Start a Limousine, Taxi, or Driving Business

 

Car Sharing — Peer-to-Peer Transportation

Skirting California’s restrictive, outdated, and expensive Limo/Taxi Laws?

Game Changer  If this catches on, traditional taxi/town car service could go the way of the record store (Remember Tower Records or BlockBusters–most people thought they would never close their retail stores).  As it turns out, there’s a new industry based on Smart Phone Apps that allows people to share rides.  This has been going on in the Bay Area and as of Jan 2013 in LA, on one hand it achieves a long-term state goal of encouraging ride sharing.   As you will recall that was the original motivation behind Diamond Lanes.  People would car-pool so they could get to work faster.  These apps have been public for a long time, and the companies behind them say that they are legit.  So it’s hard to say where you can draw a line between being a taxi/limo and basically doing the same thing by asking a few bucks to share your ride.   The deal is that ride-sharers don’t pay you directly, although a few dollars might fall on your floor accidentally, they pay make a donation via the Lyft app.  And, you are not allowed to solicit your service other than through their website.  That means you cannot go around and ask people if they need a ride, advertise on your car or internet, or use words such as taxi, limo, car for hire…

There is no reason that you cannot participate in several peer-to-peer networks; and take the rides that are the most financially beneficial.  For instance, you might use Lyft during the day, occasionally pick up a higher paying passenger on Uber, and if you go to Vegas on the weekend anyway use Zimride to pick up a some extra spending money.  There are drivers in the Bay Area who are putting in about 40-50 hours/week.  (fn1)

Taxi Companies strike Back.  But the taxi companies, which are licensed by cities, are using their political connections to strike back.  As can be seen in this CBS2 Video they are arguing that smartphones are being used as de-facto meters and hence the local government should regulate these services as taxis rather than the state’s Public Utilities Commission.  They also make a public safety argument in that these cars are un-safe and that drivers are not trained as well as taxi drivers driving a taxi cab.  (Some people who have ridden in a taxi might find this questionable.)  But the ride-share companies point out that they do have driver/vehicle requirements and they are safe per CPUC regulations.  

Lyft has reached a settlement with the California Public Utilities Commission (CPUC); but apparently they have to alos make agreements with each city they arrange rides in.  (see company website)

  • Lyft www.lyft.me/drivers  claims you can set your own hours, and make about $35/hr and they provide $1 million dollar if the ride was arranged through their website.  Drivers are screened (DMV–no more than 2 tickets on your records in the past three years, you must be older than 23 and there is no maximum age, Criminal Background Check, Cars must be less than 12 years old FN3); and they check out passengers to make sure they are using a legit credit card, identity, and Facebook profile.  (Okay, apparently a weirdo doesn’t have a Facebook page?  We’re not sure how this works.)  And if a passenger has issues they can dump him/her from their system.  It is our understanding that based on the deal Lyft cut with state regulators, you do not need a special licence to drive with this service.  A CBS2 Report of the service in LA noted that about 50% of the drivers are in the entertainment industry where a flexible schedule is important; and the net cost to the passenger is about 30% less than a traditional Taxi.

Lyft Insurance  According to their website “The Lyft platform provides drivers with excess liability insurance up to $1,000,000 per occurrence. This first-of-its-kind solution offers peace of mind for both drivers and passengers.”  We are not exactly what the difference between liability and excess liability insurance.  We assume that you must carry a basic insurance policy.    

Click her to see their Lyft Commercial

  • Another company in this space is SideCar  www.side.cr  This company will be coming to LA soon.  As with Lyft, they take about 20% of the donation.  They track your ride with GPS, and passengers rate their driver.  Low rated drivers are just dropped from the program.  As with the company above, they are skirting the law by just arranging rinds and letting customers make a donation via their app if they choose to do so.  The app suggests an amount.   If your donation is low, we assume you’re kicked off the system.  Insurance you are required to have your own policy and they keep that on file.  There does not appear to be a blanket policy.  

