TORONTO (Reuters) - A company that allows consumers who lose their jobs to walk away from their car payments is one of those rare businesses that’s thriving thanks to the recession that has gripped the North American economy.
Privately owned Walkaway, which operates in the United States, Canada and Australia, sells a form of insurance that takes its customers off the hook in the event of a job loss, a disabling injury or some other “life-changing” event.
Say your mortgage payments have ballooned and you are in danger of defaulting. Simply turn in your keys and, well, walk away scot-free from your car obligations. No strings attached.
Vincent Beretta, founder and chief executive of Walkaway Canada, said the idea of marketing so-called vehicle return insurance through car dealerships came to him about 10 years ago, and it was immediate hit.
But with the ranks of the unemployed swelling and consumer confidence in the tank, the good times have gotten even better for the company. By taking away much of the risk in making a big-ticket purchase, its insurance also may help North America’s decimated car industry sell more vehicles to nervous consumers than they might have otherwise.
“Dealers resonated with it immediately and we had almost 30 percent of the market (of Ontario’s auto dealers) within 18 months,” said Beretta in a recent Reuters interview.
Doug Phillips, a salesman at Tony Graham Toyota in Ottawa, said customers have taken to the program and it helps him sell more cars.
“When the times are tough like they are now, they know that if something happens and they lose their job, they are going to be protected and it won’t hurt their credit rating,” he said.
“We’ve had a lot of cars returned, we’ve had a lot of customers come back and repurchase cars, who were very happy that when times got a little rough, they could turn in their car, and when times got a little bit better and they’re back to buy another.”
The program is open to anyone, regardless of age or preexisting health conditions.
In order to underwrite that type of open policy, Walkaway needed to have nearly every transaction by participating dealers include Walkaway coverage. To accomplish that, the company decided early on to make the program free for the first 12 months after the purchase or lease of a vehicle.
Customers were given the choice of buying extended or enhanced versions at the time of buying a car, but there is no option to take the insurance later. It’s a take-it-or-leave-it deal. “We’re not calling anyone,” said Beretta.
He said the company recently saw a spike in sales for its high security products, which give temporary relief from auto payments, without the obligation of returning the vehicle.
After launching in Canada, the company quickly expanded into the United States, and more recently Australia.
Walkaway is underwritten by ING Novex Insurance Company of Canada in Canada, by Great American Insurance Group, a subsidiary of American Financial Group, in the United States, and by Swann Insurance in Australia.
In January, Hyundai Motor Co’s U.S. operations adopted the program under the label Hyundai Assurance.
“They knew that incentives weren’t working, interest rate incentives weren’t working, cash backs weren’t working, everyone has quality cars... what’s lacking is consumer confidence,” said Beretta.
Hyundai has bucked the downward trend in sales in the United States for the past two months. Its U.S. sales dipped 1.5 percent in February on a year-over-year basis, versus an industry average decline of over 40 percent. In January, Hyundai’s U.S. numbers actually rose 14 percent, while overall U.S. auto sales plunged 37 percent.
Beretta said that more than 200,000 Assurance certificates will likely be issued to Hyundai customers in 2009. Walkaway Canada, as developer of the concept, receives royalties for each Hyundai sold under the plan.
Beretta said he expects Walkaway to announce a deal with one of the major auto makers in Canada within a month. He declined to be more specific.
The company said on its website its insurance allowed consumers to eliminate more than $33 million in vehicle-related debt.
Walkaway currently works with 256 outlets in Canada, about 1,100 dealers in the United States, and about 27 dealers in Australia.
Reporting by John McCrank