Enterprise: “Misinterpretations” over loss of use fees are creating confusion

Since my last conversation with Roger Van Horn, the vice president for corporate loss control at Enterprise Holdings, a lot of questions have been raised about one of the most controversial damage-related fees: loss of use charges. I decided to put some of those questions to him in a telephone interview yesterday.

For those of us who have never damaged a rental car, can you please explain what loss of use means?

Loss of use is a legal term. It’s defined as the inability to use an automobile due to damage caused by the negligence or other wrongdoing of another.

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[After our interview, Enterprise followed up with a reference on a legal site to its claims, which describes loss of use as “compensation for each day a car is out of commission during repairs, or for the period of non-occupancy while a burned building is restored.”]

And loss of use is charged to a customer like a rental rate, right? It’s a daily fee.

Yes, but the confusion seems to come from the calculation of the charge. Keep in mind that the loss of use charge is precisely as indicated – and it is a charge based on the time needed to repair the vehicle. In other words, the property owner is being compensated for loss of use, not loss of revenue, while the vehicle is out of service.

When you lose the ability to use something you own – regardless of whether it is a building, a vehicle or something else altogether – you have the right to be compensated for it.

I’m not sure if I understand.

Think of it like this: If your wife’s car is damaged in an accident, and she no longer can use it, she’s entitled to a replacement vehicle.

I don’t know if I follow you.

If your personal car is damaged, then the insurer for the negligent party provides a replacement vehicle to cover your loss of use. If you are unable to use your car as the result of an accident, you’re entitled to a replacement during that time.

You may use your car to earn a living, to run errands or just to have available as a matter of convenience – and it’s not relevant if you have a very light schedule, or if you work from home, or if you can ride the bus.

Some customers might say that using that logic, you should have to reimburse them for the time they spent waiting for your cars.

That doesn’t really make much sense for customers or for any service provider operating in the marketplace.

Certainly no company likes to keep customers waiting. And we do our best to have vehicles ready to go for customers, whether it’s at the airport or at one of our thousands of local neighborhood branch offices. However, delays do occur, sometimes because other customers don’t return their rental car on time or return their car with damage. No matter what, our focus is on responding to customers’ needs as quickly as possible.

OK, let’s move on. What I think people are looking for with loss of use is some kind of evidence of the missed revenue opportunity, if not the missed revenue.

Again, that sort of misinterpretation – particularly if it gets repeated in the media – unnecessarily creates confusion. The fact that a car is in the repair shop is evidence enough. The opportunity to use that vehicle, in any capacity, is lost.

In addition, please understand that not every vehicle is interchangeable from our customers’ perspective – so we need to have a wide variety of makes and models in our fleet. For example, a customer who needs a minivan cannot make do with a compact car.

It makes no sense to insist that car rental companies run at 100 percent occupancy, which automatically creates zero flexibility and operational gridlock. That sort of circular logic only heightens the misunderstandings surrounding loss of use.

It’s possible we are having one of those moments now.

Another misunderstanding is that some customers mistakenly believe if they didn’t personally cause or witness any damage – for example, a hit-and-run incident in a parking lot – that they are not responsible.

In fact, customers are financially responsible for any damage or theft that occurs during a rental transaction, regardless of fault or negligence, just as if they owned the $20,000-rental-vehicle themselves.

Actually, we’re in agreement on that one. And I spend a lot of time helping people understand liability. But let me get back to loss of use. If this is a legitimate fee, then why do car rental companies give up so quickly when they’re challenged on loss of use?

That is not an accurate assessment. However, when you or other consumer advocates contact us about unhappy customers, we do everything we can to resolve the issue. That’s because customers never plan for vehicle damage, so paying for damages out of pocket, or reporting claims to insurance companies, almost always creates unexpected situations for renters.

Does everyone have to pay loss of use fees? I ask because I recently heard from a reader who didn’t — her insurance company had negotiated a waiver.

Some insurance carriers do negotiate a waiver of loss of use.

How do you calculate the fee?

To calculate the number of days of loss of use, we use a similar methodology used by the insurance industry, yet on a much more conservative basis. We divide the total labor hours by four labor hours per day, but we don’t add weekends, holidays, part delays or any other repair times not included in the estimate.It’s important to note that we’re not charging the highest retail rate; the calculation is instead based on the renter’s agreed-upon rate.

Please don’t forget that our standard contracts contain provisions alerting renters that, if the vehicle they rented is damaged during their rental, the renter is responsible for loss of use. This, of course, is only applicable when renters have not elected to purchase available damage waiver, which would relieve the renters of their contractual responsibility to us in the event of damage to the vehicle.

