Car Talk: Your organization is called Bonnie CLAC. To be perfectly honest, that's an awfully odd name. We understand the CLAC part - that's "Car Loans and Counseling." What about the Bonnie part?
Robert: When we first formed, we were loosely modeled on Fannie Mae, the home-loan assurance non-profit. In those days, we were called Fannie CLAC. The guys at Fannie Mae beat us up, though, and told us to change our name, and we did.
In Latin, bona fide means, "to deal in good faith," which we do. "Bon" in French means "good" and we are that. And, Bonnie is a good Irish lass - and we had discovered that 74% of our clients are women, many of whom are single mothers.
So, that's is how we got our name.
Car Talk: Why did you decide to start Bonnie CLAC?
Robert: I worked in the automobile industry for a number of years and the longer I worked there, the more I saw how low income people were being taken advantage of. When they walked in the door of the dealership, they were always shown the higher mileage cars and offered high interest rates. No one was talking to them about the maintenance and gas costs an older car is going to rack up. Something needed to be done.
Car Talk: Tell us about the day you decided, "Enough is enough."
Robert: One day, the sales manager at the dealership where I worked announced a $1,000 bonus to the sales person who sold a particular car. It was six years old and had 80,000 miles on it. It was not a particularly good car.
A young woman came by later that morning and a salesman took her by that "bonus" vehicle and he got her really excited about the car. She decided to buy it. After the deal was done, I saw the salesman jump up and down about getting the $1,000 bonus.
Now, this was a single mother making $11 hour. Her car had failed and she was desperate for transportation. She had gone through a divorce and, as a result, her credit was messed up.
Her financing was at a very high rate. If you have a credit score below 600, your interest rates start at 19%. I saw people whose financing was at 25 or 35%! On top of that, she was sold some products that added to the cost of the car.
When she drove off the lot, she was financed over five years and I knew that car wouldn't last two. So she would be stuck paying for the car long after it had died. For the same price, she could have bought a new car.
Car Talk: Let me guess. The dealership must have been happy.
Robert: No kidding. After she drove off, the business manager and the salesman high-fived each other. The dealership made over $5,000 off this woman! Here was this woman who was struggling to survive and she got stuck with a terrible deal.
Car Talk: So, what exactly does Bonnie CLAC do?
Robert: In a nutshell, we negotiate the purchase price of a new car and arrange the financing for our clients. We educate prospective buyers about how the whole car buying and owning process works.
Car Talk: So, you actually do the bidding for the perspective car buyer?
Robert: That's right. The buying process is all done through us. We help them select a car, negotiate the price, and help them set up financing.
Car Talk: The buyer never has to rub elbows with plaid-pants- wearing car salesmen? You mean, they'll never have a chance to get a 12-year extended warranty, or the galvanized plutonium undercoating!
Robert: Well, the clients do come face to face with the dealer when they pick up the cars and sign the loan agreement. So, it's not completely pain-free - but it's as close to it as possible!
And we do more than just get our clients great deals on cars and loans. We teach a formal financial literacy class. This is critical to our clients' success. We've originated over $13 million dollars in loans for very low-income people. We've only lost $69 thousand in our loan guarantees. A typical banker lending out that same amount would have lost $250,000-$500,000. We really work with our clients so that they are successful in this.
Car Talk: What role does the lowest form of life - that is, the used car salesmen - play in getting buyers into the wrong, or "too much" car?
Robert: Well, to start, the salesperson is working on commission. So, his goal is to make the most amount of money off each sale. Used cars are the most profitable segment of the car business. So, guess what? Customers on a limited budget are always directed to the used cars on the lot. Those buyers are never introduced to the new cars they could afford for the same price.
Car Talk: Let's say I'm a low-income client and I need a car. How does the process work?
Robert: When someone decides they are going to enter our program, they pay us a $65 dollar fee and we sign a contract saying if that if they work to clean up their credit problems, then we will help them buy a car.
First, they have to get control of their budgets. We ask our client to look at their goals. Do they want to go to college? Buy a house? Then we ask them how much money they have. We give each person a notebook and we ask him or her to write down every penny they spend in a week. They have to balance their accounts: how much they spend on food, entertainment, car, house, and so on.
We have these "Ah ha!" moments. People will say "I had no idea I was spending $100 on coffee and donuts each month! If I don't eat a donut I'll save money and lose 5 lbs." It's not rocket science.
It's a little like Car Talk, actually. Tom and Ray talk about gathering data when solving a car problem. That's what this is. You have to start with good data to help people learn how they're spending money before they can learn how to organize and save money.
Car Talk: Who's your typical client?
Robert: We work with all kinds of people, from very low-income to well off... just about anyone who wants to get a good deal on a car and gain a financial education in the process.
Fourteen percent of our clients come from generational poverty or had been through a major crisis, such as divorce. Maybe they've been living in a shelter, or have battled a drug addiction. Those clients spend thirteen months in our counseling program before we guarantee them a loan on a car.
