DriveTime
Encyclopedia
DriveTime Automotive Group Inc., based in Phoenix, Arizona
, is the largest used car seller and automobile finance company focusing on buyers with credit problems. The company has 88 dealerships in 36 U.S. metropolitan areas, and more than 2000 employees. DriveTime has sold more than 300,000 cars and lent in excess of $3 billion.
with a higher down payment
. The rate could be as low as 8.99 percent, with 20 percent being average for the industry.
DriveTime buys most of its cars at auction houses. Its cars tend to be three years old with 65,000 to 75,000 miles; many of them were lease
d. Prior to 2004, the typical DriveTime car was twice as old with 80,000 miles.
Every car is sold with a 36-month/36,000-mile warranty
and a car history report.
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 franchise
s 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. and 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 , 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."
Ugly Duckling helped customers in several ways. The company prepared tax return
s and let them use their expected refunds for down payments. The company allowed people to get Visa credit card
s 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.
Ugly Duckling went public in 1996, raising $160 million. The company had seven dealers and traded as "UGLY" on NASDAQ
.
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
.
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."
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.
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.
By 2005, DriveTime had added Austin, Texas
and Norfolk, Virginia
and planned sites in Charlotte, North Carolina
and Nashville, Tennessee
.
In 2006, Auto Dealer Monthly and autotrader.com recognized Fidel as top independent retailer.
In 2007, DriveTime opened its 100th dealership in Concord, North Carolina
. 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.
By 2009, DriveTime had 79 American dealers and 2300 employees CarMax
of Richmond, Virginia
filed suit in United States District Court
claiming DriveTime offered kickback
s 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.
Phoenix, Arizona
Phoenix is the capital, and largest city, of the U.S. state of Arizona, as well as the sixth most populated city in the United States. Phoenix is home to 1,445,632 people according to the official 2010 U.S. Census Bureau data...
, is the largest used car seller and automobile finance company focusing on buyers with credit problems. The company has 88 dealerships in 36 U.S. metropolitan areas, and more than 2000 employees. DriveTime has sold more than 300,000 cars and lent in excess of $3 billion.
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. That same year, the company introduced Rate Advantage, allowing buyers to get a lower interest rateInterest rate
An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...
with a higher down payment
Down payment
Down payment is a payment used in the context of the purchase of expensive items such as a car and a house, whereby the payment is the initial upfront portion of the total amount due and it is usually given in cash at the time of finalizing the transaction.A loan is then required to make the full...
. The rate could be as low as 8.99 percent, with 20 percent being average for the industry.
DriveTime buys most of its cars at auction houses. Its cars tend to be three years old with 65,000 to 75,000 miles; many of them were lease
Lease
A lease is a contractual arrangement calling for the lessee to pay the lessor for use of an asset. A rental agreement is a lease in which the asset is tangible property...
d. Prior to 2004, the typical DriveTime car was twice as old with 80,000 miles.
Every car is sold with a 36-month/36,000-mile warranty
Warranty
In business and legal transactions, a warranty is an assurance by one party to the other party that specific facts or conditions are true or will happen; the other party is permitted to rely on that assurance and seek some type of remedy if it is not true or followed.In real estate transactions, a...
and a car history report.
Ugly Duckling
Thomas S. Duck, Sr. retired from selling insuranceInsurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
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
Car rental
A car rental or car hire agency is a company that rents automobiles for short periods of time for a fee...
business a major success and companies such as Budget Rent a Car
Budget Rent a Car
Budget Rent a Car System, Inc. is an American car rental company that was founded in 1958 in Los Angeles, California by Morris Mirkin. Budget's operations are headquartered in Parsippany-Troy Hills Township, New Jersey....
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 franchise
Franchising
Franchising is the practice of using another firm's successful business model. The word 'franchise' is of anglo-French derivation - from franc- meaning free, and is used both as a noun and as a verb....
s 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. and 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
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
(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
Lincoln Savings and Loan Association
The Lincoln Savings and Loan Association of Irvine, California was the financial institution at the heart of the Keating Five scandal during the 1980s Savings and Loan crisis....
collapse , 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
Subprime lending
In finance, subprime lending means making loans to people who may have difficulty maintaining the repayment schedule...
lots had.
One dealer closed in 1994 because it did not live up to the new image. In 1995, an experiment in Gilbert, Arizona
Gilbert, Arizona
-Demographics:As of July 1, 2009, Maricopa Association of Governments, Census 2000. United States Census Bureau. there were 217,521 people, 74,147 housing units, and 3.01 persons per household....