 

  • Uber–as their name implies this company is going after the corporate/Luxury or “higher end” of this business https://www.uber.com They offer to be the customer’s Private Driver.  And they are accepting drivers in Orange County.  Their drivers have Lincoln Town Tars, Mercedes-Benz S-Class, Cadillac SUV’s .  According to their CEO (see video below) riders can expect to pay 50% more than a cab.  It’s about an experience and efficiency–Uber Riders are willing to pay extra for the luxury.   As of April 2013 Uber required drivers to have a TCP Licence (see below), but based on the deal Lyft cut with the CPUC, they may be dropping that requirement soon.  (source)  But Uber was requiring drivers to carry their own insurance commercial insurance policy, we don’t know if/when they will get a blanket policy for all their drivers.  Link to Uber Driver training video

 

  • Zimride www.zimride.com  This company operates like the others, except that it’s focus is on long distance trips.  It looks like people are charging the cost of gas for each seat.  For instance between the Bay Area and LA. They have a nifty booking system (think Travelocity for rides), that allows you to specify the departure, destination areas along with your desired travel date.  They will give you options with the closest cities you picked on your date.  For instance, consider a weekend trip to Vegas from Anaheim.  We found someone who is going there anyway and is leaving on Friday Morning and coming back on Sunday.  They have three empty seats in their care and they are offering them for $40 each =$120.  Well, if you are going anyway that’s another $120 for Vegas fun.   We also found trips from Santa Ana to Phoenix, trips to the Bay Area …  Both parties benefit, because the driver is spending money for gas anyway and the passenger is paying a lot less than the cost of flying.  

 

  • Don’t make side-deals.  Some drivers may want you to cut out the network’s fee.  But if you don’t make the transaction through the network, their “extra” insurance will not cover you.  And your personal insurance policy will probably not cover you if you are driving people for money even if you have “full coverage.”
  • Insurance required by Peer-to-Peer Ride sharing Networks We’ve been looking into this, and there is not clear answer. Do you need a commercial policy with the higher limits required by California Law (see below) or can you get by with your personal policy that you are already paying for?  We got two different answers.

(you only need a personal policy) We asked the most well known peer-to-peer Lyft and they told us, “Drivers must have valid insurance in accordance with California state law.”   And when we asked for clarification on which law applies, they responded by stating that “We require drivers to have, at minimum, a personal policy that is compliant with California Vehicle Code § 34630 and California Ins. Code § 11580.1b.”  So they only require California’s 15/30/5 minimum personal policy to get on their network.  See Vehicle code 34630 and the DMV’s explanation of code 11580.1b 

(you need a commercial policy) But we had our insurance experts look into the matter and they have a different opinion of the law.  According to Lancer Insurance’s underwriters at understanding of California’s law,  you “would need a commercial policy.” (see below for more info on commercial policies)  Of course, this policy would probably cover your personal driving so you wouldn’t have to double pay for both a personal auto policy and an commercial policy.

 On one hand, if you are just sharing rides it would seem that your personal policy would be sufficient, but on the other hand if you are receiving compensation, you would not be covered under your personal policy so you need to buy a commercial policy.  The bottom line is that because this is so new, the experts are not sure.  But you can get driving on Lyft with just your personal policy.  

→ Update — More Information (When readers send us relevant info, we try to include it in the article.)

The Insurance Gap Problem Again we’re not insurance experts, but it appears that the policies have become so complex that nobody knows what’s covered in this industry.  A SFGate article exposed the problem of and Insurance Gap.  Basically, this article indicates that it’s a good idea to have a commercial policy, but that they are not available at an affordable rate if at all.  Many drivers have been using their personal policies to on the way to pick up clients and believe that when riders are in the car the car sharing services supplemental policies will cover them.  But if you are driving to pick up a paying rider, your regular California personal policy might not cover you.  The article suggested that drivers get a “customized personal policy” or let the insurance co know that they will be using the vehicle for business.

The implication seems to be under the current set-up that if you crash your car you could just plan to  tell everyone you were going out with your new friend and not mention the mandatory donation afforded to you by the car sharing companies, but as explained in the article that’s insurance fraud.  But the possibility of not being covered is a risk that apparently many drivers are willing to take.  If you get pulled over for a ticket, it’s possible that the police officer will not be able to figure out whether you are covered at the particular time you are driving under a personal policy, she will just look at your proof of insurance card verify that you have insurance.

