New gizmos always are popular, but when they offer a revolutionary way to collect from non-paying customers, they become a sensation.
The On-Time device clearly qualifies as a sensation.
Placed in a vehicle, the small gadget requires customers to punch in a code in order to start up their cars. Every week they must make their payment on time to receive a new code. Similar devices require a card swipe or even a transmission via radiowaves to the car. In this high-tech scenario, computers send a radio signal to the car that allows it to start (or not).
Basically, if you don't pay, you don't drive.
Mel Farr, owner of nine dealerships in the metro-Detroit area and three more in Ohio, has been getting calls about the On-Time device from Puerto Rico to Beijing.
Says Mr Farr, "It is a very simple device, really."
Or is it?
Mr. Farr is part owner of the On-Time device and the first to use the device widely. And there's a reason for that. Dealers are wary of a device that may or may not cost them in the long run. Mr. Farr already has been sued by two people claiming their cars stopped running while they were driving.
While the verdict isn't in yet on the case, it still appears that a situation arising where the car stops while running isn't all that probable. "The on-time device is designed, if it should fail, to fail safe," Mr. Farr says. "It won't stop the car when it's running."
The device works through its attachment to the starter. No other part of the car is connected to the system. When activated through a code, the car will start, without the code it will not. That's the simple part.
It gets more complex when considering how the public will react to their cars not starting in emergency situations. While all these systems include a Monopoly-like 'Start Your Car For Free' one-time emergency card or code, dealers question whether this might lead to litigation hell. Since the on-time device itself costs very little, fears lie mainly with the unwanted publicity and costs court cases may inflict on the dealerships.
"What happens when someone didn't make their payment and they are down on their luck for whatever reason and you haven't swiped their card?" says Chris Leedom, a trainer specializing in sub-prime financing for NCM Associates, Inc. in Overland Park, KS. "They go out in the middle of the night with their daughter whose appendix burst and their car can't start to get her to the hospital and she dies.
"Maybe they have the swipe card, but in a panic they were unable to find it. Or maybe they used their emergency card already to get to work one day, and haven't had the money to buy a new one (Mr. Farr's currently cost between $300-$500)."
Other issues arise over privacy. Because some of these devices use a GPS tracking system, the question arises: Is it appropriate to be able to track someone down and know exactly where they are going and when, simply because they have a bad credit history?
Also, it still remains to be seen if dealers will selectively target high-risk customers for the device and, if so, how they will determine what qualifies as high-risk. Situations where a dealer requires specific income brackets or residents from certain districts to use the device could prove costly in court.
These are the situations that are making some dealers cringe and, subsequently, Mr. Leedom describes the reception he's seen in his Twenty Group meetings as "cool and cautious."
He says, "I had one client that used it briefly, and 'briefly' is the key word."
But he can see the benefits as well. "If the technology is legal and if it is legitimate it's a great collection tool for someone who is high risk. And there is no doubt that it's an enticement for them to make payments knowing that the vehicle is going to be disabled."
"Besides," Mr. Farr notes, "utility companies have come up with a system to turn off your electricity if you don't pay. Phone, electric bill, gas, water - they can cut it off. And because there is a threat of them cutting it off, it reduces their delinquency tremendously because no one wants to have their electricity cut off."
Mr. Farr believes that the system is ideal for people who have trouble budgeting month to month. "The On-Time system helps them to discipline to pay on a week to week basis," he says. "It fits in their lifestyle and therefore it is easier for them to fit it into their budget."
In addition, because he expects more at-risk customers to pay under this system, he also expects it to reduce costs. Answering his critics who accuse him of taking advantage of consumers on system with 25% interest rates, he says that assuming costs are lowered, "We would just pass that cost on the consumer."
An employee of an automaker's financing subsidiary says the reaction at her office to Mr. Farr's device is, "It's about time someone did something like that." She adds, "It's a lot better than repos."
But the question remains whether the costs of possible future litigation will present themselves and if so, when or how any benefits would be passed along to these high-risk customers. Mr. Leedom mentions that perhaps the most feasible way for this system to work is through leasing.
"I think the stronger argument where it stands up is the leasing company," he says. "That's like electricity, where that's our property and we need to retrieve it and to retrieve it we are going to disable it and recover it. Whereas in the retail installment contract you are just a lien holder and you are not the owner of the vehicle."
Currently Mr. Farr is compiling a report of his level of success with the device. He expects his data to be ready in approximately six months.
But for now, he's using the system on a trial basis. However, even with the worries over possible litigation, the equally possible financial gains of using the system have dealers and finance companies anxious to see how it works out.