Why not fold all damage costs into your cost of doing business?

That approach was tried in New York by some well-intended legislators. But it turned out to have many unintended consequences – namely, rental car customers who were not held accountable tended to become more irresponsible. As a result, the number of car rental companies decreased, making the overall car rental market significantly less competitive in New York.

If all of these loss of use fees were waived, we would have to balance that effort with the fact that such expenses must be rolled into the overall costs associated with renting a vehicle. That means everyone who hasn’t damaged a vehicle would have to share in this cost, which doesn’t seem like the fairest way to allocate renters’ financial responsibilities over the long term.

(Photo: lan ier67/Flickr)

32 thoughts on “Enterprise: “Misinterpretations” over loss of use fees are creating confusion

  1. Well, what is the value of the loss of use of the vehicle?  I would argue that it is no more than the daily cost of the vehicle to the company – i.e., interest / principal on a loan to own the vehicle, insurance and registration cost – since every vehicle is different and purchased at a different time, cost, interest rate, and costs different amounts to insure and register, the company needs to prove the amounts it claims.  Further – a ‘flat rate’ is never correct and I’d be ALWAYS benefits the rental company, which means it is fraudulent under most state consumer protection laws.  

    If they try to claim it is based on lost profit, well, there is no proof that vehicle is earning one. . . .  

    If the shoe was on the other foot – and a vehicle owned by Enterprise damaged my property, lets see what Enterprises’ attorneys argue as the required elements of proof for me to recover for loss of use of my wife’s car when an Enterprise rented vehicle hits me and is at fault in the accident.  In every state the vehicle owner is responsible – since it is entirely possible given Enterprise operations that an uninsured driver could be operating one of their cars.  

    So – pose this fact scenario.  A uninsured drivers rents a car from Enterprise and runs a red light, crashing into my wife’s car.  Enterprise, as vehicle owner in every state, is liable.  What will they pay for my wife’s loss of use if we have another car to use?  What is the value to her of driving a nice convertible to work every day while the extra car we have is an older SUV that she does not like to drive.  Will Enterprise lawyers argue that we do not have loss of use since we have another vehicle to use?  Whats good for the goose is good for the gander here and Enterprise should be allowed to live with what it offers other people as compensation . . . .

    That said, loss of use is a legitimate claim.  They just need to offer some proof as to the elements and cost of what they claim –  and no car rental company would ever disclose that . . . .which is why they never press the claim when they are dealing with another insurance company who a driver might have when there is a damaged vehicle – they NEVER get loss of use since auto rental companies never want to prove or reveal their true finances  to anyone.  In fact, if an auto rental company is loosing money, then having the car out of use means they loose less . . . .  think about that one for a moment. 

    1. Joe, in general I’d agree, except for the last. If a rental company is losing money, it could be that every additional rental they make pushes them slightly closer to profitability. Let’s say (in completely made up numbers) that the company has one million dollars a year in fixed costs. Each day’s rental generates income of $25 and expenses of $15, so each rental knocks $10 off the fixed costs. It needs 100,000 daily rentals to cover that cost, and until it reaches that point, it’s losing money. But every additional rental brings them that much closer to breaking even or making a profit.

      Obviously this is an extremely simplistic example – fixed costs vary with the fleet size, which varies with demand, etc.

      Perhaps what you meant to say is that if an auto rental company is losing money *on each rental*, then having the car out of use means losing less. But I don’t buy that either – they still have the expense of the car lease, only with it out of service, none of the expense is being offset by revenue, as opposed to some.

      1. I think the point tho is until demand is greater than supply the rental company is not losing money. In your scenario as long as there are still 100,000 available cars in the desired car class the company is making just as much profit when the car is sitting on the lot or in a repair shop.

    2. Hmmm.  Interesting.  By his own definition of loss of use, Enterprise would have to provide a similar replacement vehicle, regardless of whether the family had another vehicle.  I mean, maybe Dad has to work late and Mom needs to pick the kids up from soccer.  If Dad has the only vehicle, that’s loss of use right there.  The probablility of such a situation occuring is irrelevant.  Just the fact it MIGHT happen is enough for Enterprise to be on the hook for loss of use.

      That said, I bet dollars to donuts Enterprise’s lawyer would argue otherwise.

      And of course, loss of use fees cannot be based on the customer’s full rental rate.  Any sales or other type of tax cannot be collected, and I’m skeptical they could get away with charging all those creative little fees they tack onto every rental.  Tire fees and all that other garbage.  IMO the loss of use would be the daily rental rate on the vehicle without any add-on fees.

