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  • Writer's picturePhil Villegas

Loaner Agreements Are Useful if They Are Used

By Luis Deville

When a loaner vehicle is lent to a customer, is your dealership keeping track of that vehicle? Does your dealership know who is using it? Many dealerships use loaner agreements to track the use of the vehicle and document important information about the customer who is using it. The problem is that the proper use of loaner agreements is often treated as an administrative function that is not prioritized and not enforced as much as it should be. Loaner agreements are intended to protect the dealership and these forms only work if they are used, and accurately completed.

We find some dealerships have become relaxed about documenting loaner use. In our internal audits, we have noticed that some forms were missing important information about the customer such as the customer’s address, signature, and insurance information, or the forms were missing altogether. This information is critical if your loaner vehicle is involved in an accident. Lack of sufficient customer information on a loaner agreement can create risk for your dealership. We also find the vehicle condition is often overlooked and by the time the vehicle is taken out of loaner service to be sold, the party responsible for the damage is unknown and the cost to repair is no longer able to be recovered. Furthermore, we often find “mileage out” and “mileage in” data are inaccurate or omitted. Mileage is often a key component in complying with manufacturer service loaner programs where insufficient or excess miles can potentially disqualify a unit for incentives, resulting in additional unrecovered losses. Lastly, loaner agreements can serve as effective means to validate a missing unit during a physical inventory count.

Management should design and enforce a loaner process requiring loaner agreements to be completely filled out prior to releasing the keys to a vehicle. We recommend loaner agreements contain the following information:

  • Customer information – Name, address, phone number, driver’s license information, insurance information, date of birth, and customer signature. Note: copies of the customer’s driver’s license and proof of insurance should be kept as additional support to mitigate risk stemming from data entry errors or omissions on the loaner agreement itself.

  • Repair order number.

  • Loaner vehicle information – Year, make, model, color, vin number, and stock number.

  • Mileage of loaner vehicle before it is given to customer and after customer returns it.

  • Date and time when customer obtains loaner and when the customer returns loaner.

  • Amount of fuel in the loaner when customer obtains the loaner and returns it.

  • Vehicle condition report before customer takes loaner and after it is returned.

We also recommend periodic loaner audits as part of the vehicle physical inventory process. If a unit is missing, confirm existence of a valid loaner agreement. If a loaner is present on the lot, check its mileage against the most recent loaner agreement on file to confirm if the vehicle is being used without being documented.

As the saying goes, an ounce of prevention is worth a pound of cure. Take the time to ensure your loaner process has your dealership properly protected.

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