Learn What the Experts Are Saying about the Repo Industry Today

By Jennifer Reed, Auto Group Editor
August 12, 2008

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RALEIGH, N.C. — Many consumers throughout the country appear to be getting hit hard by the mortgage downfall and the weakening economy, so how has this impacted the repossession marketplace? Quite a bit, actually.

To get an idea of what is going on in the repossession marketplace today, Auto Remarketing talked with four of these professionals based throughout the country, and according to all of them, repossessions are up across the board for all types of vehicles.

However, as many would suspect, it's the less fuel-efficient SUVs and pickups that are being voluntarily turned in or repossessed the most.

For instance, Steve Norwood, with Consolidated Asset Recovery Systems, indicated, "As a result of the recent economic conditions, the finance industry has increased pressure to control escalating losses while reducing the costs associated with increased repossessions of 15 percent to 20 percent over the previous years, adding to the workload of already heavily burdened resources."

He explained that CARS strives to help these lenders drive costs out of the recovery process via its ability to manage assets in real time and consolidate the spend from several lenders.

"By providing an I-BEAM portal as a SaaS (software as a service) solution, we have brought new lenders on board rapidly and had them running and productive within days. This has resulted in rapid adoption within the financial industry, evidenced by our unparalleled increase in case load. We have experienced growth of 750 percent in 2007 and that trend is continuing in 2008, with more than 456 percent increase year-to-date," he highlighted.

Meanwhile, Patrick Altes, of Falcon International, reported, "Repossessions are way up for just about everyone in the industry. The exact number would be dependent on an agency's client list (who invested in that kind of paper). I know that Falcon International was running around three times the number of accounts we were in 2004-2005. It has dropped back a little, but is still over 2.5 times what we were doing a few years ago."

Over at FindJohnDoe.com, John Lewis concurred with the climbing demand on repo experts that is occurring nationally.

"The repossession and skip-tracing industries have increased significantly since the mortgage loan resets began to hit in late 2006," he pointed out. "Some companies have doubled their business, and some companies have gone out of business as huge volume spikes can expose weakness in some organizations."

Further discussing the impact of the mortgage industry on repos, Lewis said, "The subprime mortgage loans that are having their payments reset to a higher amount are now starting to ease up, mainly in part to recent state and federal actions. The reset rates across the board still remain two- to three-times above historical averages through 2008. The remaining adjustable mortgages spike again in 2009 and 2010. Due to this, we don't believe the housing problem will be going away anytime soon. As housing, gas prices and the economy goes, so goes the automotive financing and repossession industries."

Interestingly enough, Lewis went on to say, "Our industry is unique. When the economy does well, we get busy. More cars are sold and financed and the lenders seem to take more risk. When times are bad, we also get busy, for obvious reasons."

Les McCook, with the American Recovery Association, was a bit more subdued in his response, indicating, "There has been a slight uptick, but it seems to very dependent on the region. It is somewhat busier now than last year."

Most Popular Repos

So, as these repo professionals have their people searching local communities for assets, what are these experts most often looking for?

According to the men interviewed, this runs the gamut from toys such as boats to RVs to luxury vehicles, but the most popular demand for their services in the current marketplace is locating less fuel-efficient models such as large SUVs and pickups that customers are unable or unwilling to pay off.

"Just like the canaries in the mines, certain items are traditionally the first to go in a growing recession. The first to fall are boats, RVs, PWCs and the like. The ‘toys' are generally first," Altes told Auto Remarketing.

"With fuel prices being what they are, people that are upside down in an SUV or a pickup also are both unwilling to fuel them, unable to sell them (no market for them) and unable to pay for them," he continued. "We have a lot full of Durangos, Escalades and Suburbans," he noted.

The demographic of who is falling into the trap of being unable or unwilling pay has also changed, Altes pointed out.

"We are repossessing a lot of vehicles from mortgage brokers, Realtors, land speculators, contractors and title agents," he reported. "We are currently more likely to be working accounts in gated communities than in rough neighborhoods. Interestingly enough, the people we are interacting with are, by in large, very friendly and cooperative when we finally find them. They are not skips or deadbeats, just nice people (generally) caught in the crossfire of formerly easy credit, jacking up mortgage rates, higher fuel costs and the collapse of the housing market (here in Florida, where Falcon International is based)."

As for the busiest areas, he points to Texas, Florida, California and Arizona, which are all closely tied to the mortgage challenges.

With CARS, much the same thing is happening. Norwood explained, "There is a significant increase in several different types of repossessions: voluntary, automobile (SUV and trucks) and other property. Debtors are voluntarily turning in vehicles they can no longer afford. For example, families with more than one new car are turning in one to reduce expenses. Or, if faced with choosing between a newer car and a mortgage, many consumers are turning in the new vehicle for an older, less expensive one so they can continue to afford their home."

He, too, also sees the impact of high gas prices on his business.

