When the light starts to flash, you had better have the cash.
That's the reality for millions of subprime borrowers whose used car purchase is contingent upon having an unusual option: a little box mounted underneath the dashboard that forces them to make their payments on time.
A light on the plastic box flashes when a payment is due. If the payment isn't made and the resulting code punched in to reset the box, the vehicle won't start. The next step is a visit from the repo man.
As tighter credit crunches consumers, it seems business can only get better for Sekurus, a company based in this suburb east of Los Angeles. It's among several companies that market such devices.
"We're just starting to see that," says Sekurus CEO Mike Simon, as the potential market of an estimated 7 million subprime auto borrowers continues to swell.
The device helps stave off default, a growing problem. Car and truck repos this year are predicted to hit the highest level in at least a decade, according to Manheim, a wholesale auto-auction service.
As more dealers look for ways to protect themselves, Simon says privately held Sekurus has grown at a 30% clip in recent years. Revenue goal this year: $20 million.
A forerunner company to Sekurus was founded in 1995 to sell anti-theft devices for cars based on radio-frequency identification, or RFID, technology. But within a couple of years, lenders had another idea: Could engineers come up with a device to force car buyers to pay up on time?
Sekurus was founded in 1999 and started selling On Time, as the device is called. It has sold 250,000 at up to $250 each. Most are bought by finance companies or dealers who cater to the most troubled car buyers, those who need basic transportation yet have checkered credit histories.
The box's LED light starts blinking when a payment is nearly due. On deadline day, the unit not only blinks, but beeps. Motorists find it so annoying that it drives "them absolutely nuts," Simon says.
When the customer makes the payment, the lender gives them a six-digit code to enter into the box.
The device lowers default rates for subprime auto loan borrowers that typically run about 30% to about 5%, according to Simon. When default rates fall, lenders feel more secure offering financing for more valuable cars to high-risk customers. By forcing buyers to pay on time, the device also rebuilds their credit record.
Car dealers say most customers aren't thrilled to punch in a code with every payment but grow accustomed to the device.
"We've used it as a tool to keep the repo rates down," says Jeff Hamilton, partner in the family-owned Hamilton Classic Cars in Chester, Va. "We don't have to go after them as much." Most of his customers are required to make payments twice a month, and often wait until the last day, "when it starts beeping at them."
Cedric Brown, a loan specialist at Star Loan Acceptance Center in Clifton Heights, Pa., says he's had a great response. "We are able to help a lot of people who otherwise might not be able to get a vehicle," he says. A few customers, he adds, even grow to like the discipline it enforces.
Car dealers have a choice when it comes to such payment devices.
One Sekurus rival is Pay Technologies in Cleveland, which sells mostly wireless systems. Dealers can access accounts through the Internet and send a message to the device in the car as with a paging system. Again, the car is shut down if payments are not made.
"It's a huge improvement," says President Jim Krueger. He says Pay Technologies started a decade ago with a keypad system "and I can't tell you how many calls we got on the weekends" from customers who lost codes or tried to enter the wrong one.
Another competitor is PassTime USA in Littleton, Colo., which uses a mix of keypad and wireless systems. President Frank Jacobsen says he thinks the credit crunch will "make a difference" in sales, along with payments from the federal economic stimulus package that could boost car buying.
Sekurus is continuing to introduce products. The latest enhancement is coupling the keypad to a global positioning device. Not only will the car's starter automatically shut off, but a message will go to the loan holder with its location to make repossession easier.
Simon says he hopes the new system will give lenders added assurance, allowing more high-risk borrowers to buy better cars.
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