The trend toward increased loaner fleets seems to be gaining traction, and with this growth comes an increase in accident claims. Are you recovering what you are entitled to when your loaner vehicles are damaged?

Many auto dealers are under the impression that, since the loaner vehicles they provide are free, there is no opportunity to collect loss of use (LOU) when they are damaged. That is not the case. You are typically entitled to the daily value of that vehicle each day it is out of service while under repair — regardless of whether it was provided as a courtesy. Here’s how it works:

1. Establish a Protocol.

If a service customer fails to return their loaner on time, they typically will be expected to compensate you at the rate listed in their loaner contract. If your contract doesn’t include a rate, consider adding it or drafting an addendum.

The rate should reflect what a similar vehicle would rent for in your market. The rate we see most often for luxury dealers is $90 to $125 per day. Having this rate spelled out in a contract helps establish the daily value for recovery when a third party strikes your loaner vehicle. Finally, remember that LOU recovery varies by state, insurance coverage and carrier.

2. Plan for the Sale.

Your second area of concern is the diminution of value (a.k.a. loss of market value) the vehicle suffers after it is repaired. This financial impact rears its head when a damaged vehicle is sold because its loaner life is done. Typically, these vehicles cannot meet the requirements for a “certified” vehicle and are often wholesaled. Without a recovery plan in place, your losses could range from $3,000 to $7,000 — or higher —per vehicle.

It is important to note that most customers’ claims, depending on your region, are paid under their comprehensive or collision policies. When that is the case, their insurance policy typically will not include provisions to pay these fees. At that point, you have to make a business decision as to whether to pursue the customer directly. A notable exception is when your customer is not to blame and the “at fault” third party has valid insurance.

3. Keep the Numbers Handy.

The last scenario to consider is a damaged vehicle that is neither a total loss nor worthy of repair. In a total loss situation, the title has to be “branded” based on the percent of damage to value. Each state has different criteria for branding titles. Federal guidelines and many state statutes support that a “midrange” hit — about 50% overall damage to the value — can still be treated as a total loss.

If the title doesn’t need to be branded, it is called a “pre- vs. post-accident claim,” which is calculated by subtracting the proceeds from selling the unrepaired vehicle from its pre-accident value. In most cases, if you simply collect the damage estimate and maximize the proceeds from the sale of the unrepaired vehicle, you can lose as much as $5,000 per unit. By getting it paid as a pre- vs. post-accident claim, you are more likely to be made whole and avoid a loss. 

Brian Ludlow is the executive vice president of Alternative Claims management. Contact him at [email protected].