Why Are "Free Loaners" Okay With DRPs?
In some DRPs, deductible waiving is prohibited and can result in revoking the agreement. So why is it okay to provide a “free loaner” which could influence a consumer even more?
Six or seven years ago, a repair facility could go to an auto auction and purchase a vehicle for less than the fair market value, put it into service for six months with insurance and then turn around and sell that vehicle, covering most or all of their costs in doing so. As the used car prices have escalated and the demand for salvage is high, the profit margins for this business practice have dwindled, and it usually becomes a direct cost to the business.
While the loaner can be accounted for as a true “cost of doing business,” waiving deductibles would lead to many variables and inconsistencies, making a carrier nervous about estimate accuracies.
The management and strategy issue here has to do with assessing the numbers of your loaner car program. After all, insurance carriers continue monitoring the performance of the repair industry and the effect that it has on their rental car expenses. A recent key performance indicator (KPI) showed rental car expense per claim ranging from a high of $227 to a low of $142 within the shops contained in their repair program. Several KPIs ought to concern repairers: What causes the costs to vary and to go up? Are there delays caused by a certain carrier and should the shop reconsider their loaner program for customers who have chosen that carrier? What are the profit margins with various carriers that condone this expense? After making these calculations and assessments, it becomes clear that loaner cars are an important business expense that shop operators must keep a close eye on.
Ray Fisher is the vice president of ASA-Michigan. This article represents his opinion and does not reflect the views of ASA-Michigan.