Q&A: Service contract vendor rides out 25 years of ups and downs

Automobile Protection Corp., administrator of Easy Care extended service contracts, celebrated its 25th year in business in September. Despite a string of service plan vendor failures and a tough economy, the Atlanta company is still expanding its business.

CEO Larry Dorfman, 53, told Staff Reporter Donna Harris how he survives the industry's ups and downs.

How did APCO start in 1984?

I worked for my family's office equipment business since I was 16 years old and wanted to go out on my own. I was 28 when a friend who worked in the car business, Martin Blank, brought me the concept of an extended service contract. I was one of those people who didn't know what to do when I took my car to a service facility. I just paid the price I was quoted.

From the beginning, Martin and I saw a business opportunity in selling service contracts. The customer would be protected against the unexpected cost for repairs, and we would act as an advocate and intermediary to make sure the customers were treated appropriately.

When did you start selling the contracts through dealerships?

We began to offer extended service contracts through dealerships in 1985. Back then state laws stopped us from being able to offer contracts directly to consumers. Service contracts had to be combined with the sale of a car or sold through a dealer. The state laws have changed. Now only three states don't allow third-party administrators. We became a third-party administrator in 1991.

Why did you become an administrator? Did it have to do with the collapse of several major administrators in the late 1980s?

From 1984 to 1991, we could have been considered a superagent. We were purchasing contracts from administrators when we started out and learned you better read the front and back of the contract. The front gave to the customer and the back took away. The first administrators we dealt with are long gone.

In the late 1980s, three or four large administrators went down. They didn't have the capital and reserves to take care of customers. The consumer comes before everybody else.

What did you do when your administrators went out of business?

We paid the claims out of our own pockets.It was instrumental in building our reputation as being there when we were needed. We had two different administrators go out of business on us. We had to sue an insurance company that didn't want to pay claims and settled to get reimbursed for a certain amount of the claims. The biggest incident cost us $10 million.

You were a public company then. How did it affect your stock price?

Our stock went to 57 cents a share in 1990. We lost money, but we still had money to pay claims, and all our contracts were fully insured. But the losses showed up in our financial statements. Our privately held competitors were in the dealerships using our quarterly reports against us.

Why did you go public?

We took the company public in 1988 because we wanted to raise capital and we wanted to have transparency. We wanted dealers to be able to look us up. We were listed on the Nasdaq.

Your sales volume went from a few hundred contracts a month to 45,000 contracts a month in the 25 years you have been in business. What else fueled your growth?

In 1987, we got our first big opportunity to do a private-label program with Subaru of New England. The late Ernie Boch, who owned the distributorship, asked us to create a 6-year/72,000-mile powertrain coverage. We ran that program with him for five years, and it was a catalyst to our growth.

In 1994, we got the opportunity to do our second large private-label program with American Honda Finance. That changed the course of the company long term. It gave us credibility. We are still partners today.

We sold the company to Ford Motor Co. in 1999. They wanted us to provide contracts on non-Ford makes. Ford bought APCO at $13 per share for $179 million. We were able to operate as we did before with all the same leadership.

In the eight years we were part of Ford, we tripled the size of our business. Our volume was 40,000 contracts per month in 2007 when we bought the company back from Ford for about the same price as Ford paid.

In September we entered a partnership with Motor Trend magazine. That's made a difference for us. The Motor Trend Certified Advantage Pre-owned Program is not a replacement for the manufacturers' certified used-car programs. Dealers have a lot of used cars not produced by their manufacturer. This is a way to certify those vehicles.

You just launched a program in which you are going head to head with the aggressive direct-to-consumer service contract vendors promoting online and over the phone.

We introduced the APCO Business Development Center service because consumers want to buy products online. We'll pay the nearest dealer in our preferred network a commission and give the dealer a service referral. There are many scam marketers selling cheap warranties that offer few benefits. They are stealing business from dealers.