JEDDAH, 6 March 2003 — The Jeddah Chamber of Commerce and Industry has introduced a credit rating service for car dealers, Arab News learned yesterday.
The reason is to help car dealers reduce the estimated millions of riyals they lose every year as a result of car buyers defaulting on their loans.
The online instant report system, called CPS, allows car sale companies to make more informed decisions when assessing the credit rating of a potential buyer.
“In the past, we had minimal information to base our decisions on. The implementation of this system has cut our losses drastically,” said Mohammed A. Khaleq, a credit officer at one of the largest automobile retailers in the Kingdom.
“The salesman makes the deal and takes the deposit as well as all the required information from the customer, including their identification or iqama number. The application is then submitted to one of the credit officers, who reviews it and verifies the authenticity of the information provided. What the application tells the dealer is whether the person can afford the car or not.
“If the person cannot afford it, the credit officer will ask the customer to adopt a different payment strategy.”
“I think of every deal we make as a marriage,” Khaleq told Arab News. “The car is the bride, and the customer the groom. The down-payment is the dowry and salesman and credit officer are the ones who help tie the knot and declare the bride and groom husband and wife. This latest tool from the Chamber and Commerce helps ensure that the divorce rate is kept low.”
Badr Mujallad, the credit coordinator between Zahid Tractor and the Jeddah Chamber of Commerce, told Arab News how the CPS system works.
“Once we agree that the person is able to afford the car and we are satisfied with the application, we submit it online to the Chamber of Commerce. The chamber checks the person’s identification number against their system and comes back with an instant rating of ‘classified’ or ‘unclassified’. A classified rating means the person is blacklisted based on a negative report from a previous creditor, at which point the application is denied.”
The only way a person can be removed from the blacklist, he added, is to pay off any outstanding debts. A history of late or non-payment, as reported by the creditor, will earn the person a place on the blacklist.
“This system has become indispensable to us in light of recent legislation passed by the Ministry of Finance,” Mujallad added.
Eight months ago, the Ministry of Finance passed a law prohibiting car dealers from repossessing vehicles sold on a credit basis, thereby taking away the strongest tool used to encourage buyers to make regular payments.
Vehicles sold on a lease method are exempt from this law and are open to repossession as they remain in the dealer’s name.
“We have two methods of purchase through which a person can finance a car,” Maher Imad Nassar of Naghi Motors told Arab News. “There is a lease method and there is a credit method. In the lease method, the car remains in the dealer’s name until it is completely paid off. In the credit method, the vehicle is registered to the owner immediately. If the customer wants to use the credit method, we require a significantly larger down-payment.”
Credit officer Khaleq prefers to sell cars using the credit method.
“In order for someone to buy a car using the credit method, we require two guarantors and a larger down-payment,” he says. “Although we cannot repossess the car, the sale is more secure since the guarantors do not want to be held responsible for someone else’s debt and know how to get a hold of the buyer and encourage him to pay. We also can resort to legal channels and pursue the debtor in the courts. The problem with the lease method is that the person can return the car to us at anytime and say he doesn’t want it, and is then no longer required to pay.”
Mohammed Azzam, a used car salesman at Zahid Tractor, told Arab News about some of the activities that he has seen that have earned an individual a classified rating with the Chamber of Commerce.
“Upstairs in the collection department are dozens of boxes of checks from customers that are dud. Some of them are fraudulent and some were written by people who did not have sufficient funds in their account.”
Some people buy a car on a credit basis and pay a small down-payment, he adds, explaining that they then go and sell the car to someone else for a cash amount higher than their down-payment.
They continue the payments for a while, or they just stop.
“When our collection department goes after them, they find that the person has often moved house or left the country. Because the car has been ‘legally’ sold to the cash buyer, there is nothing that can be done.”
