R699 cars a Ponzi Scheme: Wesbank

Vehicle and asset financer, WesBank, says it doubted the authenticity of the Satinsky Group’s R699 per month car scheme from the start, saying its due diligence into the group pegged it as a Ponzi Scheme.

The comments follow reports of many R699 per month car owners being left in the lurch, after the Satinsky Group announced the abrupt end to a partnerships agreement with Hong Kong based advertising company, Blue Lakes.

The dissolving of the partnership left many Satinsky clients without the monthly advertising earnings they had become dependent on to finance the cars bought.

Satinsky responded to the outrcy by saying that it was never responsible for any payments to clients who purchased vehicles from the company.

The group noted that, when customers purchase vehicles from its group of companies, they enter into two separate transactions – one of which is a vehicle finance agreement with the bank, in which they are responsible for the full monthly payment.

This begs the question – how could the bank finance vehicles that customers apparently could not pay back?

According to WesBank, someone – either the banks or the clients – got duped.

Something smells fishy

Responding to requests for comment on the issue, WesBank CEO Chris de Kock pointed out that WesBank actively chose not to be involved with Just Group, a subsidiary of Satinsky Group, in any way whatsoever.

“When Just Group approached WesBank in 2011, as part of our due diligence we were concerned about the sustainability of such a business model, together with the ability of a foreign based marketing company, Blue Lakes Trading and Promotions, to support the needs of local customers efficiently,” de Kock said.

“Hence our detailed investigation of the financial integrity and strength of the companies involved before deciding whether or not we would get involved.”

According to WesBank, the “simple mathematics” behind reducing an installment of R3,000 or more to the advertised R699 did not point to a sustainable vehicle finance model and structure for the consumer.

The group said that it understood that the vehicles sold through the scheme were financed at their full retail price, without any deposit or manufacturer discounts as with normal deals.

In addition, the reported long finance periods together with high mileage conditions on the contracts made it impossible for any customer to replace such a vehicle over the average replacement period of 36 months without significant shortfalls, resulting in financial difficulties for the affected customers.

“We believe that these facts were overlooked by consumers who were enticed by the promise of a very low installment,” the finance group said.

The bank said that consumers entered into these deals on the misguided belief that they would only ever pay the advertised installment, with the self-justification that it would fit within their available disposable income.

“However, for most of the affected customers, the full installment remained unaffordable – and recent media reports indicate that consumers’ affordability could even have been manipulated to reflect a higher amount of disposable income.”

If this is true, the group said, then the credit providers may have been misled into making incorrect lending decision as well.

Showings of a Ponzi Scheme

“It appears that the profits from deals comprised the vehicle retail margin, as well as commissions on finance and insurance products sold by the group,” WesBank said.

“Some of these profits also appear to have been used to fund the company’s ongoing commitments but we could not see any evidence of financial reserves, proving that the company never intended to sustain any long-term commitments as more customers participate in the scheme.”

“It, therefore, seemed blatantly obvious that the scheme relied on these upfront profits to fund its downstream obligations – Typical traits of a traditional Ponzi scheme,” said De Kock.

Satinsky has since started offering a new rewards programme through Accelerate Rewards, with discounts and vouchers based on mileage, while the commission-based contract – where clients get paid R3,000 per new person signed up to the scheme using a unique code – remains.

According to the group’s CEO, Albert Venter, over 4,000 people have signed up to the Accelerator Rewards scheme.

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R699 cars a Ponzi Scheme: Wesbank