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Taking a calculated risk
Device prevents car from starting if payment is late |
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By Sherry
Slater |
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Lori Newsome knows that sometimes bad credit happens to good people. But the manager of Auto Credit USA - a division of Glenbrook Dodge - can't run her business on earnest, wide-eyed promises. So her staff installs On Time black boxes on the used cars they sell to people with "very high-risk credit." The electronic device, manufactured by Payment Protection Systems Inc., includes a light that starts blinking red the day before a car payment is due. If the borrower hasn't made the payment within three days after it's due, the car simply won't start. Auto Credit is the only On Tune customer in northeastern Indiana, an On Time spokeswoman said. Booming bankruptcy, layoff and divorce rates across the country have landed thousands of people into credit crises, said Mike Simon, On Time's president. Jim Stresemann, assistant manager at Instant Auto Finance Inc. in Fort Wayne, said most of that company's high credit risk customers aren't deadbeats. They earn between $25,000 and $50,000 a year, he said. "Something has happened in their life that has messed up their credit," he said. Payment Protection Systems has made some hard cash off those hard times. The Temecula, Calif.-based company has seen a 40 percent annual increase in sales since it launched the On Time device in 1999. About 360 used-car dealership and finance companies use about 50,000 units now on the market, Simon said. "It's really targeted to a specific credit rating, to people who've had trouble and know they've had trouble," he said of the device. On Time units are sold retail directly to dealerships and finance companies, Simon said Used-car buyers aren't charged directly for its use, he said. But car buyers can benefit from the device if it helps them clean up their credit ratings, Auto Credit's Newsome said. "We call it a payment reminder system," she said. Auto Credit averages 35 to 40 used-car sales per month, with an average sale price of $8,000 to $9,000, Newsome said. She said sales have increased in recent years but declined to provide sales figures from the time the company started using On Time in 1999 to the present. Harry Cooley bought a 1995 Buick Park Avenue from Auto Credit in November 2001. He was referred there by Glenbrook Dodge, which turned him down for a loan even though he'd just landed a job with the American Red Cross. "I'd been out of work for two or three years," he said, adding that he'd been through a divorce at the time. Cooley was grateful for the opportunity to buy a car he considered to be good quality. In fact, he routinely makes his payments early and had not seen the reminder light until this month. He was a couple days late on his payment because he'd been out of town for work. "The red light started flashing for the first time," he said. "It made both me and my wife nervous." Newsome makes lending decisions based, in part, on the device. "I've done deals where I normally wouldn't have done them," she said. "It's like, does this vehicle have On Time It does Then sell it." Auto Credit can sell 3-year-old cars on a buy here, pay here basis, as opposed to the 10-year-old cars the dealership previously sold. Buy here, pay here refers to the sector of the used-auto industry that carries and collects the loans for sales to high credit risk customers.
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"It helps protect our interests," she said. It allows Auto Credit USA to sell better quality vehicles than the competition."
Stresemann, of Instant Auto, works for the competition.
Instant Auto also offers quality used cars and approves loans for about 90 percent of applicants, he said. And the dealer's customers usually make their payments. "We don't have a big delinquency rating," he said, declining to place a number on the total.
Stresemann added, however, that Instant Auto's delinquency rate is below that of the two previous used-car dealers he worked for.
While Stresemann sees some advantages to the online system, he doesn't think they outweigh the disadvantages.
"I think that it would help a customer remember to make their payment," he said. But on the downside, he's heard of the system malfunctioning and shutting off a car as it was traveling down the highway.
Impossible, Simon responded. The On Time president said the device links directly to a car's starter and can stop it from starting but cannot interrupt its operation if it's already running.
The On Time system isn't completely foolproof, however. Simon acknowledged that anything that can be put on a car can be taken off.
"There's a lot of people who try to tamper with the system, but very few are successful," Newsome said. "Pretty soon they're giving you a call and saying,' My car won't start, even when I enter the code.' So we tow it in and look at it and say, 'You wouldn't have a problem if you didn't tamper with it.'"
Nationally, fewer than 1 percent of car buyers tamper with the On Time system, Simon said. And for those who do, the penalty can be severe.
Auto Credit's Newsome said borrowers have to sign a form agreeing to allow the device to be installed on their cars. The paperwork states that "it may be a crime (grand theft) to remove the On Time Payment System from my vehicle."
The system's primary electronic unit is positioned out of sight beneath the dashboard. A second black box is placed near the hood release, to the driver's left side. That's the box with the lights that blink green when no payment is due and red when the payment comes due. "It's nothing conspicuous," Newsome said. "It almost looks like an alarm system."
The payment schedule is determined by the borrower's pay schedule and can be programmed at the time of sale for every week, every two weeks, once a month or twice a month.
Customers receive a six-digit code when they make payments. They plug a small key pad into the black box, using a standard telephone line, and enter the number to keep the On Time system activated.
The devices are programmed to disable the cat's starter at 10 a.m. on the fourth day after a payment is missed. That gives customers a one hour reprieve to make a payment at the Auto Credit office, which opens at 9 a.m., Newsome said.
Some used-car buyers welcome the opportunity to improve their credit ratings by using On Time's reminders to prompt them to make regular payments. Others would rather try to dodge the repo man than deal with the unforgiving little black box.
"Nine times out of 10, people don't want this on their car," Newsome said. "They have no intention of making the payments (on time).
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