  2. I’m going over the paperwork from the one insurance claim I’ve had to
    deal with relating to a rental from Enterprise. I don’t see anything
    about loss of use, but boy the rates and time required for labor (body
    and paint) sure stand out.

  3. I always like to give people the benefit of the doubt, but it seems to me Mr. Van Horn is hedging around the question most in people’s minds (by my perception, anyway) — how does the company prove to the renter that the car was actually taken out of service?  One of the accusations we see most often is that a number of customers get charged for miniscule scratches, which then are not repaired.

      1. James

        If you damage something, say my car, you are liable or the cost of repair.  However, I have no obligation to actually repair the car.  I may elect to ride around with the damage. Assuming its paid off, its my car and my choice.  Enterprise is in the same situation.  They don’t have to actually fix the damage

        1. But how do they claim “loss of use” when they don’t actually take the vehicle out of service for the repair? I agree I owe them for the scratch. I disagree that I owe them for loss of use.

          And if they have multiple issues fixed at the same time… why should I be held responsible for the entire loss of use(or on the opposite side why can 5 different people be held for 4 days loss when they fix 5 scratches that occured over a period of time all at once).

        2. Right…but I think the issue that Dave is raising is that Enterprise has no right to charge you for *loss of use* if they elect not to repair the car, since there is no loss of use. Therefore, I feel that customers have a right to see proof that the car was repaired if they’re being hit with a loss of use charge.

        3. True, but if they’re going to charge me xxx for the repair, I need to at least see an estimate (or three). If I damaged your car, I certainly wouldn’t take your word for how much it costs to repair… Just wondered if the agency had to provide some type of paperwork to support their claim…

  4. It seems that the implication is that Enterprise is a person-like entity that uses its vehicles for personal reasons. Do the employees use the company’s vehicles, “to run errands or just to have available as a matter of convenience?” Does Enterprise rent cars to replace the ones in their fleet that are damaged? If not, the comparison is garbage.

    Just like Joe Farrell pointed out – if they are going to say that loss of use is divorced from loss of profit, then the loss should equal their cost – not what they would charge someone else for their cars.

    They are entitled to loss of use if they had to rent a car while theirs was being repaired. If they didn’t, then they have no loss of use claim.

    My wife’s car was recently damaged. If I collected the cost of a rental car from our insurance company but did not actually rent a car, we’d call that fraud. I think that same term applies here.

  5. Typical Car Rental Doublespeak. It has unfortunately become necessary for the renter to protect themselves with photos and aggressive challenges to any attempt by the companies to extort additional fees after the rental.

  6. With due respect to Mr. Van Horn, his legal analysis such as it is is simply wrong.  A first year law student would provide a better analysis.

    A company is only entitled to loss of use to the extent that the car would have been used during the relevant time period.  Consider. Supposed Enterprise has 100 identical cars (for simplicity’s sake).  If 70 cars are rented out, each at $50, the fact that 1 car is in the shop for the day does not detract from Enterprise’s bottom line.  Enterprise realized $3500 in revenue whether the 71st car is in the shop or sitting in the lot.  To make the careless renter cough up $50 would be give Enterprise a $50 windfall that it would not have otherwise made.

    In other words, a business is not entitled to loss of use for something that wasn’t being used anyway

    By contrast if 99 of 100 cars are rented out, and 1 car is in the shop, and Enterprise had to turn away a customer, then it has effectively lost $50 (i.e. they made $4950 instead of $5000) and should be compensated accordingly.

    Nothwithstanding, Mr. Van Horn’s specious arguments to the contrary, this is an area of settled law. Which is why car companies cave quickly on it.

    1. You are somewhat correct, but you miss the opportunity cost.  They design operations based on a flexibility model with 100 vehicles, and when they only have 99, that impairs their ability to deliver service based on the original model.

      The true cost of that loss, though, is certainly debatable.  That’s why we have civil courts, and lawyers.

      1. Respectfully, you misunderstand opportunity cost.  In my second example, the $50 loss is the lost opportunity cost because Enterprise LOST the opportunity to rent the last car.

        Your position gets stronger as the number of available cars decrease.

        For example, once hotels reach 80 percent anticipated capacity, they begin to eliminate certain discounts.  But in keeping the hypo simple, I purposely choose a low enough rental percentrage to avoid such minor issues.

        1. You are correct to say that the example is simplistic, but you support my explanation when you say “Your position gets stronger as the number of available cars decrease.” 

