'R699' car deal owners in despair

[Blurock]

Avoid debt like the plague! It's only beneficial if you can make a profit out of it, else you're ALWAYS worse off in the end.

I can not agree more. When you are in debt, you are a slave to the lender. Rather save until you can afford it.

[irneb]

OK, this might help: http://mybroadband.co.za/news/busine...le-online.html

But I won't hod my breath.

[IanF]

If this is a scam what do the scammers get out of this?
Is there commissions on finance and cars?
Do they finance a bigger capital amount?
Does anyone know?

[Dave A]

If this is a scam what do the scammers get out of this?

The profits from car sales. And probably a slice from the finance houses too.

I'm still not convinced it can definitely be classed as a scam as yet, though. It might just be a fundamentally flawed marketing program gone wrong. One of the critical ingredients of a scam is an intention to defraud...

There are signs that a bad ending might have been foreseeable, however. For example, I'm fascinated that Wesbank wouldn't finance these deals.

And then there's the offshore cut-out, which based on the My Broadband article, looks like it wasn't part of the first iteration of the scheme and only came in later.

[Justloadit]

Maybe about selling many vehicles to people who otherwise would not get finance.

[Dave A]

Well, my curiosity about Wesbank not financing the deals has been satisfied.

R699 cars a Ponzi Scheme: Wesbank

[irneb]

The other less likely source of income is from the ads themselves. You SMS to the number written on the car, it costs you R3 per SMS. Just how much they get from that, how much their overheads for the line, and how much they pay back to the driver of the car is not clear. Obviously that would be a numbers game, it depends how many people SMS them and how many then take up the deal.

It seems they didn't make enough profits from the ad's sms payments. Thus they're now looking at avoiding having to pay back the drivers. I.e. the terms changing from how far / how long you've driven the car, rather to how many sms's received due to the stickers on the car you're driving. So they're trying to remove some of the risk involved by passing it along to the drivers. I.e. if you get (say) R1 out of each SMS then you need around 2000 people to SMS because they saw your car for each month in order for you to only pay R700 on a R2700 repayment.

See why this is untenable (at least in the long run)? And also a pyramid scheme? The more people driving around with these cars the less chance you have of someone actually SMS-ing due to seeing YOUR car. So the first few get reasonable payments, but the last guys receive nearly nothing - i.e. the very principle behind a pyramid scheme. If designed so or not is immaterial, the effect is the same, and the effect is what makes people poorer not the intention to defraud.

[sterne.law@gmail.com]

Lawyer offers to help ‘R699-a-month’ car deal victimsPort Elizabeth lawyer Duncan Heuer has offered his services to victims of the ‘R699-a-month’ car scheme debacle at no cost, saying he believes the best way forward is for the High Court to declare their contracts void, notes a report in*The Herald. This comes after thousands of motorists lured into buying new cars by an attractive offer meant to see them paying a significantly reduced monthly instalment were left fuming when the international company managing the deals cut its losses with its Hong Kong-based holding company. Heuer, of the law firm Pieterse Cary Finlaison, said the High Court could order that consumers left in the lurch be given a chance to give the vehicles back.*He says he has an advocate on board who is willing to appear on a contingency basis if there are enough people needing his help.*The report adds a Johannesburg-based consumer activist, Simon Lapping, said he had also started off an investigation into Satinsky, the SA company behind the scheme. Lapping said his investigation so far had revealed alleged fraud, including the extensive understatement of consumers’ expenses, fake relatives on application forms, and used vehicles sold as new.*Full report in The Herald

[sterne.law@gmail.com]

Consumer Affairs:*Wheels come off for ‘R699-a-month’ car deal victimsThousands of consumers have burnt their fingers in a scheme offering a new car for R699 a month, writes*Legalbrief. Now many of them face the prospect of much higher monthly instalments or risk losing their cars. Car owners who have fallen prey to the ‘R699’ finance scam need to act fast and approach their banks to see if they can reschedule their debt, Cas Coovadia, managing director of the SA Banking Association, said, according to a report on the*Fin24.com*site. It says thousands of ‘R699’ car owners have become the unwitting members of the scheme involving some 17 000 vehicles nationwide. In terms of the scheme, the Satinsky Group offered new cars for R699 a month, with a large part of an owners’ vehicle loan with the banks offset by fees earned from advertising on their new cars. But, states the report,*Satinsky announced last week that the monthly advertising fees had come to an end, resulting in many clients, who were being paid more than R1 000 a month in fees early this year, not being paid a cent. ‘This was a scam, but played out cleverly,’ said Shiraaz Mahomed, who bought a Tata through the scheme, is quoted in the report as saying. The report notes that Mahomed was paying only R1 200 a month for his car, but since the scheme folded, he now has to pay R2 700.

scandal shows no signs of abating, notes a report in*The Star*which says*the focus is now on the possibility that many consumers’ financial details were altered in order for them to pass the banks’ affordability tests. According to the report, many of the mostly low-income earners claim that they previously applied for car finance in the normal way and were declined, but when they applied to the same banks via Satinsky, supplying the same information, they were approved quickly. The report says the banks which financed these deals – Nedbank’s MFC, Absa and Standard Bank – insist that they applied the normal assessment criteria and did not take into account the advertising fees which the applicants were to earn from a third party company, Blue Lakes Trading & Promotions, in return for having their new cars plastered with advertising stickers. Ironically, notes the report, the ‘victims’ of the fee collapse are now saddled with a much larger instalment than those who bought the same car – mostly entry-level ‘cheapies’ – from a traditional dealer. They paid no deposits, the interest is relatively high, the loans are all over six years, and the purchase price of the cars was not discounted in any way.

The deal ‘had the historical traits of a true Ponzi scheme’, Wesbank chief executive Chris de Kock is quoted in a*Pretoria News Weekend*report as saying. In 2012, Wesbank declined Satinsky’s invitation to finance the cars in a deal aimed at relatively low-income earners, having investigated the company and deemed its business strategy not to be in consumers’ best interests, De Kock said, according to the report. It notes De Kock said there was no evidence of the company’s financial reserves. ‘It seemed blatantly obvious that the scheme relied on upfront profits – from car sales, and commissions on finance and insurance products – to fund its downstream obligations: the historical traits of a true Ponzi scheme.’*Satinsky Group chief executive Albert Venter denied that his business model was anything like a Ponzi scheme, and said it was not true that the business was ‘barely solvent and with little capital’, as De Kock alleged. ‘If that is so, how come we paid a substantial amount in tax last year? And how come Wesbank has accepted my personal surety for the floor plan of another dealership I am involved in?’

[irneb]

not the scammers themselves (they're already on a beach enjoying all that top-of-the-pyramid profit)

Perhaps not ... http://businesstech.co.za/news/gener...luxury-report/

Though ...