Car sellers turn to technology to secure payment

Bad-risk buyers get second chance
 

The customer at the used-car dealership had one of the rockiest credit records finance managers had ever seen, including two auto repossessions and more than a dozen long-over-due credit card accounts.

But hours later, he happily drove off the lot in an old jalopy - even though the terms of the deal came with a major catch.If he misses his weekly $50 payment by even a second, the car won't start. "These types of bad credit risks understand that they have a problem and that we're helping them" said Michael Simon, president of On Time Payment Protection Systems in Temecula.

On Time manufactures a controversial device that fits under automobile dashboards and uses blinking red lights and beeps to alert owners whenever it's time to pay up.

Used-car customers must make their payment to get a six-digit code from the dealer that they punch into the system to keep the vehicle's starter from failing.

Consumer activists said the technology victimizes those drivers who sometimes can't stick to strict payment schedules because of financial crises beyond their control.

"We have to be very careful about the dangers of being too quick to deprive individuals of basic necessities like access to cars." said Michael Shames, executive director of the Utility Consumers' Action Network in San Diego.

The On Time device "is the virtual equivalent of a repo," Shames said.

But Simon and representatives of the used-car industry said the device actually allows people with dismal credit records to drive off the lot in vehicles that they otherwise would never have had a chance of owning.

Indeed, the system seems to be keeping most drivers honest, said Art Spinella, an executive at C&W Marketing Research.

The company provides consumer data and conducts studies for automakers and new- and used-car dealers.

"Historically, that segment - C-l and D paper, as bad as it gets - has a delinquency rate of more than 30 percent" Spinella said.

However, the use of On Time's device "has brought that rate down to about 10 percent" he added. "That's still higher than normal, but significantly better."

About 50,000 of the OnTime devices are in use at 300 used-car dealerships in the United States.

Several dealers in San Diego County who installed the system on some customers' vehicles declined to be interviewed for this story, citing the controversial nature of the device.

Tony Wilcox, owner of Championship Auto in Redlands, said he began putting the On Time device on some of his older, cheaper cars in January.

Most of the customers who buy these types of vehicles, which sell in the $3,000-to-$4,000 range, had been relegated to riding public transportation or walking and were desperate for their own wheels, he said.

"They aren't embarrassed (about the device), but very positive because they had no other way to go," said Wilcox, adding that Championship Auto offers in-house financing on the deals for 12 to 18 months. "People have been very good about paying on time."

Simon, whose company originally manufactured auto-security systems, said the idea for the device came to him while at an automobile trade show.

"Someone from a bank walked up to our booth, saw our security products and wondered aloud if we couldn't produce something to help people make their payments," Simon said.

When introduced, the On Time Payment Protection System caused a stir with consumer groups and some car buyers.

For instance, two women. Mandi Bergeron and Chavela Jones, sued Detroit auto dealer Mel Farr, contending that the device shut off their vehicles while they were driving.

The lawsuit asked that the leases on their cars be voided, and sought damages of more than $25,000. The lawsuit was settled out of court.

Otherwise, "there have been very few negatives," said Simon, adding that the On Time system can't shut down the car's engine but can only prevent the ignition from starting the vehicle.

Moreover, the device gives drivers several days' notice before a final warning -- a blinking red light and a beep -- indicating that the car is in its last hours of operation.

There is also an emergency code in the customer manual for one last start, Simon said.

Although Simon acknowledged that the auto market was leery about his invention three years ago, he said his company now has an annual growth rate of 30 percent He declined to divulge specific financial information about the company.

Simon said he sees On Time as a means of empowerment for people who need to improve their credit records and drop bad financial habits.

"These are good folks who are not good at handling money," he said.