much of their profits, you should be spending some time staying on top of the news about the businesses you serve. After all, if they encounter some trouble, then one of the first things on the chopping block is generally transportation.

Your company deserves a real-time analysis of the health of your area’s business sector. There are lots of free financial information sites to help you with your quest, such as Yahoo Finance and Bloomberg. What type of information are you looking for? If you operate in a major metropolitan area such as New York, Los Angeles, Chicago, Houston, Miami, etc., then you already know that many headquarters of publicly traded companies are located in your city (and are quite possibly your clients) and information is readily available. News about their performance affects the values of their stock, which could be very relevant to your business. For example, if a major department store chain is considering closing locations, then any account you have with them could be impacted.

Or how about a more recent example: Imagine you had the Hostess shuttle contract coming up for renewal. Knowing what was happening with its well-publicized labor union dispute, would you have bid as aggressively as usual or let your competitor work for that contract? Before you get that dreaded “we don’t need your services at this time” email, you should be prepared. You could even offer immediate solutions for lower-cost services so that the entire relationship isn’t temporarily furloughed, or that RFP might not be worth the effort at all because the company can only afford half the services at a quarter of the contract value. On the positive side, did you read about how the U.S. may become the largest energy producer in the world? Various types of energy projects are popping up all over the country, and many are in sparsely populated areas. I was recently driving through a small town in East Texas—miles from any major city—with a pipeline project running through it. Guess what? There was a serious transportation and housing shortage. This, of course, isn’t just limited to Texas. So read up on your economic news and discern how it can impact you.

Step Two: Look Objectively at Your Fleet Makeup
We all know the operators who purchased a couple of stretched Hummers only to have the market fall out from under them. While there is nothing wrong with having a unique vehicle in your fleet, operators shouldn’t buy a certain type of sedan, bus, or SUV simply because it seems to be “in demand.” If a certain vehicle is only a temporary trend, then you may not want to load up on loan debt for an emotional decision. Emotions are powerful motivators that can convince you to buy something you shouldn’t based on a fear of “losing out” on business, however what works for your competitors may not also work for your company. I would challenge you to investigate what is right for you and the markets you are pursuing. That fear can also save you from making a mistake before you’ve investigated the alternatives and weighed the results. Consider why so many operators are still on the fence about their next sedan purchases and you can see how this helps.

Of course, if that aforementioned client is struggling and possibly getting ready to reduce or eliminate the need for your services, it may be a blessing in disguise. You only have so many vehicles in your fleet, so you have to decide where to pursue other business instead of “hanging on” to a client that may drop you anyways. If you purchased vehicles specifically to service that client, and there isn’t another account readily available to fill that need, it could be time to shed some of that metal.

Step Three: What’s the Bigger Picture?
My original intention was to write about some of the economic concerns facing our country and worldwide governments that have issued a staggering amount of debt in the form of bonds that eventually have to be repaid. The statistics and facts are out there, but in the end these are issues that we have little control over; we are just left to deal with them. How it affects your business is that all this government debt tends to crowd out private-sector growth, which is generally the market segment from where you derive your income (corporate clients who travel to airports, attend conventions, and enjoy various events). You or some of your peers will be negatively impacted in the years to come, and some may not survive unless they also learn to take a more proactive approach to establishing their markets to protect their business from future economic downturns.

This why it is imperative to examine local, regional, and national issues that could impact your business. This is not only purely an economic pursuit, but also an analysis of the political scene and how the power structures work. Government spending may instead create regional and local opportunities for your business. Municipal bond debt issuance allows for many type of projects to be created that may involve transportation-related ventures. With today’s low-interest environment, it seems that the ability of our city, county, and state governments to issue such low-cost debt will continue to grow for the immediate future. There are a host of municipal bond news websites online that can give you information on what bonds are being proposed or issued. For example, if a certain county created a municipal bond issue that involves a joint private venture to create a regional airport with certain fixed based operators, imagine the opening that would create for you to get in early and start making money picking up executives flying on their private plans. In fact, getting involved with these economic development-type committees and even donating some of your livery resources to promote projects like these can have far-reaching implications for the depth and strength of relationships for your business moving forward.

You, as the owner of your business, have the fate of the entire operation in your hands—in the things you have control over like your competitive intelligence, long-term strategizing, and ability to read the signs. After all, you can’t fix Washington, D.C., nor let negative economic news bring your morale or financial outlook down. Instead, take the time do your own research with the wide array of free economic resources online. Arm yourself with knowledge about the world around you. Great ideas as well as red flags can be found anywhere, so take charge of your destiny. Create a sales and marketing strategy that works just for you, based on the realities of your market forces, and don’t let the world economy dictate YOUR economy! [CD03/04/13]

Robert Logan is the South Texas Regional Livery Sales & Marketing Manager for Houston-based Texas Bus Sales. He can be reached at rloganlimo@hotmail.com.