"As gas prices continue to rise, we are witnessing a substantial increase in repossessions of large SUVs and trucks. It now costs the owner of a truck or SUV $100 to fill up at the pump. Additionally, these vehicles usually run on premium or diesel fuel and have poor average fuel economy. Therefore, the monthly fuel bill can quickly exceed $500, even under average driving conditions. Combined with the impact from downturns in several job markets, consumers are seeing a recipe for financial disaster," Norwood remarked, noting that his company also repossesses heavy equipment, semi-trucks, farm equipment and much more.

When it comes to quantity of business, each market or state is different.

"A good example is the slowing of the auto industry's new-car sales, which in turn has impacted areas in the Midwest where automotive manufacturers employ large numbers of people," he said. "This is also typical of prime lending., but there are other factors involved, such as state finance laws and concentration of lending arms supporting specific markets. For example, Florida, Texas and California, where laws are favorable for subprime lending. Another state is Georgia, where pawn fencing is prevalent. Repossessions can and do occur all over the U.S. and we have managed repossessions for lenders in all 50 states."

For FindJohnDoe.com, non-fuel efficient vehicles are big business.

"We're mostly seeing an increase in vehicles that get less than 15 mpg; however, we are also seeing increases in luxury cars with higher payments and people's second cars," Lewis indicated.

"With an increase in delinquency comes an increase in sad stories where people are having a tough time making ends meet, so this becomes difficult for anyone who comes in contact with the borrower. We're seeing more voluntary surrenders, so that means more contact," he continued.

The areas Lewis said he is seeing the repossession spike the most include Florida, Texas, Michigan, Alabama, Ohio and New York, adding, "with California still being the leader and Los Angeles being the repossession capital of the world."

McCook indicated that the vehicle mix of repos has not changed that much. "Throw in a few more RVs and boats and you have a good view of the models. Some consumers are downsizing, some are losing second cars that are necessary for the family today."

When it comes to areas where he has witnessed the most traffic for repos, McCook pointed to the Northeast and West Coast.

Auction Values

Leading to even more pressure on lenders and repossessing professionals is the fact that auction values throughout the country on larger units are dropping, meaning recovery rates at auction have also taken a hit, for many lenders don't have a solid mix in their portfolio.

This means that repossession experts need to find the assets as quickly as possible. Although this is normally how they do business, it's of even more vital importance in today's environment.

For instance, Altes explained, "Vehicles are not selling at auctions. Just drive out to one and see the empty lanes. Price doesn't seem to be the deal-killer, there are just no buyers."

As for the lenders, "Some clients are doing what they can to reach out to the customer, but this can backfire. It puts the customer on notice and may actually create a situation where it is much, much harder to eventually locate the car and repossess it. The customer, who has been dealt with ‘long distance' by the creditor, is fully on notice. Some agencies like Falcon International, who are both a repossession and private investigation agency, have developed a more robust field services program, where we actually send out an agent to make contact, inspect the collateral and update the key pieces of information.

"Rather than stealth around as a repossessor, we can make direct contact as a field investigator. Inspecting the collateral allows the creditor to have a real-world idea of its current condition. The agent can collect additional data from the customer in a non-threatening situation, which can be used later if needed. And it reminds the customer that the creditor has field representatives close by, a good motivational tool," he remarked.

Like many media outlets have been reporting, Norwood said vehicles with the poorest gas mileage tend to bring in the fewest dollars at auction or simply not sell.

"No dealer will buy vehicles that are not in demand because they just sit on the lot. Therefore, trucks, SUVs and large vehicles, such as full-sized sedans with V8 motors, are not bringing in money and many lenders have stopped financing them in the subprime market. Even prime lenders are tightening their criteria on originations for these vehicles. Currently, most buyers are looking for economy cars with better gas mileage and low-cost used vehicles, thus reducing or eliminating their car payment. The result is a boost in sales of used, older-model cars and economy cars at auction.

"In addition, most lenders try to work out an arrangement with the debtor first, but when or if the debtor stops communicating, the lender is forced to go after the collateral. My advice for someone in financial trouble would be to keep the communication lines open with the lender, no matter how hopeless the situation may seem. Lenders do not want to repo a vehicle because they will end up losing money by selling it at auction. They would much rather work out a deal and keep the debtor in the car."

So ultimately, Norwood said that repossessions are a "last resort" for lenders.

While Lewis said his company doesn't follow auction values that much, he did, however, indicate that he's "heard stories of repossessed cars sitting on lots outside auctions because the auction storage lots are full."

As for McCook, his viewpoint is, "I think there is a general softening of the market across the board. Lenders are doing everything possible to keep borrowers in their cars."

Editor's Note: For more about the repossession marketplace, stay tuned to AR Today and Auto Remarketing NewsMagazine where these experts will discuss the evolution of their industry and the products offered to help lenders save costs, along with more.