"Rental Car Companies Get Aggressive on Damage" From NYT

[FailingEnterpriseAdmin]

Hello All,

Any thoughts on this?

Admin

April 5, 2005

BUSINESS TRAVEL Rental Car Companies Get Aggressive on Damage

By CHRISTOPHER ELLIOTT
he Ford Escape that Karen Anderson recently returned to Budget Rent a Car in Bend, Ore., looked "squeaky clean" to her. But perhaps she did not look hard enough.

broker in Morgan Hill, Calif., was told by Budget that she would be charged an extra $20 for a chip found in the S.U.V.'s windshield.

"I never saw the chip," she said. "We even went through the trouble of washing the windshield before returning the car. Honestly, I was stunned."

She says that Budget told her that if she did not pay the fee, the case would be forwarded to a company that specializes in collecting damage claims, and she says she was warned that if she did not settle quickly, an extra fee might be added for the three days the car would be out of service for repairs.

In the past, car rental companies were willing to overlook minor damage to their vehicles, particularly when evidence of the renter's responsibility was flimsy. Not any more. The industry, slow to recover from the travel slump that began after 9/11, now appears bent on pursuing even the smallest cases.

"Car rental companies are getting much more aggressive about their claims," said Jeff Miller, a travel lawyer with the firm of Lipshultz & Miller in Columbia, Md. Chasing down customers who scratch or dent cars, he said, "is a growth business."

Independent business travelers like Ms. Anderson, who lack the liability insurance protection that corporations negotiate for employees, are most vulnerable to the new bill-collecting mentality. They have nowhere to turn except to their credit card companies or car insurers, which have become increasingly reluctant to cover all damages. As a result, they are often left holding the bill.

If they contest it, they may face further fees. After Ms. Anderson refused to pay the $20, for example, PurCo Fleet Services, one of the largest and most established damage-claims services for the car rental industry, told her that it was adding a $10 "administrative fee" to her bill and gave her 30 days to respond. It also enclosed a written report from a glass-repair shop.

That only got her dander up. "The writing was far too faint and utterly unintelligible," she said.

Budget did not respond to numerous requests for a comment on the windshield claim. But David Purinton, PurCo's founder and owner, agreed to review her file. He said Budget apparently did not conduct an inspection when she returned her vehicle (many smaller locations do not have enough workers to inspect each car when it is brought back). However, about half an hour after the S.U.V. was checked in, an employee discovered a chip, according to the case record.

Mr. Purinton said about 40 percent of the claims he received are not recoverable for one reason or another. Sometimes, the damage is not adequately documented. Other times, there is no conclusive proof that the renter was responsible. "This case may fall under that 40 percent," he said. Either way, he added, Ms. Anderson's case was too small to pursue. If she appealed the bill, he said, "we'll close the case."

Kevin Miles, the president of the American Car and Truck Rental Association, a trade group, says car rental companies have a good reason to take a hard line on claims. Not only do the damages eat away profits (Enterprise Rent-a-Car, the largest car rental company in the United States, says it loses about $60 million a year because of uncollectible damages) but increasingly, the insurance companies of customers are reluctant to pay for dents on vehicles.

"We're not in the business of alienating customers," he said, "but if your insurance company doesn't pay, you have to."

He acknowledges that some car rental companies inflate claims with tactics like charging for excessive "loss of use" or exaggerating the cost of repairs. Mr. Miles's organization has no formal guidelines on how to handle claims against a renter, but he said such conduct was forbidden by his group's code of ethics. "If we found out one of our members was violating our code of ethics by filing excessive claims, we would kick them out," he said.

Mr. Purinton, the PurCo president, says such misbehavior is relatively common, although he stopped short of naming competitors who were parties to it. "They are shady characters," he said. "And I'm mad as hell because what they are doing tarnishes me and my reputation."

Business travelers are equally angry, but for different reasons. When Eugene Jivotovski, a software engineer in Fremont, Calif., received a bill from Linda A. King & Associates Claims Management regarding a recent rental, he thought the invoice for an additional $360.26 was a joke. He rented last November from Fox Rent A Car in San Diego. According to a letter sent to Mr. Jivotovski, the company had found cigarette burns on the driver's side of the Chrysler Pacifica he used.

A letter accompanying the invoice suggested that if he did not pay, the company would take him to court.

Mr. Jivotovski said there were two problems: He does not smoke, and the license plate for the car on the bill did not match the one he had rented. "I have absolutely no problem paying money for the damage I incur," he said. "But paying for something I haven't done makes me furious. I feel like I'm being robbed."

Bill Daly, a claims supervisor for Linda A. King, said he did not know why the license plate was not the same as the one on Mr. Jivotovski's rental agreement, but insisted that the rest of the case "matched up." Still, he said, one of his associates had phoned Mr. Jivotovski after he disputed the claim and "found him to be pretty sincere, so we closed the case and sent it back to the client." Mr. Daly also said Fox Rent a Car would not pursue the matter.

Car rental experts say that most cases handled by claims-management companies turn out differently. Otherwise, they say, none of the companies would be able to stay in business. A majority of the corporate travelers who receive a demand from a claims-management company either submit a claim to their insurance, or more frequently, pay for the damage instead of risking a protracted dispute, they say.

