DriveTime

DriveTime Automotive Group Inc., based in Phoenix, Arizona, is a used car dealership network and automobile finance company focusing on buyers with credit issues. The company has 128 dealerships in 21 U.S. States, and more than 3,500 employees. DriveTime has sold more than 650,000 cars and lent in excess of $3 billion.^[1]

Philosophy

In 2004, chairman and CEO Ray Fidel said DriveTime intends to treat customers with financial problems the same as customers at premium auto dealers.^[2] That same year, the company introduced Rate Advantage, allowing buyers to get a lower interest rate with a higher down payment. The rate could be as low as 8.99 percent, with 20 percent being average for the industry.^[3]

DriveTime buys most of its cars at auction houses. Its cars tend to be five years old with 65,000 to 95,000 miles; many of them were leased.^[2] Prior to 2004, the typical DriveTime car was twice as old with 80,000 miles.^[3]

In 2009, DriveTime introduced their DriveCare package, which provides customers with benefits that other "Buy Here, Pay Here" dealerships do not usually offer. The program is sold into the price of all vehicles, including a 36-month/36,000-mile warranty, complimentary oil changes, 24/7 roadside assistance, along with a car history report and pre-purchase vehicle inspection.

In 2013, DriveTime amended their DriveCare package and outsourced to Aeverex for warranty claims. The new warranty includes a 5-year/50,000 mile warranty.^[2]

History

Ugly Duckling

Thomas S. Duck, Sr. retired from selling insurance and along with his energetic son Thomas S. Duck, Jr. founded Ugly Duckling Rent-A-Car Corp. in 1977. By 1987 the younger Duck had attained a 612% growth rate according to INC 500, with the car rental business a major success and companies such as Budget Rent a Car doing well, the Duck's company was ranked as the 5th largest rental car company in the United States, with 650 open locations and over 1000 under contract franchises and $65 million in revenues and 33,000 ugly ducks on the road . Unfortunately in 1989 Thomas S. Duck Jr. the visionary and spark plug for the meteoric growth and driving force of the company for 12 years resigned after the board of directors voted against the public offering that Duck Jr. had arranged to recapitalize the core company and 14 wholly owned synergistic operations of UDRAC holdings INC. This included the captive insurance company SWANCO. The predictions by (Duck Jr.) for the results of their decision soon became evident. Thomas S. Duck Sr. sold the company to a group of existing franchisees who upon acquiring the rights to the company filed for Chapter 11 bankruptcy (reorganization). This group soon gave up and sold to another group of franchisees who did not last long either.

Ernest C. Garcia II, who studied business at The University of Arizona in Tucson and a convicted felon for his role as a straw borrower in the Lincoln Savings and Loan Association collapse,^[4] formed Duck Ventures, Inc. in 1991 and bought the remaining Ugly Duckling's assets and became the fourth owner of the company. Later he started Ugly Duckling Holdings, Inc. and made Duck Ventures a subsidiary. Mr. Garcia was unable to sustain the insurance for the rental operation and turned the company into a sub-prime high interest used car sales company.

Ugly Duckling had two car dealers, one in Phoenix and one in Tucson, by 1992. The company bought three more dealers but added four new ones, giving them an appearance comparable to a standard dealer, rather than the unpleasant look most subprime lots had.

One dealer closed in 1994 because it did not live up to the new image. In 1995, an experiment in Gilbert, Arizona ended; Ugly Duckling tried to sell newer and more expensive cars. the company sold that dealer.

In 1994, Ugly Duckling bought Champion Financial Services from Steve Darak, making Darak Chief Financial Officer. The company had a new source of income—buying installment contracts from other dealers, still considered subprime, but from customers more affluent than Ugly Duckling usually had.

In 1996, William Gibson, an analyst for Cruttenden Roth, said in Investor's Business Daily, "You go to Tucson or Phoenix and people know The Duck. It's an icon in those cities."^[5]

Ugly Duckling helped customers in several ways. The company prepared tax returns and let them use their expected refunds for down payments. The company allowed people to get Visa credit cards by paying a deposit to Visa. Also, those who made payments on time could have their down payment refunded, usually 10 to 15 percent of the purchase price. The dealers had repair service, and a buyer could obtain a repair contract. And unlike most car dealers, Ugly Duckling let customers make their payments with cash.