          Like I said, the number isn’t easily determined.  That’s why the courts exist.

          1. The point is that the opportunity cost issue is minor at best and fails to advance the discussion about loss of use. 

  7. Loss of use is a legal term. It’s defined as the inability to use an automobile due to damage caused by the negligence or other wrongdoing of another.

    So does that mean the rental car company can’t charge loss of use to the renter when the renter is not the party at fault in an incident that resulted in damage?  I think I’ve seen otherwise in practice.

    1. That’s an amazingly……illogical question.

      It is not a matter of fault, it’s a matter of responsibility. When you rent, lease, borrow anything, it is YOUR responsibility until you return it!

      1. Either “negligence” or “wrongdoing” matters or it doesn’t.  (Mr. Van Horn from Enterprise claims it does).

        If it matters, then when a legally parked rental car is struck by another vehicle, then I don’t see how the rental car company can justify billing the renter (as opposed to the driver at fault) for “loss of use.”

        1. I agree that it is not the fault of the renter that the car got hit, but it is the renters responsibility to return the car in the same condition it was at rental time (allowing for normal wear and tear and mileage). 

          When something like this happens it is then up to you, the renter, to either work with your insurance company to have them attempt recovery from the person causing the accident or pay for the damage and associated fees if the person causing the damage is not found.

          Look at it this way.  If I borrow your car to go to the grocery store and while there someone allows a basket load of groceries to slam into the side denting the door to the point it needs replacement, are you going to just say “Nevermind, it wasn’t you who caused the damage so you don’t have to pay me if we can’t find out who ramed the basket into the car” ?  I doubt it.  And your insurance company would be after me to pay for the damage since they don’t want to be on the hook and take the loss.

  8. OK, lets say that the loss of use charge is allowable when they put the car in the shop to get it fixed.  But what of the situation where the renter pays for damage but the repair is not done?  There is no loss of use because the car was never taken out of the rental pool.  This would be enrichment for the rental company.  And fraud if the car rental company does this multiple times for the same damage.

    While I cannot provide documented proof that repairs are paid for but not done, I am fully convinced the rental companies do this.  I had rented a vehicle from a company I won’t mention by name.  When I returned it, they claimed that the rear bumper was damaged and needed to be replaced.  My insurance handled the dispute.  Three months later when I rented from the same location, I got the same vehicle with the same damage which they tried to blame on me again. Glad I filled out the damage report form on this one before I left the lot!  The vehicle was rented at least once in between my two rentals because the mileage was greatly different, but the vehicle showed no sign of being repaired.  Did every renter between my two rentals get hit with the same repair costs?  It would not seem likely that I would be the only one they tried to ding.

    I disagree with the loss of use calculation used.  Saying that they count 4 work hours as a day just doesn’t sound right.  So if a repair is estimated at 32 hours of work, in my world that is 4 days but to them that is 8 days.  It would seem that a more proper calculation would be the exact number of days the vehicle is physically not available for use.  If the repair estimate is 40 hour but the car is returned in 4 days because the repair shop was able to work overtime and get it done quickly, why should the renter have to pay for 10 days?  But going this route would mean there is no incentive for the rental copany to get the vehicle back quickly since they can charge loss of use on a vehicle that would probably not be rented anyway.

  9. What intangibles are included in the cost billed to errant renters for loss of use?  I am quite sure that while loss of use is based on the daily rental rate, that is only the starting point, and the charge to renters who damage cars is greater.  Car rental companies need to have cars in their rental lot that are not earning revenue.  When customers see cars sitting idle in the lot, they think it will be easy to rent a car there.  If there are few or no cars in the lot, then renters may well go to another car rental company.  The lost potential revenue of customers who go elsewhere is one of the intangible costs of loss of use.  The insurance industry to which Mr. Van Horn refers knows exactly how to put a dollar figure on intangibles, and litigations attorneys know exactly how to persuade judges and juries that such calculations are justified.

    Mr. Van Horn says that a lost “day” due to repairs is 4 hours of standard repair time.  That said, there are up to 6 loss of use “days” in a 24-hour rental “day”.  That’s one reason why loss of use charges are high.  Another reason is that standard repair times will tend to be on the high side.  If whomever at Enterprise and other car rental companies is not pressuring their repair shops to become increasingly more efficient and to beat the standard repair times so the cars come back into service quicker, then he or she deserves to be fired.

