The loan car

Mike looks into the benefits and pitfalls of offering a service of convenience

Published:  30 September, 2014

By Mike Owen

The most common conversation revolves around cost, often supported by one of two options. Either nobody asks for a loan car or they would prefer we contain our prices. Defending your situation using historic data is common. Times move on and in the most demanding manner. Which includes what a customer's expectations are from their garage of choice. Rather like the old saying "If America sneezes the rest of the world catches a cold" there is value in looking at the franchised sector for an idea of what your customers will expect next.

In this age of new-fangled gadgets, such as smartphones, that do everything (except make phone calls well), customer's expectations have changed. We now operate in a time when they expect your product to be perfect and their experience likewise. The garage of tomorrow needs to pitch its products to ensure that there are ample 'customer-enhancements' in what you offer and, yes, this includes 'wi-fi' in reception. Not a folly but a must for people like me who need to make appointments in a 'connected' world, or refreshments, if you have customers who want to wait and, as you would expect, loan cars fall into this category.

I have often written in these pages about the need for care when investing on behalf of the business and the need to be assured of generating a return on investment - loan cars are no different. It has one of two things, increase work or increase profits; but how? The first is easier to address, it must give access to customers who don't currently use your business. The second is harder to get a handle on. Taking on increased cost, with no sales value and returning a profit is hard but it can be done.

There are some do's and don'ts and the first is not inspecting loan cars 'out' and inspecting them on their return. You only have to look at the condition of customers' vehicles to appreciate that some of them are not very good at driving so, in a strange car the problem is that a build-up of small dinks and dents, the type inflicted all too often with supermarket trollies, quickly knocks your loan car from being a shining example into a bit of a dog. In our experience we have always used these mobile guys to remove small areas of damage. If it's always clean and in good condition when it goes out it's easy to check it's condition when it's returned.

Next, you have to be clinical in gathering license information. I have seen this done with scanners but there is a problem, scanning a license is different from scrutinising a license and as the lender it is your responsibility to ensure that the recipient is a qualified driver. We devised a simple form that gathered the relevant information, including some 'show stopper' questions. If the answer to those was 'no' then we would not loan the vehicle.

You need to also record time the time the vehicle left and the time it was returned. Being greedy, we would often try for two loans per day, morning and afternoon or perhaps even overnight. This means the occasional parking fine or speeding ticket needs to be correctly attributed to inform the authorities or you will have to pay the fine.

Now we must address the thorny subject of insurance. Several methods have been used historically. Asking the customer to make a temporary substitution on their insurance has been quite prevalent but this brings an administration cost to the customer. This can be as much as £30 which adds to your bill and increases the cost of using your business. Some garages 'take it on the chin' and provide the vehicle and insurance - this is very (very) brave - and some try to introduce a hire charge to offset the costs. There is another way.

In the accident repair sector the Insurance companies often offer their insured a loan car should they have an accident. Rarely do they pay for this but choose to squeeze the pips out of the repairers in order to be lucky enough to get their work - yes, the body repairer pays! The body repair market is the high volume, low return sector and they run 'tight ships' and, in order to be able to make money they have refined the cost of operating loan cars - some body repairers have fleets of over a hundred.

Firstly, leasing small vehicles on set mileages is key, hence this not being used as a hack. Beware, lease companies always have condition on return clauses and these vehicles need to be kept in excellent condition not to fall foul of these hidden costs.

Most repairers use a daily insurance company who, when using new vehicles, will insure your customer for a day premium - they advertise on the internet. You provide a computer terminal so that your customer can input their details and pay. The benefit is that if the agreed premium cost for your vehicle is £60 per month and your customers are paying £10 per day, after the sixth day the premiums can be returned to you. 75% use of the loan car in a twenty day month will see your car used fifteen times, generating an income (after premium) from insurance of £90 to help offset the lease costs. Use bright colour vehicles, white is the best and sign write your shiny new loan car (using vinyl decals of course) and, as your customer carries on, their lifestyle, they also advertise your business.

Times are hard. The up-turn in the country's economy doesn't seem to have filtered down to the motor repair industry yet. Our sector needs to look around at how others within the service sector are making themselves easy to use and provide this as a minimum. Once a value becomes generally available it turns from a unique benefit to a deal breaker.

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