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
Investor's Business Daily
Investor's Business Daily is a national newspaper in the United States, published Monday through Friday, that covers international business, finance, and the global economy...
, "You go to Tucson or Phoenix and people know The Duck. It's an icon in those cities."
Ugly Duckling helped customers in several ways. The company prepared tax return
Tax return
A tax return is a tax form that can be filed with a government body to declare liability for taxation in various countries:* Tax return * Tax return * Tax return * Tax return...
s and let them use their expected refunds for down payments. The company allowed people to get Visa credit card
Credit card
A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services...
s 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.
Ugly Duckling went public in 1996, raising $160 million. The company had seven dealers and traded as "UGLY" on NASDAQ
NASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
.
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
Latino
The demonyms Latino and Latina , are defined in English language dictionaries as:* "a person of Latin-American descent."* "A Latin American."* "A person of Hispanic, especially Latin-American, descent, often one living in the United States."...
-owned firm in Arizona
Arizona
Arizona ; is a state located in the southwestern region of the United States. It is also part of the western United States and the mountain west. The capital and largest city is Phoenix...
.
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
GE Capital
GE Capital is the financial services unit of General Electric, one of five major units. Its various divisions include GE Capital Aviation Services, GE Capital Real Estate, GE Energy Financial Services and GE Money....
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
Tampa, Florida
Tampa is a city in the U.S. state of Florida. It serves as the county seat for Hillsborough County. Tampa is located on the west coast of Florida. The population of Tampa in 2010 was 335,709....
/St. Petersburg
St. Petersburg, Florida
St. Petersburg is a city in Pinellas County, Florida, United States. It is known as a vacation destination for both American and foreign tourists. As of 2008, the population estimate by the U.S. Census Bureau is 245,314, making St...
area. For $26.3 million, Ugly Duckling bought some assets of E-Z Plan Inc. of San Antonio, Texas
San Antonio, Texas
San Antonio is the seventh-largest city in the United States of America and the second-largest city within the state of Texas, with a population of 1.33 million. Located in the American Southwest and the south–central part of Texas, the city serves as the seat of Bexar County. In 2011,...
. It also opened its first dealers in Las Vegas, Nevada
Las Vegas, Nevada
Las Vegas is the most populous city in the U.S. state of Nevada and is also the county seat of Clark County, Nevada. Las Vegas is an internationally renowned major resort city for gambling, shopping, and fine dining. The city bills itself as The Entertainment Capital of the World, and is famous...
and opened two dealers in New Mexico
New Mexico
New Mexico is a state located in the southwest and western regions of the United States. New Mexico is also usually considered one of the Mountain States. With a population density of 16 per square mile, New Mexico is the sixth-most sparsely inhabited U.S...
. 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
Casualty insurance
Casualty insurance, often equated to liability insurance, is used to describe an area of insurance not directly concerned with life insurance, health insurance, or property insurance. It is mainly used to describe the liability coverage of an individual or organization's for negligent acts or...
, 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
Advertising
Advertising is a form of communication used to persuade an audience to take some action with respect to products, ideas, or services. Most commonly, the desired result is to drive consumer behavior with respect to a commercial offering, although political and ideological advertising is also common...
agencies, from Moses & Anshell to Riester Corporation. For Spanish
Spanish language
Spanish , also known as Castilian , is a Romance language in the Ibero-Romance group that evolved from several languages and dialects in central-northern Iberia around the 9th century and gradually spread with the expansion of the Kingdom of Castile into central and southern Iberia during the...
speakers, Ugly Duckling used Dieste & Partners of Dallas, Texas
Dallas, Texas
Dallas is the third-largest city in Texas and the ninth-largest in the United States. The Dallas-Fort Worth Metroplex is the largest metropolitan area in the South and fourth-largest metropolitan area in the United States...
.
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."
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
Orlando, Florida
Orlando is a city in the central region of the U.S. state of Florida. It is the county seat of Orange County, and the center of the Greater Orlando metropolitan area. According to the 2010 US Census, the city had a population of 238,300, making Orlando the 79th largest city in the United States...
and Richmond, Virginia
Richmond, Virginia
Richmond is the capital of the Commonwealth of Virginia, in the United States. It is an independent city and not part of any county. Richmond is the center of the Richmond Metropolitan Statistical Area and the Greater Richmond area...
.
In 2001, sales were $541.7 million, and the headquarters moved to a former Mega Foods grocery.
