By Ray Birch
SANTA MONICA, Calif.—The days of haggling with car dealers for hours and then wading through pages of paper in the F&I office are on their way out, according to one company that lets consumers order a car on their smartphone in five minutes—never touching a pen to a deal.
Fair is a car-leasing service that lets consumers lease a car without ever walking into a dealership. The service, which is for used cars only, generally charges $1,000 down and then monthly payments that range on average from $300-$400, according to Co-Founder and COO Craig Nehamen.
Fair is being featured in CUToday.info as part of a series on emerging types of competition to credit unions, as well as emerging opportunities, as the company is interested in partnering with CUs.
“We believe we are the first to actually allow a customer to get a car from a dealership and not sign a piece of paper,” Nehamen said.
200% Growth
What’s also appealing about Fair, and is leading the company to 200% growth in less than two years, is the consumer is never locked into a term and can keep the car as long as they like, Nehamen explained. “They can keep it for a month, a year or two, or more, said Nehamen. “They just turn it in when they want.”
Based on trends seen during the 20 months the company has operated, most people have been keeping cars for about 18 months, Nehamen said.
“A few years ago we saw was there was a lot of different plays at digital retailing,” said Nehamen. “And we were well aware of the issue of consumers spending two to three hours at a dealership. We know consumers want a dramatic change. So we have taken this process from four to five hours to five minutes in many instances.”
Not For Everyone
The company also recognized that automotive debt, especially with consumers’ changing attitudes toward car ownership, is not the right answer for everyone.
“Either they need a lot more flexibility or they don't have great credit score or income—so a loan is not a perfect solution for many,” said Nehamen. “We knew there were fundamental opportunities to offer an alternative.”
To make its solution work, Fair understood it had to be the principal in the transaction to control all of the internal “paperwork” to get the deals completed quickly, said Nehamen, who explained the cars are actually purchased from a network of 3,000 affiliated dealerships located across the country as consumers request a vehicle.
Craig Nehamen
The company has a sophisticated loan decisioning engine that quickly evaluates a person’s credit, and also calculates a payment based on an algorithm Fair devised to determine the depreciation on each specific used vehicle in its inventory.
‘A Lot of Work’
Fair advertises inventory of selected cars from used stock from its nationwide dealerships.
“It took a lot of work to get there but we eventually landed on a model where we charge customers a set startup payment, which is like a capital cost reduction on a lease or down payment on a loan, which is about three times their monthly payment with us,” explained Nehamen. “But after paying that startup fee, they can pay that monthly charge for as long as they like.”
Nehamen said the monthly charge is slightly lower than a typical lease payment on a new car and the startup cost is slightly below the average downpayment for a loan.
“We think this makes us a very competitive alternative,” he said. “Plus, the consumer has a lot of flexibility they don’t have with a loan or a traditional lease. We feel most consumers turn to us for the flexibility.”
Deal Must Be Done on App
Consumers can browse Fair’s website inventory on their mobile devices or PC, but the deal has to be completed via the company’s mobile app. Once a car is leased, consumers pick it up at the closest dealership in the Fair network.
“Twelve months ago we were doing about 10 contracts a day and today we are averaging about 200 a day,” said Nehamen. “This is really starting to move. We now have about 500 on staff.”
The startup payment, explained Nehamen, eliminates many customers who return cars quickly, in just a few months. The initial payment, too, is based on a “formula” the company devised before ever opening for business.
Important Formula
“Our formula is an important part of what we do,” explained Nehamen. “One of the earliest hires was our chief risk officer. He was running residual value risk evaluations for the largest fleet leasing company in the country. We partnered with a data science team to come with an internal algorithm so we could confidently understand the value of a car to a statistical level—understand the value of a car not every 12 months but at any moment in time. We have developed an algorithm that shows a continuous depreciation curve that we have found to be quite accurate.”
Nehamen explained Fair chose to lease only used cars because it wanted to avoid the significant depreciation that occurs when new cars are driven off the lot. Similarly, the sizeable depreciation in a short period makes it difficult to offer term flexibility—a key to Fair’s business model.
Discussions With Credit Unions
Nehamen said Fair is in discussions with credit unions to get them involved with the company.
He explained a few credit unions are using Fair as a referral when a borrower’s credit history prevents the CU from making a loan. Nehamen explained these CUs are referring borrowers to Fair as a means to secure transportation, and then as payments are made on time to Fair, the borrower can rebuild credit and return to get a loan form the credit union.
“We are also talking to credit unions now about financing relationships,” said Nehamen. “We are seeking all sorts of alternate credit for ourselves to finance the cars we are buying, and we’re starting to talk with credit unions about this.”