When Georg Bauer and Scott Painter began meeting a year ago, they saw the consumer car-ownership experience in need of more digitalization and flexibility, an underserved market for used-car leasing.
They also saw the chance to benefit dealers and consumers, alike, without undercutting either party.
“We have looked at the industry and have found that a lot has changed over (recent) years on the car side, but it happened mostly in the engineering and manufacturing area,” Bauer said by phone last week.
“What has not come up to the digital age is the customer experience,” he said. “And that has really brought us together, this mission of redefining car ownership from various angles.”
That’s where Fair, the company Bauer and Painter co-founded, comes into play.
At its essence, Fair is an app that provides used-car leasing to consumers on a flexible basis, Bauer said, calling pre-owned leasing an underserved market.
“Thirty-eight million used vehicles change ownership annually in this country. And most of these cars are financed, on average, with 60-month loans,” said Bauer, Fair’s president.
“I mean, honestly, how boring is that from a dealer and a consumer perspective?” he said. “Scott and I felt this space needs some innovation badly there, and that’s what Fair is all about.”
How it works
First, the basics.
Fair made its debut on Sept. 5 in the Apple App Store. Painter, the founder of TrueCar who stepped down from his leadership posts of that company in late 2015, co-founded Fair last year with Bauer and is the company’s chief executive officer.
Bauer previously worked in the financial services business for Tesla internationally. His background also includes time as BMW Group’s chief executive officer of global financial services as well as Mercedes-Benz Credit’s U.S. CEO.
Painter has launched dozens of companies in the automotive space, including TrueCar, CarsDirect.com and, now, Fair.
The company is rolling out in the Los Angeles area and is set to expand throughout California by year’s end, the company said in a news release. Entry into additional U.S. markets is planned for 2018.
Fair includes a completely digital checkout process and allows a consumer to keep the vehicle as long as he or she wants, then return the car after providing five days’ notice, the company explained.
Customers are provided a limited warranty, routine maintenance and roadside assistance. Fair said it aims to provide insurance options, as well, down the road.
Through the app, consumers are pre-qualified and can choose from vehicles that meet their budget needs. The car can be paid for in the app, as well.
The process, in short, begins with the consumer downloading the Fair app and browsing inventory. The vehicles they will see are from a pre-selected group of cars at the dealer partners of Fair.
The consumer must scan his or her driver’s license, link a bank account and sign a Fair contract using the app.
When the consumer signs the contract, Fair purchases the car from the dealership. And the consumer essentially has a flexible lease and can either pick the car up or have it home-delivered.
The process is fully digital and paperless, and consumers, if they choose, can complete a transaction in as little as five to 10 minutes, Bauer said in the interview.
He noted that, “the dealers get, basically, free customers from Fair. And, by the way, happier customers. So we contribute to happier customers because they don’t spend hours anymore in the dealership being bombarded with paperwork. And the dealer’s F&I process is also streamlined and becomes much more efficient.”
Fair also allows dealers more opportunities to connect with the customer more often, generating service business for their stores, he said.
And again, it’s about involving the dealership in the process.
“Fair is about partnering with the dealers for the benefit of the consumer,” Bauer said. “This is not mutually exclusive — quite the opposite.”
In fact, dealer involvement is crucial to this process.
“There are some people out there that are saying, ‘Well, in the future, we won’t see dealers anymore,’” he said.
Bauer doesn’t believe that to be the case, “and neither does my partner, Scott Painter,” he said.
“Dealers play a vital role in the auto value chain, in the process chain, to the customer interface,” Bauer said. “While we believe in the dealer’s role, at the same time, I believe those dealers will be the winners; (the ones) that decide technologically to move into the digital age with a partner like Fair.
“So dealers have to become more digital, and I believe they have a strong and important role. For Scott and myself, out of the gate, the starting commitment was to say this is partnering with dealers and benefitting the consumer.”
So far, more than 70 dealers are on board as partners in the Los Angeles area, a contingent that includes large groups and small individual locations, and even some dealers who are invested in Fair, Bauer said.
Post-use process, other logistics
So when customers are done using the vehicles, they provide a five-day notice and bring the car back to the initial dealership from which the vehicle came. That dealer gets first crack at buying the car based on a pre-determined price, Bauer said.
If the dealer does not want the car, it circulates back into the app and is available again to consumers. If customers don’t want it, Fair remarkets it at auction.
From a dealer’s perspective, it is important to note that Fair does not charge fees to dealers for these transactions.
So what, then, is the revenue stream for Fair?
“We basically build the leasing portfolio as our assets on our books as we fund through the capital markets tools, and there’s a margin on funding those assets,” Bauer said. “And we also include some back-end products — a Fair monthly payment is an all-inclusive payment. It includes roadside assistance, service and maintenance and extended warranties the moment the manufacturer warranty is over with.
“So there are opportunities to make money, but most importantly is fairness and transparency for the consumer,” Bauer said. “Between the flexibility of a rental and the long-term commitment of a lease, there are no options for the consumer. That’s what Fair is about: introducing something to give the consumer the flexibility of a rental at the low monthly payment of a lease.”
Bauer said Fair is using outside providers at first for these back-end services, but eventually the company will do so in-house.
As far as funding and capital for the company, Bauer said: “We are well funded from an equity perspective. We did a seed round of $16 million, and we are well on our way (to) closing in a couple of weeks a Series A-1 that will bring us, together with the seed, to another round of $40 million in equity, which will regrate over a starting basis. And we are negotiating with major Wall Street investment banks on our initial credit lines to fund the portfolio from a debt perspective.”