Collection Devices: To Use or Not to Use*

I am sure most of you know what collection devices are. Starter interrupt, GPS or combined units are big business in BHPH and LHPH. I have used collection devices in the past. Several years ago, we tried them, and after three companies and many frustrating incidents, we decided that counting on the devices was not good for our operation. When I put together the current operation, I did not even consider having them in the business model.

I am not here to slam collection devices. Dealers must each decide what works for them. If we were in a large metropolitan area and intended on rolling all the cars we could, there would be a GPS unit on every car. Our operation is in a rural area and the clientele is easier to work with than the folks we dealt with in Dallas.

In Dallas, we had 2,500 open notes in a 16-year-old portfolio. When we decided to use a GPS device, underwriting changed. Or, I should say, the attitude of the underwriter changed. The sales guys loved it and sales increased. The collectors first thought using GPS would be great but then the calls started coming in.

“My car won’t start, and it’s that *^%@ device you put on the car!” How many times in service have you heard the phrase “ever since I got the car”? That call comes in more frequently. Customers attempted to somehow tie the device to every service issue and wanted us to repair the car or remove the device at our expense. Of course, most customers want those things anyway, but the device becomes the focal point.

On the other side, our perception soon became that every time we needed to find a car the unit wouldn’t work. We would try to locate the car for two to three days using the GPS and we couldn’t. To be fair, many more units worked than didn’t, but it would invariably be the device on the car we most wanted to find that would fail. Oh, and the fun our service department had installing the units! Sometimes two or three units would have to be wired up and tested to get one that would respond. Granted, this was about 10 years ago. We used three different companies in an attempt to get the right unit. After several months of the above scenarios, we gave up on using devices.

In our current business, we do not use any devices. Here in Arkansas our store has sold approximately 1,800 vehicles in six years. At this very moment, we have not lost one vehicle. We have repossessed our vehicles from places like New York, Florida, Arizona, California, Oklahoma, Texas, Missouri and others. So far in 2010, out of 700 open loans, we have repossessed 51 vehicles, 34 of which were voluntary. Those numbers work for us because those 51 vehicles collectively made some money. Yes, they represented losses on our books, but the exposure was positive.

Underwriting is the key. Daily diligent collecting with some collector flexibility to empathize with the customer is important. We have a 24,000-mile ESP available that is very comprehensive and keeps the cars rolling. The customer can get the car towed in and repaired with little out-of-pocket expense and our service department makes a profit.

You have seen the disclaimer, “Results are not typical.” I cannot speak for any other operation. I have been involved in three BHPH operations, and I established the third one based on exactly how I felt it should operate. Create a sales process designed to help your collection process. Train everyone in your operation to understand that you are a financial business, not a car store. Create policies and procedures that work towards collections throughout your operation. Throw in daily diligence in your account management and you will be successful.

In my opinion, the devices become a crutch for underwriting. Please understand that I am sure the technology has made tremendous strides. I can see the effective use of a quality starter interrupt/GPS unit in a large city. Had we used some type of device here, we would have invested $450,000 to date just in device expense. Since I have not lost a vehicle and we maintain a 93 to 95 percent recency rate, we have nothing to balance the ledger with to justify that expense.

*Views expressed in this article are those of the author and do not necessarily reflect the editorial position of Special Finance Insider or Auto Dealer Monthly, LLC.