We’ll Get You There

May 1, 2012
Free loaner cars maintain customer loyalty and help generate referrals.

After 20 years in the collision repair business, Louis Sharp knows the importance of staying a step ahead of the competition.

One of the most effective and simple strategies Sharp, who owns Sharp Auto Body in Island Lake, Ill., ever implemented to do that was a free loaner car program. The idea came to him after a customer sat in his office for more than an hour waiting for a rental car from a company. As this customer sat frustrated in the shop, Sharp knew that even though it wasn’t his fault, the customer was likely associating that bad experience with the Sharp brand.

He had to come up with a solution, and free loaner cars seemed to be it. Seeing it as a way to relieve customers who don’t have rental coverage and strengthen relationships with insurers, the program has been a big business builder for Sharp. Neighboring shops have noticed, and some have tried to put similar programs together.

“They’re trying to keep the pace,” he says. “But they can’t.” 

FenderBender talked to Sharp and three other operators—Larry Geider of Auto Masters in Derby and Wichita, Kan., Ray Czupta of Central Avenue Body Shop in Minneapolis, Minn., and Dennis O’Connell Jr., chief operations officer at Suburban Auto Body in Little Canada, Minn.—about their successful loaner programs. They broke down how a loaner, or courtesy program, works, the benefits, and what you need to know to make  it a valuable contributor to your shop.

How It Works

A loaner car program can operate in a variety of ways, largely depending on whom you want to offer the cars to. Some shops offer free loaners to all customers, others only to customers without insurance coverage of a loaner. Here is a general breakdown of considerations a shop needs to make before starting a program:

Determine the customer: Shops need to be clear about who qualifies for a free loaner car. At Sharp’s shop, anyone can get a loaner car. Customers who don’t have rental coverage get the cars for free. But Sharp says he reimburses his customers who have minimal rental coverage, so that they still get to drive for free while their car is being repaired. For example, if the insurance company will only pay $15 per day for a rental car, then Sharp will pay the remaining balance of what the rental company charges. Customers love this because either way they get to drive for free, he says. If you don’t want to offer the service to all customers, put your criteria in writing and stick to it.

Set the rules: Have customers show a valid drivers license and insurance. Most shops protect themselves from any liability by making sure customers have the proper insurance coverage that allows them to drive a shop’s vehicle. But shops with their own vehicles will also need vehicle coverage in case something happens to a loaner car when it is not with a customer.

Do the paperwork: Run a formal contract by a lawyer, or at least another shop owner you can trust. Make sure the agreement is compliant with state laws. You want to be sure it covers who has to pay for what if the customer wrecks your vehicle. Also address things like gas—the customer is responsible for filling up the tank, or they can be charged. Czupta charges $100 for a low tank.

Communicate: Be crystal clear with customers about what is expected. Even if they sign paperwork saying they are responsible for damages, they can claim they didn’t understand the agreement if you don’t have that verbal exchange with them, Czupta says.

Find a fleet: You can get cars from used lots, from your own collection of cars that you don’t want, from customers who want nothing to do with their wrecked vehicle, or you can purchase new ones. Shops that don’t have their own fleet can still offer loaners through their rental car partners, but it can end up being more expensive in the long run because the shop will have to cover the rental fee. 

The Benefits

Happy customers. They have a way to get to work while their car is out for anywhere from a few days to a few weeks. “They’re relieved,” Sharp says, noting that people are often going in different directions from their children and spouses. “It takes the pain away.”

Sharp says 75 to 80 percent of his customers don’t have rental coverage, so he helps out a lot of people each day at his shop.

Some owners say the occasional customer gets a bruised ego if the car isn’t brand-new or more than a decent-looking beater. Most, however, are so grateful to have any car at all that they refer the shop to friends and family.

It gives you a leg up on the competition. You can offer something that perhaps other shops in your area don’t. This is a major added value when making the case to customers that they should choose your shop.

It strengthens insurer relationships. Sharp says one insurance company sent post cards to customers letting them know they could save money on their policies by dropping their rental coverage. No need to pay for coverage when they can get loaners for free should they get into an accident.

It boosts CSI scores. Sharp notes that his CSI scores are consistently around 95–98. He is confident that loaner cars keep his score high.

It’s a marketing opportunity. Some shops, like Auto Masters, use loaner cars to promote their businesses. They do this by adding their logo and information to the car, transforming it into a traveling billboard.

Worth the Cost

The cost of offering a free loaner program comes down to what you pay for vehicles, maintenance, and insurance, which can vary widely. Bottom line: It’s up to you how much you can spend and what you can offer. Here are some different takes on the cost of a loaner program:

Greider: He makes available 70 loaner cars throughout three collision repair facilities and two service centers at his company. He typically keeps cars ranging in age from five to 15 years, and in price from $3,500 to $6,000 apiece. He keeps the oil changed and maintenance up, which costs about $3,000 per month. He estimates tags and taxes on the cars costs about $12,000 per year.

O’Connell: O’Connell started small in the 1980s, when one customer’s $4,500 car would have cost more than $2,000 to fix. “I don’t want it, whatever,” he recalls her saying. So he bought the car for a discounted price, and began his loaner program there. Shops don’t have to go all or nothing to offer the service.

Czupta: He says back in 1981 when he opened his shop, he offered two free loaner cars—and one of them was his wife’s. He’s had as many as 15 loaners, but he currently has eight. He looks for high-mileage vehicles that look good and operate well. For example, he has a 2005 Chevrolet Cavalier with 125,000 miles on it.

His cars usually last about two years, and they typically cost $2,500 each, with another $500 to $700 of other costs incurred during their use at the shop.

Sharp: He keeps a fleet of 10 cars on hand, and keeps an eye on his profit-and-loss statements. He tries to keep his losses and gains within 10 percent. If he loses money on the program, he says he always makes up for it in sales because it’s such a well-received service for customers.

What Else You Should Know

As another added value, you can deliver courtesy cars to the customer as they go through the repair process.

You should also keep solid files. Czupta says he keeps a dated file with a repair record and what car the customer has. Each vehicle is numbered so the shop can easily keep track.
Stay optimistic. “It’s a pretty inexpensive sort of gesture to the public, to give them a car to drive,” Czupta says.

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