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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