Bonnie Clac

Deals on Wheels
A New Hampshire-based entrepreneur links cash-strapped commuters with lenders and car dealers.

By Jim Collins

The Blitsteins had big problems: bad credit and crippling medical bills. But at the moment, none was bigger than the ’98 Ford Explorer parked in their driveway. The odometer had just ticked past 170,000 miles. The engine guzzled $800 in gas every month, on top of a $300 car payment. The owners, Brad and Tiffany, paid 19 percent interest on the loan, faced increasingly costly repairs, and had no idea how they could afford anything more reliable than their current vehicle.

That’s when they heard about a local company with a funny name headquartered in the backside of a mall in downtown Lebanon, New Hampshire. The sign above the entrance read “Bonnie CLAC: A Nonprofit Organization.” Some of the office doors were still ventilated at the tops and bottoms, a holdover from space that previously housed tanning beds. The dingy carpet had worn thin in places. A framed, overstuffed collage of thank-you notes and handwritten testimonies hung on the wall in the waiting room. They were from people just like the Blitsteins whose lives Bonnie CLAC had recently set back on course. 

Like most clients, Tiffany first approached Bonnie CLAC with a bit of skepticism.  “I had no credit, no house,” she says. “I thought, Yeah, they can probably help everyone but not me.” The sales associate who worked with Tiffany took her cues from the company’s founder, Robert Chambers. Chambers, a white-haired man with a warm smile, wants to address the issues that plague many low-income rural families: poor credit, inadequate public transportation, paltry wages, and soaring gas prices. Unlike a dealership, CLAC sells no cars. Instead, it operates like a middleman: negotiating with local banks to secure low-interest loans and with area dealers to purchase new, fuel-efficient cars at close to invoice. At first, the force of Chambers’ personality and mission—along with CLAC’s guarantee of a portion of the loans—made the deals happen. But the nonprofit’s growing track record has impressed lenders; its .5 percent default rate falls below the national average. Car dealers appreciate that CLAC does all the pre-qualifying and paperwork, leaving them with little more to do than hand over the keys.

Bonnie CLAC has helped more than 1,000 clients since 2001. The idea for the business grew from a defining experience Chambers had while working as a car salesman at a nearby dealership. He watched one of the floor salesmen steer a divorced, low-income woman to a high-mileage used car she couldn’t afford, and then high-five a colleague after she walked out. “It was completely the wrong car for her,” Chambers recalls. “And he had her finance it over five years knowing full well the car probably wouldn’t last more than three without major repairs. He made a $1,000 bonus, and the dealership made $5,000 on a woman who didn’t know better. And they were celebrating over it. I thought, It’s just not fair.”

Disgusted, Chambers felt compelled to do something. Drawing on skills he’d developed over a diverse working life in the Navy, in the computer industry, and in hospital fundraising, the former engineer and self-described “serial entrepreneur” created a new business to address the unfairness he saw in the car-buying system. He wanted to offer poor buyers with bad credit an alternative to older-model used cars that, despite lower sticker prices, carry steep mark-ups and the enormous hidden costs of meager gas mileage and high maintenance. He also knew that the difference between a 24 percent sub-prime rate and Bonnie CLAC’s 6.5 percent rate could amount to $10,000 over 66 car payments—the difference between buying new or getting a lemon. Chambers’ financial savvy and entrepreneurial bent gave him an idea.

Working with a friend at Dartmouth’s Tuck School of Business, Chambers developed a model based partly on Fannie Mae, the government-backed program that helps homeowners obtain low-interest mortgages. Chambers even called his fledgling business Fannie CLAC (for “Car Loans And Counseling”), before Fannie Mae protested his use of the name, prompting the change to “Bonnie.” From the beginning, Chambers decided that basic economic literacy would be part of the organization’s mission, since poor financial planning and bad credit feed into a cycle of wrong choices. Chambers saw education as the solution, and required clients to enroll in a six-week counseling course where he taught them how to establish and manage their credit, checking accounts, and household budgets.

Though getting rich was never Chambers’ goal, he charged modest fees so clients could prove their commitment, stay invested in the results, and help offset his overhead expenses. He charged an initial fee of $65 and $800 for the counseling course, wrapped into the total of the car loan. “Eight hundred dollars sounds like a lot of money,” says Mary Burnett, Bonnie CLAC’s co-executive director. “But our loans typically save clients anywhere from $4,000 to $8,000, and in some cases more than $10,000. That’s not bad for $8 or $12 more every month on your loan payment.” Given its financial model and wide range of services, CLAC immediately stood out from its peers. Of the 140 organizations in the United States offering assistance to low-income car buyers, only two others offer credit enhancement and financial literacy as part of the package, and no one else focuses solely on new cars.