This article brought up some interesting facts about the blanket policies that ridesharing companies provide: The oft-cited $1 million liability insurance also has its surprises. Many drivers don’t realize that it never covers damage to their car. It only covers damage and injuries to passengers and other parties and their property, and only if the driver-for-hire is at fault. If another motorist with cheap insurance or no insurance is at fault in a crash, a driver working for Uber, Lyft or Sidecar could be left in the lurch.  SF Gate Article Drivers for Uber, Lyft stuck in insurance limbo by Ellen Huet.

You may also want to check out this interesting Businessweek article that talks about the changing industry, liability issues, and hostility from old-school cabbies.

→ UPDATE The Insurance Gap Closes ←

 Lyft has changed it’s policy so that it deals with this “insurance gap.”  Their insurance is now valid from the time you accept a ride request on their app until the ride is over.  From their website:  We created our $1M liability and uninsured/underinsured policies as excess over a driver’s personal insurance. The excess coverages will also drop down and act as primary insurance when the driver’s personal policy doesn’t respond.  And according to a note on RE/Code,  “MetLife Auto & Home is now working with Lyft to develop personal insurance policies for its drivers, the companies said today.”  So it will be possible to buy a policy that covers you personally and while driving for a service at a reasonable price.  

Other companies are doing the same sort of thing, but be sure to ask about your coverage when you sign up to be a driver.  Are your covered on the way to a pick-up, is your car covered, are you covered if your personal policy doesn’t pay because you are associated with a car sharing service?

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Traditional Taxi and Limo Services

Now we are going to look at the California’s regulations if you want to drive passengers for a living; and you are not involved in a peer-to-peer transportation network.  While the first part of this page turned out to be all about skirting these regulations, the second part of this page is about the regulations you have to follow to get into the taxi or limo business for yourself.  Regulations are the biggest issue you will have to deal with if you choose to get into this business; we put the ride-sharing option first because that might be where the industry is going as smart phones, social networks and cloud computing seem to be making regulators irrelevant.  But don’t expect regulations to go away anytime soon, government agencies never like to shut down; and their are vested interests in restricting competition.  And money talks in Sacramento, so it’s possible these vested interest will find a way to shut down the peer-to-peer networks.  So it would be wise to invest your time in understanding what you need to do to get started before you invest in a car.

Driving License Requirements

There are two types of regulations that you have to deal with.  The DMV mainly focuses on safety regulations.  Simply put: Can you drive and is your vehicle a dangerous?  You are required to have a regular California Driver’s license.  This is referred to as a “Class C” license.  If the vehicle is designed to hold ten or more people, (There is some contradictory information on the web.  The driver may count as one of the people.  That means that if the front seat holds two people, the back of the car can hold no more than 8 people.) you need to get a Passenger Vehicle Endorsement from the DMV.  http://www.dmv.ca.gov/pubs/cdl_htm/sec4.htm#sec4 You may also be required to get a Class B license if the vehicle is long and designed to hold more than 15 people but less than.  To get a permit from the authorities listed below, you will have to give the DMV permission (Pull Notice Program) to report driving problems — tickets, accidents, legal issues … to the agencies.

While in other states this might be enough to get started, this is California and we have another regulatory authority to deal with.  With the exception of taxi service, medical transport, and transportation within a city, you must have a permit from the California Public Utilities Commission (CPUC)  There are several ways to get licensed/permitted by the CPUC.  The most common is to get a Transport Charter Party Carrier (TCP) Permit P  This is one of the least costly at $1,000 to register and $100/year to renew.  There are several options and you should review information in the document entitled Basic Information for Charter-Party Carriers and Applicants, before you send in your application Form PL 739 and check.  These can be found on the CPUC’s website here http://www.cpuc.ca.gov/PUC/transportation/Forms/carrierforms.htm  Basically, becoming a TCP means that you will be taking passengers by appointment and cannot solicit rides along the way.  Even though every one knows what a limo looks like, you cannot advertise or have a “for hire” sign on your car.   Although there may be an exception for website addresses, but we are not sure.

After you get your appropriate permit or license from the CPUC, the DMV will issue your special licence plates — Livery Plates.  You need these to drive legally on the road without having to deal with law enforcement.

