Dealers with loaner fleets could cash in but risk service retention

The shortage of new- and used-vehicle inventory has created a lack of loaners at dealerships. And those stores that have them are faced with the choice of whether to keep the cars for service customers or take advantage of red-hot used-vehicle prices and sell them.

Russell Lemmer, president of Dealerware, a software provider that helps dealerships manage their loaner fleets and other courtesy vehicles, says the average dealership has about 40 vehicles for use by service customers, but it varies a lot between luxury and mass-market brands.

Typically, mass-market dealerships have around 15 to 20 loaner cars. But dealerships for luxury brands such as BMW and Lexus might have 100 or 200, Lemmer says. With the inventory shortage, loaner fleets for luxury brands are down "a few percentage points" in size, he says.

"Mass-market brands, however, make that choice [to sell] more actively," he says.

Tom McCollum, CEO of Forbes Todd Automotive Group, of Dallas, which has one dealership each for the Audi, Honda and Acura brands, says he may take advantage of the market to sell a few of his 100 or so loaner cars — but not many.

"The OEMs I represent, and most that I am familiar with, allow dealers to repurpose a certain percentage of loaners to for-sale inventory," he says. "We'll do a little of that. One brand I know of has said it would allow up to 40 percent of inbound loaners to be converted to ground stock."

McCollum won't sell a lot because he believes that in his market, loaner cars are critically important to create service retention and repeat customer-purchase loyalty — for mass-market brands as well as for luxury brands.

"I really don't see a scenario where I would abandon the loaner fleet for the short-term gain," he says. "It's a long game here."

John Kiefer, president of Kiefer Automotive Group, says customers for mass-market brands have high expectations for loaner cars, too.

The group, in Eugene, Ore., has two Kia stores in Oregon and two in California. The group also has Mazda, Nissan, Volvo, Hyundai and Subaru stores.

"Some luxury brands provide a loaner car for every service visit, no matter what," he says. "Mazda does that, as well. For Kia, it's just for warranty repairs. But if people are used to being provided a loaner car, they feel like they are owed it, and they absolutely expect it."

Peter Lanzavecchia, president of Burns Buick-GMC in Marlton, N.J., outside Philadelphia, wishes he had some service loaners so he could even consider whether to sell.

"I have none," he says. "We just don't have the new inventory to transfer into fleet."

To make up for the lack of loaner cars, Lanzavecchia says he's offering service customers ride-sharing transportation.

"We kind of navigate [it with] Lyft rides home for the customer, running them home in our shuttle, whatever we have to do," he says.

"And the customers understand that. They know we have no inventory. They can drive by and see the bare blacktop."

Normally, the dealership would have a fleet of loaner cars numbering "in the low 20s." He said General Motors has been flexible about the loaner car shortage.

Lanzavecchia says maintaining an adequate fleet of loaner vehicles is normally part of a dealership's requirements under GM's Essential Brand Elements facility standards. But he says dealers were recently notified GM would waive that requirement for the third quarter.

Renee Ketels, a spokesperson for Buick and GMC, says it's up to dealers whether to put new vehicles into loaner service.

The dealer can choose to sell a loaner vehicle once it reaches a certain mileage or time-in-service metric, which she would not disclose.

"There have been no changes to the normal Buick/GMC process of courtesy transportation vehicles and their potential use for sale," she says.

Lanzavecchia also owns Burns Hyundai and Genesis of Cherry Hill, also in Marlton.

He wouldn't comment on the Hyundai brand, but he said he could never deplete the loaner fleet for Genesis because all models come with the Genesis Service Valet program.

That includes scheduled maintenance at no extra charge for 3 years/36,000 miles, including pickup and delivery, and a loaner car for every service call.

"We certainly have no chance to thin out the loaner fleet," he says. "I don't think any Genesis dealer would consider it."

Kiefer says a shortage of loaners is just the latest challenge for service departments to overcome.

"There's lots of stresses out there, right?" he says. "But we're striving to maintain the same level of service we offered pre-pandemic."