Ugly Duckling lost money three of its first four years.^[5]

Ugly Duckling went public in 1996, raising $160 million. The company had seven dealers^[1] and traded as "UGLY" on NASDAQ.^[5]

Garcia bought most of Ugly Duckling's publicly traded shares and took the company private. As of 2004, he owned 85 percent of the company, the largest Latino-owned firm in Arizona.^[2]

Ugly Duckling began to exit the rental car business. 100 franchises closed by August 1996, and the other 40 would close over the next ten years as their contracts expired.

GE Capital increased its credit line to $100 million. With new financing sources, Ugly Duckling began a major expansion program. The company bought five dealers and $25 million in finance contracts from Seminole Capital Corporation in the Tampa/St. Petersburg area. For $26.3 million, Ugly Duckling bought some assets of E-Z Plan Inc. of San Antonio, Texas. It also opened its first dealers in Las Vegas, Nevada and opened two dealers in New Mexico. By August 1997, the company had 24 dealers in five states, and 64 branch offices in 17 states. Through the branches, Champion purchased financing contracts from 2710 dealers. Many of those contracts required casualty insurance, Ugly Duckling went into the insurance business, buying policies for those required to do so. Ugly Duckling's Drake Insurance Agency did this through American Bankers Insurance Group, and offered other types of insurance as well.

Another area of business was Cygnet Finance, Inc. which Ugly Duckling started in September 1996. This subsidiary offered financing for car dealers which could not.

With all the expansion taking place, Ugly Duckling changed advertising agencies, from Moses & Anshell to Riester Corporation. For Spanish speakers, Ugly Duckling used Dieste & Partners of Dallas, Texas.

Ugly Duckling became profitable and increased its number of employees from 652 at the start of 1997 to 1776 nine months later. A greater percentage of the company's income came from financing, and the November 11, 1996 Washington Post said Ugly Duckling was "a bank masquerading as a used-car lot."^[5]

By 1999, though, Ugly Duckling was out of the financing business; Garcia bought Cygnet and Champion closed. At the same time, Ugly Duckling was developing its own software, and CEO Gregory Sullivan said this company was the only one buying car dealers in 1999. Markets added included Orlando, Florida and Richmond, Virginia.

In 2001, sales were $541.7 million, and the headquarters moved to a former Mega Foods grocery.^[5]

In January 2002, Garcia owned 65 percent of Ugly Duckling. He increased his share to 92 percent, and Sullivan bought the rest. Ugly Duckling changed its name to DriveTime Automotive Group Inc. O'Leary and Partners took over advertising and the company promoted its new name.^[5] On November 2, 2004, the company announced plans to expand from 75 to 100 locations over two years, mostly in the Southwestern United States and in Florida, Georgia and Virginia. DriveTime employed 2100 but expected to add 550 more workers. Revenues at the time were $760 million. Part of the company's success resulted from what the American Bankruptcy Institute said were the highest bankruptcy rates ever, though fewer people were filing for bankruptcy at that time.^[2]

By 2005, DriveTime had added Austin, Texas and Norfolk, Virginia and planned sites in Charlotte, North Carolina and Nashville, Tennessee.^[3]

In 2006, Auto Dealer Monthly and autotrader.com recognized Fidel as top independent retailer.^[6]

In 2007, DriveTime opened its 100th dealership in Concord, North Carolina.^[7] The company also announced the completion of a new loan-servicing center in Mesa, Arizona, replacing one in Gilbert, Arizona, with 100 employees hired immediately and 300 more planned.^[8]

By 2009, DriveTime had 79 American dealers and 2300 employees. CarMax of Richmond, Virginia filed suit in United States District Court claiming DriveTime offered kickbacks to CarMax salespersons for each customer they referred to DriveTime, a violation of RICO. DriveTime general counsel Jon Ehlinger denied the accusation and said the company would "vociferously" fight to clear its name.^[9]

In 2013, DriveTime became the majority owner of Carvana, an online used-car buying service. But the two companies are operated completely separately.^[10]

References

External links

• Company web site
• David Leighton, "Via Tres Patos named for Ducks, a rental-car-business family," Arizona Daily Star, Aug. 13, 2013