Catering to customers is serious business, with services at some dealerships ranging from offering customers use of a putting green, cappuccino bar, and children's play area to on-site manicurist, concierge services, and more.

But when it comes to one of the most essential services — providing loaner cars to customers while their vehicles are being serviced — an increasing number of dealerships prefer to outsource that responsibility to a rental car company.

That includes dealerships such as Fletcher Jones Motorcars in Newport Beach, CA, the largest Mercedes dealership in the nation and Dadeland Dodge, an independent, minority-owned dealership in South Florida.

Dadeland Dodge President Jay Rivchin says profitability was a driving force for its two-year-old outsourcing program.

“It used to be profitable to provide our own cars as service loaners because of the price we were able to get when we ultimately sold them as used cars,” he says. “However, as vehicle residual values fell, our resale margin decreased. Combined with rising insurance liability, it became fiscally impractical to continue to provide cars from our own inventory.”

Reducing insurance costs and transferring liability away from the dealership were major concerns at Fletcher Jones, says General Manager Garth Blumenthal.

“In addition to protecting our assets by removing a massive area of exposure, the rising costs of insurance liability convinced us that outsourcing is more cost effective than providing cars from our own inventory for loaners or rentals,” says Blumenthal.

He adds, “We are confident our customers are getting the same high level of personal service commensurate with our own exceptional standards of excellence.”

Federated Insurance Companies conduct an annual loss study of its auto dealer clients to pinpoint the types of losses that occur most frequently and have the highest claims costs.

According to its most recent study, 53% of all dealership losses over the past five years involved driving incidents, compared to losses for property, theft, general liability and other coverages. Last year, about 10 % of all dealership driving claims were for customers using loaners or rentals.

Dealers contemplating outsourcing might consider the following questions when determining the cost effectiveness and service satisfaction of operating an internal service loaner program versus the potential cost savings of outsourcing car rentals:

  • Is the dealership maximizing available service appointments or limiting revenue opportunities by scheduling service around the availability of internal loaners?

  • Does the dealership have a designated, well-trained manager and staff needed to effectively manage the loaner process, including the experience to control costs, reduce potential liability, and deliver the same or higher level of customer service provided by outside rental agencies?

  • What are the costs associated with dedicating dealership personnel and financial resources to running an internal loaner operation?

  • Does running an internal service loaner fleet fit within the dealership's overall business strategy? Is it a major contributing factor to its success or bottom line?

  • What costs are associated with windshield damage, minor dents, fuel, cleaning and other miscellaneous expenses? Does the customer or dealer cover them?