All cons! That's what some service managers and general managers say when asked the pros and cons of running your own courtesy fleet. Nowadays there seems to be way more dealerships which are outsourcing their courtesy fleet. Considering some of the costs, it starts to make sense.

Of course, if a dealership is large it can have the best of both worlds: offer customers loaner cars “in house” through a partnership with a car rental company, plus do away with the headaches associated with loaning cars to service customers while their own cars are up on the hoist.

Customer service and goodwill are the big factors in offering your own courtesy cars. As far as customer service goes, shuttle vans seem to suffice much of the time. Or, if you are so lucky, mass transit may be able to shuttle people to and from your dealership.

It also depends on the kind of dealership: import or domestic, high-end versus low- or mid-end, whether or not “in house loaners” are available.

Rarely does a Budget or Enterprise offer anything other than common products. So, a Mercedes-Benz E Class customer driving a Dodge Intrepid as a loaner, will feel as out of place as the Dalai Lama in a mosh pit. Therefore, a high-end dealership offering its own loaners is much more likely.

Mercedes-Benz of Novi, MI is an exception to this rule. General Manager Dean Murray says that insurance and lack of inventory are main reasons for not offering loaners.

“Blanket insurance for people with all sorts of driving records can be very expensive,” he says.

Plus, he has about 60 Mercedes in stock when he would prefer to have double that amount. Doesn't lend itself to taking vehicles out of an under-stocked inventory and loaning them out to service customers.

So, he sublets his rental business to the Enterprise Rent a Car down the street.

For most dealerships, the decision to offer loaner cars is based on the bottom line.

Service Manager Martin Vantol at MGM Ford Lincoln in Red Deer, Alberta, weighed all the factors when he ran a courtesy fleet at another dealership. His annual cost to keep up to 52 loaner cars? A staggering $400,000 (Canadian). That's almost $8,000 a car!

A Gallup survey queried 60 shops about their courtesy fleets. Although two-thirds felt that courtesy cars were important to their businesses, many didn't have a clear idea of the costs. The survey found that many dealerships were switching to rental cars for various reasons. Those included the following:

  1. Reduced costs (36%)
  2. Reduced hassles and paperwork (13%)
  3. Insurance considerations (13%)

But we know that No. 2 and 3 relate back to No 1.

Lets take a closer look at some of the costs incurred.

Depreciation:

Depreciation is the granddaddy of all costs incurred to a vehicle. That first year of depreciation can be anywhere between 20% and 35%. A big hit to take unless you're keeping your loaner cars on the road for years.

Gasoline and such:

Although most people know they should put gas in a car when they have a loaner, do they? Not to mention who picks up the tab for the regular oil changes and service work?

Damage:

Are you really going to confront a customer if he or she brings the loaner back with scratches and dents? Of course not. Customers will draw their lines in the sand, and you draw yours. Who will win? I'll bet on the customer.

Insurance:

All it takes is one or two accidents in a month to have your controller stabbing his pencil into the insurance agent voodoo doll. Insurance rates can be bottom line killers.

Loaner administrator:

It should be the service advisor or appointment coordinator's job to administer the loaner vehicle, but that only goes so far. What about the customer who has been informed to bring the vehicle back Tuesday night, but excuses are like belly buttons — everyone's got one — and that vehicle arrives back on Thursday? To make matters worse, when that vehicle comes back it looks like it's been in a road rally and the interior smells like Fidel Castro's cigar.

There are other factors when discussing the pros and cons of running your own fleet.

Nowadays most customers expect that there is a cost to driving a loaner. While the customer can shell out for some of the cost, the manufacturer can be billed for the other portion (under repair), therefore making the break-even more attainable.

Still another factor to consider is, as always, the competition. In order to lure more “in-town” customers for repair and maintenance many suburban dealerships offer loaner cars to city customers.


Dave Skrobot is president of Dealer Strategies specializing in fixed operation training, based in Calgary, Alberta. He can be reached at 403-660-2760.