About a third have some kind of serious debt problem. It could be the result of bad divorce, bankruptcy, or medical bills. Those clients must spend six months in our counseling program.
Another third of our clients are first time buyers, or have some sort of minor credit repair they need to do. They spend 3 months in our program.
By the way, roughly 10% are donor clients. These are high-income clients with no credit issues who pay a fee to use our services because they also want to get a great deal on a car.
Car Talk: How much does a client save by using Bonnie CLAC?
Robert: Our average client saves about $7,000 to $10,000 over a five-year period when you factor in the prices of the car, gas, maintenance and interest. Much of the savings come from the wholesale finance rate we're able to secure. Right now that's 5.29%. That's the lowest of any non-profit program in the U.S.
Car Talk: You also get a great deal on cars. How do you pull that off?
Robert: We work with a select number of dealers with whom we have a good reputation. And we negotiate with them, so we're getting the cars for $100-200 dollars over invoice.
Car Talk: So, the dealers give you good deals. What's in it for them?
Robert: A lot of times, we're buying new base models cars: Honda Civics and Toyota Corollas because they have the best fuel efficiency. For the dealer, the more base models they sell, the more "hot" cars they get from the manufacturer. They make a higher profit margin on those fancier cars, so in the end, it works out well for all involved.
Plus, we're only bringing in qualified clients. We've done the homework for the dealership. When we show up, our clients are financially prepared to close the deal.
Finally, we're putting new people into the new car market. Dealers see this as a new transaction - new customers who will hopefully bring return business their way. Dealers love us.
Car Talk: It must be exciting for your clients to own a new car!
Robert: It is. Most of them have never bought a new car before. Our clients often cry when their new car is delivered. You wouldn't believe the stress that goes into people's lives when their only car is a junk heap. They don't know if they're going to get to work, get to the doctor or get their kids to school.
Car Talk: Most people with little money to spend on a car think they could never afford to buy a new car. From what you're saying, that sounds like a misconception.
Robert: Absolutely! Take that woman back in the dealership where I worked. For the same price she paid for a 6-year old car, she could have gotten a new, base-model car. Clients are shocked when they find out they could afford a new car.
For most folks, a new, base-model car is a better deal than a used car. We get people cars that have hand-crank windows, and 5-speed, manual transmissions. These cars usually don't have air conditioning. They don't need frills. They need reliable transportation. Gas savings is also a big issue.
Think about it this way. People buy a new car and drive it for three years and 45,000 miles. They sell it and give someone a good, used car. Now the next owner drives for another three or four years, and another 45,000 miles. Now you've got a six or seven year old car with 90,000 miles. It's worn out. It's got problems. These are the cars targeted to low-income people. The average repair costs for 10-year old car is $120 a month, and that's usually on the low side. So you're ending up with the worst years of a used car.
You've seen the signs "Buy here, pay here!" "No credit" "Pay weekly." We see people paying $100 a week for a car. These dealers keep a spare set of keys and that Friday when you don't have the cash to make your payment, they just come by your house and pick up the car.
Car Talk: So, who should consider buying a used car?
Robert: There's a market out there for used cars. But, in my opinion, used cars are not the right place for someone who's looking for basic, reliable transportation. In 2007, there were 64 million cars sold in the U.S. 48 million of those were used - and a high percentage of those were luxury vehicles and SUVs. That's not a great choice for someone who's just looking for an affordable, reliable ride.
Car Talk: What makes Bonnie CLAC different? There are programs that give free cars to people in need. Why do you make your clients pay for their cars?
Robert: We're looking at this differently than other programs. We have a bigger goal than just getting them transportation. We want to help clients build up their credit so they can move forward with their lives. They need to learn how to manage their money, to save, to figure out how they are spending their money. Unless they break the cycle, they're always going to be in financial trouble. Our overriding goal is to break the cycle of poor financial decision-making.
We have many clients who are coming off Temporary Assistance For Needy Families (TANF), formerly called welfare. Several of them have been given a car to get to their job. One woman called me crying because her car died and she had to be at her job in 30 minutes. Her life was just starting to come together and then, just like that, it's falling apart.
Car Talk: Breaking the cycle of poor financial decision-making. That sounds like advice Wall Street could use!
Robert: Ha! Well, we want our program to be life changing. There's a link between your health and your financial stability. When you know that you are going to be able to get to work everyday and on time, that lowers your stress level. A reliable car means you have a way to get to the grocery store, to the library, to school, to the doctor.
The reliability of your transportation is a very important source of stability in life. Think about it. If you couldn't guarantee you could get to work everyday, do you think you'd have a good, stable job?
Car Talk: The staff here at Car Talk Plaza has a personal question we've been itching to ask. Is there any help you can give Tom? He's a serial junk-car driver.
Robert: That's a tough one. Let's just say he's darned lucky he knows his way around a toolbox.
Car Talk: That's what we thought. Say, you want his MG TD as a trade-in?
Robert: Forget about it!
For more on Bonnie CLAC visit bonnieclac.org | Support Bonnie CLAC