DriveTime
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. On November 2, 2004, the company announced plans to expand from 75 to 100 locations over two years, mostly in the Southwestern United StatesSouthwestern United States
The Southwestern United States is a region defined in different ways by different sources. Broad definitions include nearly a quarter of the United States, including Arizona, California, Colorado, Nevada, New Mexico, Oklahoma, Texas and Utah...
and in Florida
Florida
Florida is a state in the southeastern United States, located on the nation's Atlantic and Gulf coasts. It is bordered to the west by the Gulf of Mexico, to the north by Alabama and Georgia and to the east by the Atlantic Ocean. With a population of 18,801,310 as measured by the 2010 census, it...
, Georgia
Georgia (U.S. state)
Georgia is a state located in the southeastern United States. It was established in 1732, the last of the original Thirteen Colonies. The state is named after King George II of Great Britain. Georgia was the fourth state to ratify the United States Constitution, on January 2, 1788...
and Virginia
Virginia
The Commonwealth of Virginia , is a U.S. state on the Atlantic Coast of the Southern United States. Virginia is nicknamed the "Old Dominion" and sometimes the "Mother of Presidents" after the eight U.S. presidents born there...
. 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
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
rates ever, though fewer people were filing for bankruptcy at that time.
By 2005, DriveTime had added Austin, Texas
Austin, Texas
Austin is the capital city of the U.S. state of :Texas and the seat of Travis County. Located in Central Texas on the eastern edge of the American Southwest, it is the fourth-largest city in Texas and the 14th most populous city in the United States. It was the third-fastest-growing large city in...
and Norfolk, Virginia
Norfolk, Virginia
Norfolk is an independent city in the Commonwealth of Virginia in the United States. With a population of 242,803 as of the 2010 Census, it is Virginia's second-largest city behind neighboring Virginia Beach....
and planned sites in Charlotte, North Carolina
Charlotte, North Carolina
Charlotte is the largest city in the U.S. state of North Carolina and the seat of Mecklenburg County. In 2010, Charlotte's population according to the US Census Bureau was 731,424, making it the 17th largest city in the United States based on population. The Charlotte metropolitan area had a 2009...
and Nashville, Tennessee
Nashville, Tennessee
Nashville is the capital of the U.S. state of Tennessee and the county seat of Davidson County. It is located on the Cumberland River in Davidson County, in the north-central part of the state. The city is a center for the health care, publishing, banking and transportation industries, and is home...
.
In 2006, Auto Dealer Monthly and autotrader.com recognized Fidel as top independent retailer.
In 2007, DriveTime opened its 100th dealership in Concord, North Carolina
Concord, North Carolina
Concord is a city in the U.S. state of North Carolina. According to Census 2010, the city has a current population of 79,066. It is the largest city in Cabarrus County and is the county seat. In terms of population, the city of Concord is the second largest city in the Charlotte Metropolitan Area...
. The company also announced the completion of a new loan-servicing center in Mesa, Arizona
Mesa, Arizona
According to the 2010 Census, the racial composition of Mesa was as follows:* White: 77.1% * Hispanic or Latino : 26.54%* Black or African American: 3.5%* Two or more races: 3.4%* Native American: 2.4%...
, replacing one in Gilbert, Arizona
Gilbert, Arizona
-Demographics:As of July 1, 2009, Maricopa Association of Governments, Census 2000. United States Census Bureau. there were 217,521 people, 74,147 housing units, and 3.01 persons per household....
, with 100 employees hired immediately and 300 more planned.
By 2009, DriveTime had 79 American dealers and 2300 employees CarMax
CarMax
CarMax is the United States' largest used-car retailer and a Fortune 500 company. The first CarMax used car auto superstore was opened in September 1993. In the fiscal year ending February 28, 2009, more than 350,000 cars were sold; as of August 2010 the company has 103 locations.- Concept :The...
of Richmond, Virginia
Richmond, Virginia
Richmond is the capital of the Commonwealth of Virginia, in the United States. It is an independent city and not part of any county. Richmond is the center of the Richmond Metropolitan Statistical Area and the Greater Richmond area...
filed suit in United States District Court
United States district court
The United States district courts are the general trial courts of the United States federal court system. Both civil and criminal cases are filed in the district court, which is a court of law, equity, and admiralty. There is a United States bankruptcy court associated with each United States...
claiming DriveTime offered kickback
Bribery
Bribery, a form of corruption, is an act implying money or gift giving that alters the behavior of the recipient. Bribery constitutes a crime and is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or...
s to CarMax salespersons for each customer they referred to DriveTime, a violation of RICO
Racketeer Influenced and Corrupt Organizations Act
The Racketeer Influenced and Corrupt Organizations Act, commonly referred to as the RICO Act or simply RICO, is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization...
. DriveTime general counsel Jon Ehlinger denied the accusation and said the company would "vociferously" fight to clear its name.