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The Benefits of Free Loaner Vehicles

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An important aspect of solid customer service is making the repair experience as painless and hassle free as possible for the customer, says Frank Dischinger III, owner of Frank’s Servicenter in Southampton, Pa. And the biggest customer inconvenience when it comes to auto repair, he says, is being left without transportation.

Customers have busy lives, so anything your shop can do to allow clients to go about their typical daily routine while you deal with their broken-down vehicles can go a long way.

Providing customers with free, reliable transportation during the repair process can fill that need. Offering loaner cars is an appealing, value-added benefit that can differentiate your business from competitors and draw customers to your door.

Dischinger and fellow shop operator David Moore, owner of Moore Automotive Service in Traverse City, Mich., share how they implemented successful loaner car programs and how to make it work for your location, too. The loaner car effort is easier to manage than you might think, but there are a few operational and liability issues to consider before getting started. Here are nine steps to ensure you do it right:

1: Identify vehicle needs.

Dischinger has four vehicles onsite—two cars, one SUV and one pickup truck. He selected four different sizes and styles of vehicles to appeal to a variety of customer preferences, needs and passenger capabilities. It’s impossible to have the “perfect car” to fit the needs of every individual customer, but Dischinger recommends paying attention to your customer base to identify the types of vehicles your shop could benefit from the most.

2: Identify an ideal fleet size.

If you advertise the loaner service, it’s ideal to have a vehicle available for anyone who needs one. The more cars you have available, the better. Of course, limited finances won’t allow most shops to fill up their parking lots with usable cars. Dischinger recommends initially acquiring as many as you can possibly afford, and adding to the fleet size as new money becomes available.

3: Acquire the vehicles.

Dischinger purchased all four of his vehicles from a local auto auction for about $10,000 each.

Moore also suggests keeping an eye out for vehicles to acquire through existing customers who are in the market for new cars. Look for customer vehicles that are clean, well-maintained, reliable, low mileage, and require only minor repairs. Moore purchased one of his two loaner cars, a 2002 Mercury Sable, from an existing customer.

4: Insure the vehicles.

Moore tacked on auto insurance for each of his loaner vehicles to his existing business insurance coverage. Insuring the vehicles added roughly $1,800 in annual business costs.

5: Create a rental agreement.

Dischinger had the right idea in mind when he first implemented the free loaner concept. He just didn’t have the right execution.

He started out loaning his own personal vehicle that was insured through his name, not the business. And he didn’t realize the mistake until one customer had a wreck. There was no agreement in place for who was responsible for what, and Dischinger says the insurance issues that followed “were a mess.”

Any time you loan out a piece of your property, there are liability issues that must be considered, Dischinger says. “Accidents are going to happen, so you need to make sure you have agreements in place to protect the liability exposure of your shop.”

Now, Dischinger has a loaner vehicle agreement in place that every customer signs when checking out a car. The agreement details the circumstances of the rental situation and who is responsible in the event of an accident.

“You need a signed loaner agreement in order to enforce the policies you have in place,” Moore says. “Otherwise, nothing is enforceable and you’re completely liable for everything.”

Every shop operator should seek assistance and approval from an attorney and insurance underwriter when creating their loaner agreement. But here are the basic elements that should always be included to help protect your business:

Accident policy. There are multiple ways you can detail an accident policy. It’s up to you as the business owner to consider the amount of liability and responsibility you want to take on.

Dischinger’s agreement, for example, states that the customer’s insurance will have primary responsibility in the event of an accident. His insurance is secondary. Meaning, the customer is responsible for replacement costs, and his insurance policy kicks in only if the amount of damages exceed the scope of the customer’s insurance policy.

Moore, on the other hand, took the opposite strategy. His insurance plan carries the primary responsibility and the customer’s is secondary. Moore carries $1 million of liability insurance on his vehicles. The customer is always responsible for paying the $1,000 deductible.

Valuation calculations. Detail how the value of the car will be determined in the event of a loss, Moore says.

Minimum age requirements. Dischinger says the younger the driver, the higher your insurance rates. The minimum age a driver can be is 18 since they must enter into a legal agreement, but it’s not recommended to set the age that low. Dischinger’s insurance underwriter suggested setting the minimum age at 21, while Moore’s insurance agent recommended setting the age at 25 to keep insurance costs at a minimum.

Driver definition. Dischinger’s loaner agreement stipulates that only the specific customer who signs the agreement is qualified to drive the vehicle. That’s an insurance requirement to define who is responsible in the event of a loss.

Proof of credentials. Every customer should demonstrate proof of driver’s license and auto insurance before receiving the vehicle.

6: Make sure they’re clean.

You want to have clean, nicely serviced vehicles to loan out, Dischinger says. Putting customers in dirty vehicles could develop more of a negative perception than a positive one.

Dischinger contracted a local company to regularly clean and wash the cars, and his technicians perform routine maintenance when necessary.

Moore also prohibits smoking in the company vehicles to protect their integrity. Customers are responsible for interior detailing costs if any evidence of smoking is present—smell, ash or burn holes—to bring it back to pre-use condition.

7: Create a gas policy.

Shops should not be responsible to pay for the customer’s gas usage. Dischinger loans out every vehicle with a full gas tank, and asks that it be returned the same way. He put a sign on each vehicle’s dash that reads, “Please refill before returning.”

8: Market the offering.

Dischinger prominently promotes detailed information about the loaner cars on the shop’s website so consumers quickly see the offering when they’re researching the shop.

9: Consider your scheduling.

Although it’s ideal to have a car available for every customer, small shop operations can only afford to have so many cars on hand. That’s the biggest challenge Dischinger has had to overcome with only four loaner vehicles onsite, which are in use most days.

That’s where scheduling comes into play. Dischinger says most customers in need of a loaner will wait to schedule the job until one is available. To make that happen, you need to know when each car is scheduled to return.

“That’s some added work for the service advisors. They really have to keep on top of that, and technicians have to make sure jobs are completed on time. Things can get tight as far as scheduling if you’re not on top of your game,” Dischinger says. “But it’s still worthwhile. The added work is outweighed by the benefits 10 times over.”

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