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Taxi Service The main difference between a limo and a taxi service is that a taxi can pick up people who request a ride along the road, and can have a lit sign indicating that they are seeking passengers.  Taxis are regulated locally and not by the CPUC.  To operate a taxi in Orange County, you must get your Taxicab Permit from www.octap.net the Orange County Taxi Administration Program.  This is an agency run by the OCTA which provides a consolidated permit to operate in all the participating cities.  (Each city has the power to independently set up it’s own rules and regulations for taxis; so things could get really complex for drivers.  For instance, Anaheim is not in this system and restricts pick up to three big taxi companies.  See below.)

OCTAP requires three permits: a Company Permit You will be required to have an answering service, accept credit cards, have an official lost and found policy, and have a newer well-maintained car.  If you have a criminal background — including being busted for pot — forget about it.  See http://www.octap.net/regulations.pdf  a Drivers Permit that consists of a background check … and a Taxi Permit  The Taxi permit requires that your ride is in good working order an had not been modified.  It has to meet the signage requirements, be clean inside and out, and have required interior information for passengers.  And it must not be older than 10 years old.  In other words, it wouldn’t be practical to use your family car as a Taxi on weekends — there would be too many modifications.

Click here for a more complete list of California licensing options

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You must be drug tested and implement a program of alcohol and drug education even if you are a single person operating the company.  You will also have have to be fingerprinted (taxis) and pass a background check. [/box]

Insurance Requirements

According to California’s Financial Responsibility Laws, a driver must have a minimum policy of at least $5,000 in property damage liability and $15,000/$30,000 in personal injury liability.  But if you are being paid to drive passengers, the minimum are higher.  According to Lancer Insurance the minimum California requirements are:

  • $500K for sedans 1-8 passenger (no airport pickup) (John Wane Airport Requirement– $750,000 for 0-7 passenger vehicles.)
  • $750K for a stretch 1-8 passenger (no airport pickup) (JWA requirement– $1.5 M for 8-15 passenger vehicles)
  • $1.5M for all other types of vehicles (8-15 passenger), limo-buses will need $5M (15 or more passenger) (JWA requirement — $5M)
  • Taxi Service–OCTAP requires $1M liability/$100,000 property damage and a deductible not greater than $10,000 plus special endorsements  

Airports require higher amounts of insurance to pick up passengers from an airport in the Ground Transportation Hub (see below).   We would recommend that you consider getting more than the minimums.  Increasing your coverage may not cost as much as you think–but you need to shop around because unlike personal driving coverage the competitive pressures are not there.  An agent who does not specialize in this type of insurance may just quote you what her company is offering.  And if her company does not want that exposure, they will just quote high prices.  And you might get a better deal on a package that covers your business as well.

Also we should point out the  Insurance Myth that you can use your personal insurance to drive a commercial vehicle.  Yes in most cases you will have liability insurance if your drive a car other than the one named in your policy.  From what we understand, this is just wrong to say that insurance will cover you if you are being paid to drive–as soon as you accept money to drive your insurance is either void or dropped down to the low minimum levels.  This even applies if you call the money that passengers give you a “gift,” “donation,” or have told your insurance agent that your just happen to drive a limo as your personal car.  Just to be clear, your personal insurance policy may not cover you.   Don’t take your agent’s word, make sure your policy states in writing that you have commercial coverage.

You may also want to get some form of business insurance that covers you if you clients get mad.  For instance, they might sue you if you got lost and they did not make it to their big event or your ride was not up to their standards.  This happens a lot in California.

Insurance Tips

Many of the limousine insurance coverages which focus on the vehicle(s) mirror those in the private passenger sector. But frequently, the amount of coverage, or coverage limits, are considerably higher.  According to Matt Mushorn, senior underwriter for Lancer’s LimoDirect Insurance Program (www.limoinsurancedirect.com), “the amount (or limit) purchased of Comprehensive Automobile Liability for a limousine company, ranges up to $5 million combined single limit per occurrence for: bodily injury, property damage, and, for larger fleets, non-owned & hired car; and employers non-ownership coverages.  A wide range of deductibles can be selected to help reduce premiums for the liability insurance coverage. PIP (Personal Injury Protection), UM (Uninsured Motorist) and UIM (Underinsured Motorist) coverage limits are mandated by the individual states in which the company operates its vehicles,” added Mushorn.

