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.
[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)