Bonnie CLAC’s unique business plan translated to immediate success at the local level. The organization now operates offices in six communities across New Hampshire with an annual budget approaching $1 million. More students graduate from its financial literacy course than any other organization in the state, and last year it generated loans for more than 200 cars. Ripple effects, harder to measure, spread far beyond those simple transactions. A single mother saved her job in the seasonal hospitality industry; a convenience store clerk used CLAC’s job counseling to move from a minimum wage job to a $40,000 per year sales position. Grateful phone calls and letters keep pouring in from clients who have erased years of debt; relieved themselves of dependent, unfulfilling relationships; and started saving for the future.

That’s the kind of gratitude only a handful of organizations ever experience. But that could soon change. Increasingly, nonprofit organizations like Bonnie CLAC have started merging socially inspired values with traditional profit-making strategies. Economists call the new business model “social enterprise” or “social entrepreneurism.” Sure, the basic idea of making as well as accepting money has existed for centuries among nonprofits. But commercial revenues have never been so critical to the bottom line, accounting for nearly 60 percent of all nonprofit revenue, an increase of more than 220 percent over the past two decades. Examples show up everywhere. ITNAmerica, a nonprofit that makes transportation available to the elderly, relies on a combination of discounted fares and dues along with local business promotions. Nonprofit micro-credit lending institutions—like Bangladesh’s Nobel Prize–winning Grameen Bank—make loans available to poor or high-risk entrepreneurs while returning a modest profit to investors.

“Some say the movement has reached the tipping point,” says Cynthia Massarsky, president of SocialReturns, a social-enterprise consulting firm based in Tenafly, New Jersey. “Not only are seasoned nonprofits looking to create income-generating ventures, but right from the start, new nonprofits are building the strategy into their operating plans.” She cites the proliferation of organizations such as the Skoll Foundation that provide funding to social entrepreneurs who demonstrate clear social missions and strong business plans, as well as associations like the Social Enterprise Alliance with a total membership of more than 10,000. Andrew Wolk of Boston-based consulting firm Root Cause estimates that more than 100 nonprofits launch every day. And to stay viable, they’ll need to find innovative ways to raise funds. “More and more nonprofits will be incorporating for-profit kinds of approaches, if not proactively because they think it’s a good idea, then reactively because there will be no other way to raise enough money,” says Dave Rendall, principal of Rendall and Associates, a consulting firm specializing in social enterprise.

Chambers expects to take Bonnie CLAC national in the next five years. By 2012, he envisions a network of offices employing 90 people with sales of more than 3,000 cars a year and annual expenses of $8 million. Meanwhile, the organization will continue to expand thanks in part to a recent $750,000 grant from the Robert Wood Johnson Foundation. They’re also working with Root Cause to help develop a long-term business plan. “We’re refining the model,” Chambers says. “The big foundations are suddenly interested in us because they’re seeing their grants as seed money. And they see that we’re working toward becoming self-sustaining.”

Thankfully, the Blitsteins didn’t have to wait that long. With Bonnie CLAC guaranteeing the first $2,000 of their new loan, Chambers arranged 6.9 percent financing on a new Honda Civic that averaged 40 miles per gallon. The car payment dropped to $298. They saved $600 a month in gas and started driving a dependable, low-maintenance car. They also got the old SUV off their hands—and from around their necks. Now they have a long-term plan of their own. They’ve put almost 15,000 miles on their new Civic, and with the money saved in gas alone, they’ve nearly paid off the last of their outstanding bills. Long-term renters, they’re saving to buy a house next year, a daunting prospect that will give them no shortage of worries. This time, at least, the car parked in the driveway won’t be one of them.

Jim Collins is a writer based in Orange, New Hampshire.

----
Hybrid cars save the most on gas. But are they right for you? Find out here.

Ever wonder why those salesmen make you wait? Edmunds.com sent a journalist undercover to work at two Los Angeles–based car dealerships. The result: “Confessions of a Car Salesman.” The editors thoughtfully included a glossary to dealership-speak (“Bumping”: Raising the customer’s offer for a car. Usage: “If Mr. Customer says he only wants to pay $250 a month, just say, ‘Up to…?’ He’ll probably bump himself up to $300 without you doing anything.”)

Educate yourself on the best (and most affordable) used cars with Kiplinger.com’s 10 used car best bets under $20,000.

Read Complete Article