Christy Conrad, a spokeswoman for Enterprise, one of the few car rental companies to manage its damage claims rather than farm them out, says the intent should not be to stick renters with a bill but rather "to make the situation right."

"We don't work to make money off the claims-management process," she said. "We just want the vehicle back in service. That's where we make the money."

But that may not be a widely held view, according to Warren Lieberman, the president of Veritec Solutions, a revenue-management consultancy in Belmont, Calif. "Companies are looking at the bottom line, and this is just another opportunity to reduce revenue leakage," he said. "But when you crack down on damage, it's inevitable that sometimes, you're going to assign blame to the wrong party."



Readers are invited to send stories about business travel experiences to businesstravel@nytimes.com.

[Jeahho]

One question that story answered for me... With a company like Budget, who often allows a car to be returned (and rented) without actually inspecting the condition of the vehicle with the customer, are they actually able to write a damage report without the customer even being able to see the damage at the time the rental is being returned? .... Well, I guess so. Sheds new light on the whole 'I like Hertz because they just have me sign, give me the keys, and let me go' mentality, I think. If, as a customer, you have ever been pissed off because the Enterprise lady came in and told you there was a scratch on the door of the car you just rented, imagine how much more pissed you would be to get a letter in the mail, three weeks after the car was returned, explaining your responsibility for damages you were never even able to see.

[ExLossControl]

I tend to agree with what was written- my primary job was to collect damages, and we used to have to get three levels of permission to close a disputed case- the area manager, the city/group manager, and the loss control manager. And it took the customer being very loud and very insistent to get the bill written off. I think Corporate average was about $10/car uninsured loss and $25/car insured loss (unpaid legitimate claims and waiver losses). I do know that one of the major issues my group had regarding promotions was people looking at the reserve sheet and calculating the hit their commission check would take if they took the branch- insured losses are averaged out over a 12 month rolling time frame, so chances are the same manager wouldn't be there over those 12 months to pay out the damage.

Loss Control at E functions very much like an insurance company- we took statements, kept a "diary", analyzed estimates, negotiated with adjusters, etc. I'd say 80-85% of the legitimate files are closed paid within 90 days, and we used to do payment plans for uninsured or CDW violators all the time.

That being said, the largest losses are often the most unrecoverable- the uninsured cash renter who rents a car, takes the full package, lends it to a friend/relative/child/drug dealer, and then promptly reports it stolen, or it ends up in a parking lot with a Molotov cocktail through the window, or on the nightly news after a high speed chase. Or somebody gets drunk, stupid, behind the wheel, and flips the car/hits a deer/hits a person/hits a house.

E doesn't incur $60 million in losses through $20 windshield chips or key scratches, though they do add up. The main component of the damage loss is $20-$30K a pop for a totalled car (even a Camry's ACV is $18K- a Suburban runs $40K or more) rented to an uninsured renter who violates the contract. True, the money is recoverable in court, but many of the cash renters we saw were unemployed or earning minimum wage, or were on SSI/disability and therefore unattachable, and didn't own property or assets.

The most common outcome of a suit against these renters was forcing them into bankruptcy.

They also don't say what percentage of this loss is in liability payouts. E runs a liability self-insuring entity, rather than outsourcing and buying an insurance policy on its cars.

The solution to a ton of the issues that E has with unpaid damage is to stop taking high risk cash deals. However, no manager in their right mind will do this, because when it works, it is the highest-profit business segment. When it goes wrong, however, the hit can be massive.

The ironic thing is that E still makes a ton of cash even after the damage losses, and probably likes the loss deduction in can claim on its P&L statements. E is by no means on the verge of bankruptcy due to loss claims.

[Jeahho]

Great post! It is always nice to see people who knew their part of the business. That is the kind of person they should be sad to lose because there is such a huge difference between knowing the motions you need to go through while performing your job, and actually understanding how all these things fit together and affect the business. That was very insightful, much appreciated.

[ExLossControl]

Yeah...too bad my knowledge of the business didn't make up for the fact that I didn't look like a Level 3 is supposed to...or that I supported the wrong Presidential candidate, and was public about my too-liberal-for-ERAC beliefs.

Oh, well. I gained a lot of knowledge, but it was time for me to move on. And I'm glad I have this forum to contribute my thoughts and knowledge.

[FailingEnterpriseAdmin]

This is an excellent post! You've done your homework, you've got your facts straight, you thought clearly and then wrote clearly. This is precisely the type of informative, well-written post that makes our online community work.

Thanks for putting the time into making it right.

Admin

[ExLossControl]

Thank you, Admin. I appreciate it.

It's all based on my real experience at ERAC. If you want to know more about how their damage claims system operates, just ask.

[iriswalt]

very important part of the bussy bussy business

[Tim O' Tei]

How can any renal company charge for these sorts of things? There isn't enough room on the erac contract to enter details on cigarette burns and tiny nicks.

They are just hoping that most of the customers are too scared to go through the entire process.

[iriswalt]

only outside damage or a cleaning fee