    It would be reasonable for Enterprise and other car rental companies to mark up the cost of repairs billed to them from repair shops to cover the cost of administering repairs.  If I was the CFO of Enterprise, I would make sure that the cost of administering repairs would be at a higher proportion than the rest of the company.  In that way, I could pass on to customers who damage cars a larger portion of my operating expenses and, thus, improve my operating profit.

    Enterprise, like all major car rental companies, is in very tight competition.  The product given to customers, being able to drive from one place to another, is indistinguishable among the major car rental companies.  As such, all things being equal, a price reduction at one car rental company must be matched by the others.  That said, car rental companies have to find other ways to improve profits.  Finding more ways supported by the courts to pass costs to customers who damage cars is one way of doing this.

    We consumers will never find out, but I am curious if the profit margin to car rental companies is greater for damaged cars than for cars that are not damaged.

    Finally, I have to admire how Mr. Van Horn puts Enterprise in a very good light while answering questions about an emotional issue.  He comes across as measured, poised, and reasonable.  If I could, I’d like to get the Enterprise CFO in my sights and ask some really tough questions, drill down into the financial data, question every assumption about costs and intangibles, and see the real situation.

    1. The loss of use calculation was clearly described by Mr. Van Horn, and is not what you are stating.  He said that the total number of hours estimated for the repair is divided by 4 to get the number of days, not that a single day of loss is charged as if it were 6 days (24 hours).  So if you have something like a full windshield replacement with no additional frame damage etc., which is quoted at 6 hours, (6 hours / 4 = 1.5 loss of use days following their formula) gives you 2 loss of use days since I am sure any fraction is rounded up.  Some of that 6 hours is the drying time for the adhesives which can be done back at the lot and do not require the vehicle to be out of service.  But the vehicle is never out of service for those 2 days for this repair, it may be in the shop for half a day a most.

      The reason cost of use is so high is most rental companies charge the full daily rate for loss of use which is always higher than the discount rates the rental companies charge for the actual number of days you rent.  This is not what was stated as Enterprise’s policy, but with the loss of use calculated as they do it might as well be.

      And I do understand that it does cost a car rental company money when the car is in the shop.  Someone had to arrange for the repair service, get the car to the shop and see that it is returned.  The salary of whoever does this has to come from somewhere and I feel that is a good application of the loss of use fee.  
      I don’t think Mr. Van Horn made Enterprise sound all that good.  The part about them never owing their customers when they have excessive wait times comes across as if he is out of touch with reality.  I’m not saying that every customer should be given a discount for waiting 30 minutes to get a car, but how about a credit on the rental charge if the car you reserved is not available and you have to wait 2 – 3 hours to get any car.   

      The “drill down” that you want will never happen.  Then we would see how much car rental companies are actually screwing their customer for repairs that are never done.

      1. I know the drill down won’t happen. That’s fanciful thinking, but one can imagine.

        For calculating costs, I tried to look at how to do that from Enterprises’s perspective, not what might seem reasonable from consumers’ perspectives. Thus, suggesting one approach for how to calculate lost days of use.

        Mr. Van Horn is and continues to be president because, for one, he knows how to be conspicuously loyal and how to market Enterprise in positive ways. Your comment that he didn’t might spur him to become an even better president in that respect.

  10. I had an accident years ago with a rental car from Almo. They tried to get a loss of use fee and a $9 administrative fee that my insurance would not cover. I only sent them my deductible and refused to pay the others. With no fight they dropped the other charges but put me on a no rent list. No loss to me as I would never use them again.

  11. I know this conversation is two years old, but I am hoping to be able to ask a question. Part of my business is the rental of my vehicles, by companies hiring my services. While one of my employees was on a job, a rental car driver (who has told us she got the ‘best coverage the rental company offered’) hit my vehicle. 100% her fault, uncontested. Although still drivable, I cannot use this vehicle on my jobs, as it is a reflection of my company. The rental company is saying that they are not liable for my loss of income while it is being repaired. I find that hard to believe. I am loosing a lot of money, every day I cannot send this vehicle on a jobs. Can you comment?

  12. Loss of use should be paid on the basis of what it would cost to rent a comparable vehicle to yours. Our Tesla was damaged and laid up for 6o days. The cost to rent a Tesla or similar car is more than $400 per day but the insurance company only wanted to pay $85 per day. We hired The t. Lucie Appraisal Company from Fort Pierce, Florida to prepare a loss of use report which we took with us to the mediator. We were awarded the full amount because of their report. I suggest that owners of high-end cars fight for their rights re: loss of use compensation. If you paid $100K for a Porsche or Mercedes then you shouldn’t settle for a Chevy Impala..

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