Ever notice how often customers — and even some employees — forget that you’re in business to make a profit? When I was a car rental operator, a customer once told me that if I continued to insist he pay a $5,000 claim, he would stop renting from me. You don’t need to be an MIT graduate to figure out that forgiving a $5,000 debt in exchange for one retail customer’s loyalty makes about as much sense as installing Lojack on a shopping cart.
To succeed in the car rental business, you must be vigilant in collecting all that you’re entitled to receive. No more, no less. The profit margins in this industry are too paper-thin to have a lax attitude about loss recovery and risk management.
Some losses are in your face, while some aren’t so obvious. In the day-to-day grind of running a rental car business, it’s easy to let your company quietly bleed losses that aren’t in plain view. But the cumulative effect of such hidden losses can doom a business that had the potential for profitability.
What are some of these so-called hidden losses? Diminution of value, greater liability exposure and the resulting higher insurance rates, loss of use, administrative costs associated with damage claims, and credit card chargebacks and nonconforming charges, to name a few.
Many of these losses aren’t listed in your profit-and-loss reports. But if you gauge your loss prevention success solely on your P&L, you’re leaving money on the table. Lots of money.
The key to gaining control over these hidden losses is to adopt the right procedures for loss recovery and risk management. And the key to the success of these procedures is to adequately train your staff and to serve as an example.
Don’t expect your staff to adhere closely to such company procedures if you observe them selectively and assume a casual attitude about them. The goal here is to ingrain these processes into your company culture to such a degree that they become second nature.
Do you remember backing your car out of the garage this morning on your way to work? Do you remember brushing your teeth this morning? Probably not. These tasks are so much a part of your daily routine that you can perform them perfectly without giving them any special thought or effort. If you make risk management and loss recovery part of your daily routine at work, they too will become second nature — to you and your employees.
The Law Is on Your Side
What if you were guaranteed recovery of all administrative costs each time you had a damage claim? That money would be gravy, right? Wrong.
One reason why losses can quickly spiral out of control is the assumption that recovery is unlikely. Stop thinking that way. You are entitled to be paid for these costs. Stop viewing compensation for such losses as gravy. It’s not gravy.
In the United States, we have criminal laws and tort laws. Torts are civil wrongs that result in an injury or harm that forms the basis for a claim by the injured party. Some torts are also crimes punishable by imprisonment. However, the principal goal of tort law is to provide relief for the damages incurred — in other words, to make the injured party whole again. Tort law is created by judges (case law) and by state legislators (statutory law).
If a customer rams your car into a guardrail after taking a turn too fast, you’re entitled to be made whole again because of tort law and because of your rental contract. The person responsible for the harm — the tort-feasor — is legally obligated to pay for the damages. Tort law permits you to enforce your rental agreement and to protect your assets and interests.
Does that mean that anything goes when drafting your rental agreement? Can you include a provision that imposes a $5,000 fine if the renter spills Coke on the floor mats? Absolutely not.
Your rental agreement is considered a contract of adhesion. The terms are not negotiated. Contracts of adhesion must pass certain criteria to be valid. For starters, they can’t violate public policy. They can’t be unconscionable. Charging $5,000 for a Coke stain would be considered unconscionable.
Also, the terms of a contract of adhesion must be clear and easily understood. In a court of law, any ambiguity will be judged against you. If one of the contract’s provisions is fuzzy and open to broad interpretation, that provision will likely be voided. However, ambiguity in one or two provisions should not render the entire contract moot.
This is why it’s so important for you to review your rental agreement regularly. If you aren’t familiar with its terms, how will you know when a new law requires updated language?
Collect for Loss of Use
Collecting loss-of-use damages can become a test of endurance. That’s why many car rental operators seek the services of a subrogation company for loss-of-use claims. But again, this is something you’re legally entitled to collect.
In most states, authoritative case law defines these rights. If you opt to collect loss-of-use claims yourself, you must research the case law for your state and cite it whenever you encounter resistance from personal-lines insurance companies or your customers.
Most likely, you will encounter resistance. Insurance companies often ask rental operators to prove that all their other cars were rented out when the vehicle was in the repair shop. They may insist that you provide a utilization rate for the period in question. Don’t play that game. There’s a difference between loss of use and loss of profits. Explain this difference to them.
Rental isn’t the only use for a rental car, for example. Because that car was in the shop, you couldn’t use it for reserve. You couldn’t use it for display or employee training. That vehicle wasn’t available for a host of potential uses.
Every piece of property, whether owned by a private citizen or a company, has a bundle of rights attached to it. Those rights can be innumerable. It’s irrelevant whether the loss of that vehicle directly resulted in lost revenue.
Take on the role of educator whenever insurance companies challenge your claims. Remember, in the majority of states the law is on your side. Don’t back down — you’re doing the right thing for your business.
Since most loss-of-use and administrative fee claims fall well within limits for small claims court, collecting these damages will not typically require the services of an attorney.
My company has probably collected 70,000-80,000 claims. Of those, only 30 to 40 resulted in a lawsuit.
If a third-party tort-feasor is responsible, I’ll request that the insurance company pay me. If the renter is the tort-feasor, the customer’s insurance or credit card company may or may not provide coverage for loss of use. If neither provides coverage, I’ll pursue the renter for loss-of-use damages.
Don’t be afraid to collect loss-of-use damages from a customer. Remember, this is a loss affecting your company’s bottom line. Also, the customer had the option of paying for a collision damage waiver and declined it. Point that out. The customer may opt to purchase the CDW next time.