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Service loaner abuse, when 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 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 in a high volume prevent detailed analysis and complete review. 

One area that often if overlooked in service is the cost of rentals and service loaners.  Customers often 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 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 only to find excess 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 losses. 

Here is a best practice your dealership can implement to mitigate this exposure:  One of our clients had a very well documented loaner inspection sheet and walkaround process paired with a detailed loaner agreement which stated exactly when the loaner was due back in the shop.  In  once example, a loaner was due 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 maximum allowed miles per day.  The dealer released the customer’s repaired vehicle only upon collection of over $1,000 excess 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 document 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 to keep these expenses at bay. 

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