Insurers will be breathing a sigh of relief after the Dimond v Lovell ruling, but what will the impact be on credit hire companies and bodyshops, asks Aidan Minogue, director of First National Vehicle Contracts' (FNVC) Courtesy Car Division....
Many credit hire companies have enjoyed a free reign since the ruling in favour of accident hire companies in Giles v Thomson in 1994, and everyone is aware that, in some cases, it is the insurers themselves who have been taken for a ride by sharp practice.
Now that insurers have the whiphand, it's time for the industry to adopt a mature attitude and work with those credit hire companies that provide a valuable service and meet the needs of the driver.
The future dividend may well be a healthier industry that delivers real benefits to the driver. Accident car hire companies and the fleet industry in general will have to go through the pain barrier first, however, and this may take two to three years.
The recent House of Lords decision in Dimond v Lovell stands to net insurers around £250m from unenforceable credit hire agreements. Credit hire companies are already facing insurer demands for spot market rates for daily hire and many smaller players face potential financial ruin as they fail to recover outstanding hire demands.
One credit hire company that FNVC works with was simply relieved to recover the spot hire rate from their insurer. Others are facing impasse and a period of worry, as insurers wait to see how the decision impacts on practice.
Few credit hire companies would be surprised at the judgment, and larger companies will already have made provision and established partnerships with insurers to provide a value-added service. The move could also see further development of the courtesy car market in bodyshops, which has traditionally acted as a buffer against the worst excesses of the credit hire market.
Credit hire companies will be licking their wounds but the contract hire and leasing market could also feel the pinch, where operators have large fleets leased to the credit hire industry. This number could be anything from 5,000 to 10,000 vehicles.
While we have remained loyal to key business partners, we have taken a sensible and prudent approach towards this specialist marketplace. Recognising the potential outcome of this case, we have refused certain business and, as a consequence, prospects have sourced their fleet requirements elsewhere. Such suppliers must now be facing a potential problem.
In appreciating the potential impact when you evaluate financial accounts, typically their debts outstanding relative to turnover are significant. Appreciating the ruling, it would be naive to suggest that all such debts will be paid on face value, and providers and funders alike should take prudent steps in this regard. Because we have a dedicated courtesy car division at FNVC, we were able to be a bit more sensitive to the market
The second major headache for credit hire companies is the Consumer Credit Act itself, although the ruling provided some leeway for certain circumstances, under which the agreement is exempted. Technically, contracts under the Consumer Credit Act have to be signed on premises to avoid the seven-day cancellation period and this could provide a logistical nightmare for many companies.
There is a positive side to the ruling, however, as it has shown that there is a legitimate place for credit hire companies that provide replacement cars and additional services to non-fault drivers in the event of an accident. There is no doubt courtesy cars provided through the credit hire route are popular with drivers who are left without a vehicle when their own car is off the road.
The ruling gives those credit hire companies that are able to build meaningful partnerships with insurers the opportunity to build their brand in the marketplace. The traditional "backstreet" image of the industry should now be a thing of the past, allowing improved awareness and positive recognition of the service.
The ruling may also encourage the larger daily car hire companies to take a second look at credit hire and accident vehicle replacement, providing further competition and allowing the development of value-added services to the driver.
The ruling will have little effect on the bodyshop sector in the UK, other than threatening a minor source of referral income. The courtesy car market is now well-established and responsible for building customer satisfaction during the upheaval that follows an accident.
There is already a realistic alternative to credit hire and that is the courtesy car. The inevitable contraction and consolidation of the credit hire market is likely to further increase the attraction of the courtesy car to drivers.
I believe that in two to three years, credit hire companies will have taken a legitimate place alongside courtesy cars and the daily rental companies and their businesses will be growing again.
What we hope to see in the meantime is a recognition by the industry as a whole that everyone – from the contract hire and leasing sector, to bodyshops, credit hire companies and insurers – has an important role to play in making sure the driver is kept mobile.