Service Loaner Abuse, What You Can Do to Prevent It
By Marilou C. Vroman, CPA, CFE
Those who know me know I tend to focus on fixed operations because I find this to be the area with greatest opportunity, and often some of the greatest risk. Parts and service transactions tend to be a bit of a blind spot from an internal control perspective because the focus is traditionally on vehicle sales and repair orders tend to accumulate quickly in a high volume environment and therefore operational risks can be overlooked.
One area that is often overlooked in the service department is the cost of rentals and service loaners. Customers typically expect a replacement vehicle as part of their service experience. For vehicles under warranty, this benefit is often paid for or subsidized by the manufacturer, either via reimbursement of rental days, or by requiring a fleet of loaners to be in place which are eligible for additional incentives and other credits to offset their cost.
While there is often no rental cost to the customer, we have seen instances where there should have been. We have seen customers take advantage of a free loaner or rental vehicle by scheduling service when they had planned an extensive road trip; putting excess mileage on the dealership’s vehicle instead of their own. We have also seen cases where loaners have been returned to the dealership without a proper walk around resulting in excess wear and tear body damage or mileage being charged to policy or loaner expense which could have otherwise been collected directly from the customer or claimed from the customer’s insurance. Worse yet, we have seen dealers with vehicles loaned out but with no record of a signed loaner agreement, no customer driver’s license and/or no copy of valid insurance when the loaner vehicle was released – all items exposing the dealer to potential losses.
Here is a best practice your dealership can implement to mitigate this exposure: Require the completion of a detailed and thorough loaner inspection sheet for use in the vehicle walkaround process, paired with a detailed loaner agreement which states exactly when the loaner is due back in the shop.
In one loaner success story, we observed at a dealership, a loaner was due back the next day after the repair order was opened. Instead of the loaner being returned the next day, it was turned in five days later, with 1,700 additional miles. Fortunately for the dealer, the customer’s loaner agreement very clearly stated the customer would be responsible for a charge of $150 per day for every day the loaner was not returned beyond the due date and a $.79 cent per mile charge, and the maximum allowed miles per day. The dealer released the customer’s repaired vehicle only upon collection of over $1,000 excess loaner usage charges. These charges helped the dealer to offset the excess depreciation incurred on the vehicle over and above normal use.
Loaners are an investment in customer satisfaction. Simply having a well-documented loaner policy, complete and well documented loaner agreements, as well as a thorough vehicle inspection process, might just be enough to deter abuse of loaners, or at least recover some of the cost of keeping customers satisfied, and keep loaner expenses at bay.