We expanded ours last year and it has been one of the better decisions we made. Service customers appreciate it and it feeds our CPO pipeline.
The upfront cost scares some operators, but if you manage the lifecycle correctly, it pays off. We are with Honda and they finally added some incentives for loaners last year. They are still behind with OEMs like Kia and Hyundai are doing to incentivize more loaners.

The lifecycle management piece from the previous reply is where most stores leave money on the table and it is worth being specific about what that actually means in practice. We run our loaners for 12 months or 15,000 miles, whichever comes first, then move them through our own used lot rather than sending them to auction. Because they have full service records, known history, and came out of our fleet they are easier to certify and command a premium over auction-sourced used. We also found that loaner customers who had a good experience with a specific model during a service visit converted to purchases of that model at a meaningfully higher rate than cold leads. The loaner fleet is doing three jobs at once: service retention, product trial, and CPO pipeline. The operators who see it as just a cost center are only counting one of those.

The analysis that changes the decision includes four inputs: the service RO value of customers who come back because they got a loaner, the CSI impact of loaner availability, the used gross per unit when you sell the loaner through your own lot versus auction, and the upfront capital requirement. When we modeled all four inputs together the loaner fleet went from looking like a significant cost center to a modest but consistent positive contributor.

The CSI boost alone justifies the fleet, but the CPO pipeline is the real winner.

Agree, the CPO pipeline and service retention make the initial investment very worthwhile.

A fleet of twenty introduces a claims frequency that requires real administrative infrastructure that smaller operations often do not have. Damage disputes with service customers are a different relationship dynamic than a vehicle purchase dispute. The stores that do it well have thought through the damage and liability protocols before they need them.

The "extended test drive" aspect is a huge hidden gem for sales. If a customer loves the loaner, they’re already halfway to a trade-in. The administration and claims can be a headache, but you can’t beat the CPO pipeline and the massive CSI boost it provides.

The "extended test drive" angle is huge. We’ve found that putting a service customer in a newer model often plants the seed for their next purchase. The upfront cost is high, but the quality of CPO units you get back is far superior to anything at auction.