DriveTime 93 Used Car Stores And Counting CEO Ray Fidel Named 2006 Independent Retailer Of The Year

Call it a gut-check inspection.

Says Fidel: "I'm not a motivating presence, and I'm not just a technical guy that just wants to look at the numbers." Even though, the numbers look good. Last year, DriveTime sold more than 54,000 cars and trucks, more than 4,500 vehicles a month, all in the sub-prime market. This year, he fully expects to hit right around the 60,000-vehicle mark -- a pace that easily qualifies the company as a market leader. Born as Ugly Duckling in 1992, the company went public in 1996, was then taken off the market and now privately held, was rebranded as DriveTime four years ago.

With more than a billion dollars worth of assets, DriveTime now manages dealerships in eight states and 14 major metropolitan neighborhoods, including Albuquerque, Atlanta, Austin, Dallas, Norfolk, Las Vegas, Los Angeles, Orlando, Phoenix, Richmond, San Antonio, Tampa and Tucson. Fidel lays claim to a unique market niche, falling somewhere above the buy here pay here level with a more tailored program for credit-challenged customers. The idea is to marry a market-envying approach to customer service, quality vehicles and innovative credit options. Every car gets vetted through a 53-point checkup and vehicle history report, and everyone drives away with a limited warranty.

DriveTime’s track record covers more than 300,000 sales with more than $3 billion in contracts. That kind of growth and leadership has earned Fidel this year's title as Independent Dealer of the Year by Auto Dealer Monthly.

To keep growing, DriveTime and Fidel are in perpetual motion. The company has to source about 75,000 vehicles a year. Virtually all of those vehicles have to drop into that sweet spot of $5,000 to $9,000 at the auctions. Steady expansion has forced DriveTime to switch from regional buying to more cross-country shipping arrangements at a time when gas prices are near an all-time high, and he needs all 2,000-plus employees in all eight states to work as a team in finding every last dime of savings. His business model doesn't allow for all of those higher costs to be simply factored into his retail price.

DriveTime customers who qualify for those cars typically have a FICA credit score of 450 to 580, but there's much more than a numbers game involved in qualifying a customer. "You're looking at how thick and thin their file is," says Fidel, "what is in their credit; not just the score itself. And how are they trending?"

To better understand how likely it is that they can pay off their car loan; DriveTime has developed a proprietary system that provides a predictive measure of creditworthiness. Residency and debt information and a whole variety of factors are fed in. The system is constantly being upgraded with the knowledge garnered from the day-to-day experiences of the country's leading sub-prime operation. The fifth generation of the company's grading system is being rolled out now.

“The formula for what goes in the credit grading system may be complex”, says Fidel, “but the final program that winds up in employees' hands is intended to be simple”. Instead of relying on an intensive new round of training for everyone in the company, he wants a program that simply lays out a new series of questions. The program does the bulk of the work and provides all of the answers.

That still leaves plenty of challenges – and a set of great expectations -- for employees. “In order to fix the inevitable problems that crop up each day,” says Fidel, “you have to have a work force that understands it has to be up front and communicative”. Management is expected to set that pace.

"You don’t know at first if they're just talking the talk and not executing," says Fidel. What you're looking for is execution; holding staff turnover down, maintaining sales and creating an environment so that when the market softens and everyone around you is hearing about percentage declines in sales – and even though you may dip – there's a strong culture that performs up-market and never drops to down-market level. The people factor is what will carry you through the tough times.

No customer should leave a store unhappy by the way they were treated. For that, everyone at DriveTime is charged with creating a positive retail experience unlike any this group of credit-starved customers is used to seeing.

This is what Fidel wants to hear back: "I understand I'm paying a higher rate and what you're doing in providing this car in this target market, but I've never been treated with that much respect and understanding relative to where I am."

What he doesn't want to hear: "You talk a big game just like every other store around."

It's a message that is reinforced at every point a customer comes in contact with the company. Jon Ehlinger, DriveTime's general counsel and spokesperson, notes that the company Web site (drivetime.com) has just been upgraded so that anyone surfing the Net will understand DriveTime is a customer-friendly operation.

"It's much easier to find out what makes the difference between us and our competitors," says Ehlinger. That may be a relatively narrow opening, but what sets DriveTime apart is that it never misses a chance to make a good impression.

"You have to teach people that there is no big wow moment," says Fidel. "It's about tiny execution points; how you handle it all the way through. Customers are looking for the same thing you and I are looking for: respect and peace of mind. If you're going to build a brand, build it with that in mind."

DriveTime doesn't just love em’ and leave em’ to some other finance company, either. The company collects on a portfolio that's grown to more than $1 billion. Collections remain locally through 59 days. Fidel recently inked a multimillion-dollar deal with Affiliated Computer Systems in Dallas to make sure all his stores had the technology in place to stay on top of each sale and each collection process. This technology platform is capable of taking DriveTime's portfolio past the $2 billion mark.

The thrill may be in the sale, but DriveTime has to stick with their customers all the way through the collections process. All workers are expected to handle themselves the DriveTime way throughout the transaction. Even if it comes to a repo, they maintain the same respectful approach that characterized the way the customer was treated the day of purchase.

That's the kind of approach that Fidel believes will carry DriveTime on to becoming a much bigger company. By early next year, or possibly even as early as late '06, Fidel intends to pass the 100-store mark. One of the next openings in the march ahead is slated for Charlotte, N.C. DriveTime is likely to open at least four stores in the Charlotte area as it follows through on a strategy of developing retail clusters to get the maximum leverage from regional advertising campaigns and re-supply opportunities.

The company has previously experienced rapid growth. In 1996, four-year-old Ugly Duckling went public when sub-prime operations were Wall Street's darlings. That faded and so did the company's stock price. In 2002, when the stock was trading at a discount, the company's biggest shareholder didn't see much upside in the public markets. Ugly Duckling went private again and Fidel came in to position DriveTime for the road ahead.

"Others had wanted the company to be entrenched in the used car industry," says Fidel. "They hired used car managers. We were interested in being in the used car business, but we said let's run it completely different. We're not necessarily hiring used car people. We're going to do things differently, both in buying and collections. It's a different retail mentality.”

To do that in a rapidly growing company, Fidel has to constantly be on the lookout for new managers. Some may come in from other car operations, though Fidel is quick to add that they can often present a challenge in training. Roughly four out of every five people coming in as managers don't have car sales experience. Maybe they were in banking or ran a restaurant. The same goes for the company's buyers; they don't necessarily have to be longtime car people. Instead, DriveTime chooses to invest more time and money in their training, so new hires understand the DriveTime way without importing any previously learned bad habits.

"That used car salesmen; I'm trying to get away from that pressure. We're trying to create an experience that says, ‘We're not hyping things, we're trying to hire more forthright people and explain how customers can work their way out of where they are,’" notes Fidel.

That approach has helped create a positive work environment. Employees have anonymously sent in enough glowing recommendations to be cited as one of the best places to work in Orlando and on its home turf in Maricopa County, Arizona. Other awards have come for its hot growth, partnering up with local schools and corporate volunteerism.

"I am not just looking for happy employees," notes Fidel, "A lot of times you have to take a company through something more meaningful that’s not necessarily making more people happy. You're collaborating with people who have differences, you work through things, create dialogue. That isn’t always going to get you a survey where everyone rates the company as a great place to work. Sometimes, people leave our company because it's not the right company for them."

That's a price for growth and consistency that Fidel is willing to pay. Every time he hits the road again, he can see firsthand, the returns have been strong.

Vol 3, Issue 6