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. [PAGEBREAK]

Know the Rules of the Game
If you decide to pursue claims directly, be sure to get a copy of your state’s good-faith rules of negotiation. Become familiar with all the rules before you engage in any claims negotiations with insurance companies. If an insurance company violates these rules, document the violation and inform your state’s insurance commissioner’s office.

Don’t enter negotiations overly eager to compromise and make friends. That will only lead to a downward spiral. If you take $500 off your claim this time, the insurance company will want $750 off your next one.

If the insurance company resorts to stall tactics, document how many days it takes to get paid. Is the period within state guidelines?

If you don’t have the patience or time for this tug-of-war, consider hiring a claims management company. If you’re up to the task, however, make sure you know your rental agreement. Educate yourself about the proper claims adjusting procedures in your state. Knowledge is power in this arena.

On the other hand, failure to keep informed about these issues reflects poorly on your company. Such indifference implies a lack of professionalism and accountability.

Imagine if your company was sued after a customer was involved in a catastrophic accident. How do you think it would look to a jury if an attorney asked you or your counter agent a question about the rental agreement and the response was: “I’m not sure. I haven’t read it in years.” Of course, an even worse response would be: “I don’t know. I’ve never read it.”

In fact, this has happened. But rental agreements shouldn’t be cookie-cutter documents incomprehensible to everyone but Ivy League-trained attorneys. Make sure you know and understand this document — it’s the foundation for your business. And make certain your employees know and understand the contract as well.

Remember, legal mumbo jumbo in a contract of adhesion is never a good idea. Ambiguity doesn’t protect you. Quite the contrary, ambiguity poses a threat.

The contract and all contract addendums should be professionally written and regularly reviewed.

Disclosure is your best defense. It proves there’s no attempt on your part to deceive the renter. If your business is in a secondary state and your contract’s terms and conditions make the renter liable, don’t bury that clause deep in the agreement in tiny print. Place that upfront and in plain view. Make sure the agreement complies with all state laws governing rental contract content and presentation.

To demonstrate a desire for full disclosure, consider posting rental agreement summaries in the shuttle bus, on the rental office walls, or laminated on the counter. Highlight the main points of the agreement, including a definition of loss of use and an administrative fee schedule.

Whenever lines at the counter are long, consider handing out rental contract summaries to those waiting. But make sure it’s clear the summaries are just that — they don’t include all of the contract’s terms and conditions.

Document All Losses
Mastering loss prevention requires attention to detail by every member of your staff. Procedures must ensure that all losses are documented and tracked.

Staff members must learn to recognize warning signs. For example, if mail to a customer is returned by the post office, the customer may have committed identity fraud. That possibility needs to be explored.

If there’s reason to suspect a customer at the counter is using someone else’s identity, one tack is to request a Code 10 from the credit card processing company. This entails an over-the-phone authorization. A Code 10 costs a little more, but the credit card processing company will carefully examine recent spending patterns and look for red flags.

A few years ago at the Thrifty location in Las Vegas, I trained agents on Code 10s. Two days after the training, an employee requested a Code 10 on a woman trying to rent a car. The credit card processing company confirmed that the agent’s suspicions were on target.

While the agent stalled for time, the police were called to the scene. The woman admitted the card wasn’t hers and police arrested her on the spot. That extra precaution averted a car theft.

Unfortunately, for every success story out there, there’s a real-life cautionary tale. I once consulted for a rental location that had vehicles currently on rent to customers who had already wrecked two of the company’s cars. Believe it or not, nobody had been tracking losses by customer name.

Granted, the accidents didn’t occur in successive rentals. But do you really want to hand the keys over to a customer who has already totaled two of your cars? If the answer is no, you must carefully document and track all losses.

Risk management precautions must be followed as a matter of routine. You need to make smart rentals and know whom you’re renting to. You must base your loss prevention actions on hard facts rather than gut instincts.

Teach Concepts, Not Just Tasks
To make this happen, you need to train your employees on concepts, not just actions. They need to understand why it’s so crucial to qualify customers. They need to grasp why it’s so important to carefully check for damages each and every time they check in a car. And why each rental car check-in needs a vehicle inspection slip that’s signed by both the renter and an employee.

Explain the concept, demonstrate the skill, observe the employee and evaluate his or her performance. Provide encouragement as employees complete the training.

If you explain the potential consequences of not following your company’s procedures, your staff will more likely take them seriously and perform them more diligently. Employees will recognize that you respect them enough to offer an explanation, rather than just issue an order.

Well-trained and motivated employees can spot windshield chips, upholstery tears and body damage in mere seconds. What’s more, employees who feel appreciated and involved in the business are more likely to offer loss-prevention ideas. Don’t be afraid to evaluate and test-drive new ideas aimed at preventing losses. Sometimes the simplest new procedure can have a surprising payoff.

For example, when I was a vice president of a rental location in Orlando, we started noticing more vehicle damage from international customers. Perhaps they figured that holding them accountable for damages would be more difficult since they were leaving the country soon.

At someone’s suggestion, we started asking customers with international driver’s licenses for their passport so we could photocopy it for our records. The psychological ploy worked. Suddenly, our international customers started taking better care of our cars. Damage incidents dropped markedly.

While I was the general manager at a rental location in Sacramento, we discovered another nifty trick. Just after the customer tucked away the rental agreement, maps and keys and turned to walk out to the parking lot, the agent would call out: “Oh, by the way, here’s an incident report. You need to fill that out in case any damage occurs.”

After we started doing this, vehicle damage incidents dropped dramatically. Often, when customers returned the car, they would hand us the report and say, “Didn’t need that.”

They may not have needed it, but we apparently did. At least that’s what our loss reports indicated.

When you come up with fresh ideas like these to curtail losses, you’ve truly mastered loss prevention.

In the car rental business, the best problem you will ever solve is the one you avoided.

Summary

• Car rental companies need to document and monitor all losses, including “hidden” losses that don’t appear on typical business reports.

• These losses include diminution of value, greater liability exposure and the resulting higher insurance rates, loss of use, and administrative costs.

• Knowledge of applicable case law, your state’s good-faith rules of negotiation, your own rental contract, and your state’s laws governing rental contracts is necessary to collect such loss claims.

The preceding article is based on a popular seminar David Purinton has presented at industry events, including the Car Rental Show, for several years. Purinton is president of PurCo Fleet Services, established in 1993. He has more than 18 years of experience in the vehicle rental industry. Purinton can be reached at (801) 798-2400 or [email protected]

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