for Auto Dealer Today
September 07, 2018
When it comes to loaner programs, opinions are diverse and the debate is robust. Some dealers don’t want anything to do with them while others recognize their value. The concept is simple enough, yet the execution is anything but.
When a service customer brings in their vehicle, your dealership gives them a loaner car for the duration of the repair. Most manufacturers subsidize loaner vehicles for warranty work, and most luxury brands have standards regarding the size of the loan fleet that a dealer must maintain.
For many dealers, OEM contributions set the ceiling for their loaner car program. Other dealers recognize loaners as an effective customer retention tool and have created more generous loaner policies. Let’s consider the benefits of these programs and confront some of the drawbacks — including the expense, the management headaches, and customer abuse — and how to manage them.
1. Understand the Benefits.
Access to loaner vehicles is a major factor in service location choice. Loaners can help close the inconvenience gap created by the distance between your facility and an independent mechanic located closer to your customer’s home.
Additionally, loaner vehicles improve the customer experience and take tremendous pressure off service throughput. A “waiter” is much more sensitive to service delays than a customer who returns to their daily routine in a loaner vehicle.
Loaner programs can also increase dollars per RO. A customer in a loaner vehicle is more likely to approve an additional service request because the extra time required doesn’t affect their schedule. Also, when a customer drives a newer, more decked-out model than they currently own, there is potential for a sale.
2. Turn an Expense Into an Asset.
To optimize your return from loaner vehicles, create policies that leverage their value. For example, loaners should be an explicit closing tool to convert additional service needs. When confronted with a “No,” service advisors should offer loaners, rather than discounts — particularly to waiters.
Also, loaners can be used on an ad hoc basis to relieve waiting room pressure when operations fall behind, rescuing dissatisfied customers. Multiple shifts and expanded weekend hours also provide better loaner utilization, reducing the cost per RO.
How does your loaner program impact your goals to maximize service revenue and improve your customer experience? Calculate the incremental cost and estimate whether you generate sufficient incremental ROs or RO dollars to cover the cost.
If not, think about those trade-offs that hold as much value as possible — expanded coverage for your best customers, for example, or those in certain situations, such as the last visit before warranty end.
3. Run Your Program Like a Rental Fleet.
The majority of dealers are not skilled in managing fleets, which is why many still outsource this function to Enterprise. Poor fleet management results in unnecessary expense and an inadequate customer experience.
To those of us who rent vehicles nearly weekly or have ever used Zipcar, it’s difficult to understand the antiquated sign-out and sign-in procedures at dealerships. We need to look to new technologies to facilitate a more convenient process to better understand when loaner access facilitates or constrains appointments, then invest accordingly to reduce bottleneck.
Finally, if subscriptions become a meaningful part of the industry, dealers will have to become experts in fleet management. We might as well start practicing with our loaner fleets.
When selecting which vehicles to purchase for your loaner fleet, focus on providing consumers “like-for-like.” Most consumers expect to get the same brand or a similar price point. Since our goal is to reduce consumer inconvenience, like-for-like is as much about functionality as quality.
Think about the lifecycle cost of a vehicle, not just the daily depreciation hit. For example, placing a luxury vehicle without a navigation system in the loaner fleet may save you a few dollars a day in depreciation expense, but it delivers a less satisfying experience. Worse yet, the vehicle is likely to sell at a loss or absorb more holding costs once defleeted. These downstream costs often overwhelm the immediate savings in putting an undercontented vehicle in the loaner fleet.
The current industry software that most dealers use to manage their fleets largely focuses on managing contracting and fleet availability. There is a need for a better solution that integrates the process all the way through from online scheduling to pick-up and redelivery.
There is a lot to solve, particularly if you include payments, but there must be better ways to adapt existing technology to create a truly unique experience. The rental industry has relied on rapid return solutions for two decades.
4. Put a Stop to Customer Abuse.
While some customers do abuse the service, most drive respectfully, pay their tolls, and return their loaner in a timely fashion. Habitual abusers should be removed from your program.
It’s important for dealers to establish clear guidelines and make sure customers understand these guidelines. This is better accomplished online than in person, apart from the formal contract. People are more likely to read and acknowledge simple guidelines on their computers than on paper when buried in paragraphs of legalese, particularly when they are anxious to go on their way.
We also need to understand the root cause behind customers trying to take advantage of the dealer. Sometimes they are just inconsiderate people. Access to loaners by repeat offenders should be restricted to the contractual obligation and charged for overage outside policy.
The most frequent abuse is not returning the vehicle in a timely fashion. Again, we should start with clear expectations and then look within. Is it reasonable to expect the customer to return the vehicle before 6 p.m. when we notify them at 5 p.m.? The better we keep customers informed about their completion time, the more likely they can plan their day around redelivery.
Second, we need to look at alternatives, such as Uber vouchers or pick-up services to handle situations such as when a consumer is going to the airport or brought a vehicle home because we missed our promise time.
5. Promote Your Program.
Generous loaner programs should be strategically used and promoted to help dealers build a service brand. Salespeople should clearly communicate their attributes during the selling process.
I have seen dealers bundle loaner vehicle access with unlimited free car washes or free oil changes for life. These dealers then ascribe a value to the package, which they can sell or discount as a closing tool or offer for free to their best customers.
I like this concept because it attaches value to service and removes the “free” or “not available” dichotomy. Many consumers are willing to pay something for the service, particularly if it’s convenient. Rental bills could be discounted based on RO value, aligning additional loaner vehicle costs with the value received.
Online scheduling also has potential for loaner promotion. Some online scheduling tools integrate with loaner management programs with varying degrees of sophistication. Ultimately, online scheduling needs to evolve so that your customers can create their entire writeup and complete the loaner paperwork online. This will require more sophisticated integration than just letting the customer know whether loaners are available.
6. Consider Alternatives.
Providing a loaner vehicle is not always the best option for the customer nor the most economical option for the dealer. Uber, Zipcar, DropCar, or Red Cap could be part of the solution. If your customer just needs to get to work or the airport, Uber may be the best option.
While loaner vehicles will likely remain unique to the franchised dealer value proposition, these other forms of alternative transportation are not, and they could be imitated by independent repair facilities. Therefore, it’s critical that franchised dealers move quickly to incorporate these services into a package of options from which the consumer can choose.
Love ’em or hate ’em, loaner vehicle programs are here to stay. Embrace their potential to help create a service brand, improve the customer experience, and generate incremental customer-pay RO revenue.
Some obstacles must be overcome to create a smooth process. But rather than throw the baby out with the bathwater, consider implementing new technologies, policies, and processes to make your loaner program an integral component of your service operation.
To view this article in Auto Dealer Today, click here.