“Automobile Physical Damage coverage, commonly referred to as collision insurance, covers the vehicle itself up to a specific value (e.g. $25,000),” explained Mushorn. Coverage is also provided for fire, theft and combined additional coverages. “Automobile Physical Damage coverage is usually offered with a minimum deductible of $500 per vehicle,” he added. Not directly related to the vehicle, but a key coverage nevertheless, is Commercial General Liability insurance. This provides the limousine company protection from:

  • Bodily Injury and Property Damage;
  • Contractual Liability (written contracts only); and
  • Personal Injury

Follow these tips to lower your costs:

  • Get several quotes from brokers that specialize in limousines/commercial coverage
  • Consider higher deductibles to reduce your premiums
  • Rates or availability may depend on your credit score, so check your credit history.
  • Include a business narrative with your submission to an insurance carrier
  • Remember, most insurance companies will not insure older vehicles or vehicles that are not QVM or CMC certified
  • Ask about discounts for anti-lock brakes, air bags and other safety features

fn2

Getting Into Prime Locations

One of the places that people need to get a ride is to the John Wane Airport.  Generally there are no restrictions on dropping people off at the airport.  But if your customers want to be picked up at the airport, you need to have a Ground Transportation Permit.  You need to meet their minimum insurance requirements and have the airport/county named specifically named as an additional insured.  There is also about a $3 fee that the airport charges you for each time you pick up from the airport.  And if you hire a driver, you need to have a workers comp policy with minimum $1 M coverage.  The Airport Authority has the application on-line with detailed instructions.  click here

As a limo operator, when you do business at the airport, you are regulated by the California Public Utilities Commission; and you must obtain a TCP permit from them.

Anaheim Resort Area/Disneyland The hotels near the Anaheim Convention Center and the Disneyland Resort and the City of Anaheim are entering into exclusive deals with cab companies.  According to a lawsuit, these arrangements allow the Greater Yellow Cab company controls about 80% of the business from taxi stands in the Resort Area (see article)  On May 8, 2012 the city awarded taxi permits to three big companies doing business as Greater Yellow Cab Co, California Yellow Cab Co, and A Taxi Cab.  So if you are an independent or work for another company the chances of cashing in on the lucrative Anaheim tourist market are slim to none.   So apparently even if you have your permit from OCTAP you cannot pick up customers in Anaheim.

 

Capital Requirements Limousine

There is a wide range of prices when it comes to Limousines.  One place to look locally is Craigslist.com.  People get into this business and then need to upgrade or do something else.  Another place to look at used Limos is http://limoforsale.com/ .  They have a bunch of limos for sale and you can see what they are going for.  There are advantages and disadvantages to buying a car that’s a few years older.  Prices are a bit lower, but people want you to show up in a newer ride.  After a vehicle gets to a certain age, lenders will not make a loan on it.  So the prices of those vehicles go down a lot.  Another thing to consider is that you want to buy a car that is from Southern California.  If you buy one from another state, an older Limo may have problems getting it smogged in California; and if it comes from an area where salt is used to de-ice the roads there may be significant rust damage to the bottom side of the car.

Capital Requirements to start a Taxi Business

There are some places where you can just plug an “in service” sign into your cigarette lighter and start picking up customers.  Orange County is not one of those places.  We don’t want to get too political and state the obvious that the big companies have tried to limit their competition by making it hard for the independent guy to get in the business, but that’s what has happened over the years.  Because of the licensing requirements and the high standards for taxi cabs, it does not seem like you can use your personal car and do this as a weekend job.  And the big companies have exclusive deals with tourist places in Anaheim.  Since people like to go with well-known companies most of the people getting into this business buy a cab from a major company and work with that company as an independent contract driver.

 

Marketing your Service

Finding customers will be challenging.  One company Limos.com is trying to become the Priceline of limo service.  It works with local limo owners to sell their services.

 

We really need more information on this business.  Please contribute.

This is a video that we came across. It discusses the fact that a lot of limo companies are operating without licensing.

 

 

FN1  Hours worked and fee structure estimates were based on a well written Forbes article 

FN3  They must 2000 models or newer when we were writing this in 2013.

Some information was provided courtesy of Lancer Direct Insurance.  OCBusinessStartUp.com did nto receive any compensation from any company listed above.  As we made clear, we are not experts on this subject.  And free information you find on the internet may be worth significantly less than you paid for it.  If you find any big mistakes in addition to spelling, please let us know.

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