Alex “SkipGuru” Price returned to the Auto Remarketing podcast to discuss one of the subjects he knows best: skip-tracing.
Now the director of training and development for LocateSmarter, a data and analytics company, Price described how the pandemic has impacted collections and skip-tracing while also reflecting on how tried and true methods continue to be crucial amid COVID-19.
To listen to the entire conversation, click on the link available below, or visit the Auto Remarketing Podcast page.
Download and subscribe to the Auto Remarketing Podcast on iTunes or on Google Play.
AUL Corp. senior vice president of agency and dealer sales Paul McCarthy makes his debut on the podcast to describe how dealerships have pivoted their F&I marketing and presentations in light of the pandemic’s impact on vehicle sales.
McCarthy also shared some details about what the company plans to offer in 2021.
To listen to the entire conversation, click on the link available below, or visit the Auto Remarketing Podcast page.
Download and subscribe to the Auto Remarketing Podcast on iTunes or on Google Play.
GWC Warranty wants dealerships to protect one of their most valuable revenue streams — F&I — so the product provider recently broke down the four components of what it called the “new customer journey.”
GWC Warranty went so far as to say in a blog post that, “the days of the linear, one-size-fits-all sales cycle are over.”
Company experts continued with, “Focusing on making appointments and protecting pricing quotes to draw customers to the showroom floor won’t succeed in today’s digitally-dominated market. A successful sales process has to work in an environment where customers do most of the legwork online.”
GWC Warranty dissected what it sees as the four segments of the customer journey along with suggestions dealerships can use to make each portion better for the potential buyer when it comes to F&I products and services.
Transparency
The company recommended that dealers incorporate clear information, pricing details and open communication to cover more potential roadblocks and learn more about what customers want before they walk in the door or potentially take delivery at home.
Discovery
GWC Warranty acknowledged, “Buyers can find the right car and the right price on their own — and expect no surprises.”
The company stressed that dealers who appreciate the research their customers have already done and use that as a place to start a conversation can find out exactly where the buyer is in the process and discover what it will take to move the sale forward.
Presentation
GWC Warranty explained that a customer who’s done hours of research and completed multiple steps of the process online oftentimes has given store personnel clues about what they need to see.
“By building a personalized presentation that engages with buyers at critical touchpoints, dealers can convert an online ‘shopper’ into a buyer,” the company said.
Advocacy
GWC Warranty then emphasized that the earlier dealers introduce F&I in the sales cycle, the more chances stores have to close the deal.
“Customers who are more informed upfront about the protection products and other add-ons your dealership has to offer are more open to their value, no matter what stage of the buying process they’re at,” the company said.
Perhaps a primary reason recently Wolters Kluwer Lien Solutions hosted an informational webinar appeared through a participant survey conducted during the session.
Nearly 60% of the live webinar audience polled about portfolio management for auto financing responded that they felt only “somewhat prepared” for internal audits and regulatory exams assessing their practices.
After seeing that figure, Robert Inskeep, who spent 33 years as a national bank examiner at the Office of the Comptroller of the Currency (OCC) shared insights on how finance companies can protect themselves by improving loan portfolio management practices, tightening controls and performing self-assessments.
Inskeep also explored the Interagency examiner guidance and offer practical tips, from an OCC examiner’s perspective, on the potential consequences of poor execution of policies and procedures as banks deal with auto-financing challenges amid the COVID-19 pandemic.
Also on the agenda for the session titled, “Practicing Sound Loan Management in a COVID World,” was Wolters Kluwer’s Rick Vanko, senior product manager for iLien Motor Vehicle Solutions. Vanko shared advice on how to protect and perfect one’s motor vehicle collateral by addressing any possible loan exceptions, including managing the costs of those exceptions.
“While the regulatory and legal obligations behind auto lending remain unchanged, the ways in which lenders are adapting to operate in a disrupted economy present unexpected challenges. The increasing volume of loan defaults and car repossessions means significant challenges for lenders in managing higher loan portfolio risk while maintaining compliance with banking laws and regulations,” Wolters Kluwer said.
A recording of the webinar can be seen through the window at the top of this page.
Protective Asset Protection is serving up a six pack for dealerships.
While the stress triggered by COVID-19 might merit popular beverages that oftentimes come in packages of six, the provider of F&I programs, services and dealer owned warranty company programs announced this week that it has made available a new series of pre-recorded educational training webinars, designed to educate, motivate and improve the closing ability for F&I managers.
In a recent survey of dealers from around the country, Protective found that roughly half (49%) said F&I product sales translate well to the digital or online car shopping process for customers, whereas only one in five dealers said there is no difference.
To help dealers elevate their success selling F&I products to customers, the following training webinars are now available:
— Getting To 80: In this new world of digital presentation and no-contact delivery, the ability to connect with customers in F&I is more critical than ever. This brief webinar discusses key goal-setting strategies to help break through performance barriers, the advantages of getting support from everyone in the dealership and how to enhance the customer experience regardless of delivery platform, generation or product.
— Conducting Meaningful Sales Training: This webinar discusses ways to uncover and develop top performers by employing separate sales meetings and sales training.
— Generational Sales: For the first time in auto-shopping history, there are five generations of buyers at dealerships. Understanding the unique characteristics of each generation is a key to unlocking more sales. This webinar discusses the unique priorities of each generation and how to maximize presentations to meet their needs.
— Generational Myths: Each customer is unique and has their own reasons for buying, but are their reasons really based on the time period in which they were born? This webinar explores which of these generational constructs are real, and which ones might be myth. Learn how to use these ideas to create a powerful F&I presentation that will be effective for each generation.
— Creating Your Evidence Book to Engage the Customer: The difference between the most effective F&I producers and those who struggle is a function of their ability to communicate value. This webinar discusses how and what to use to present your case more effectively.
— Powerful Storytelling: How can storytelling improve dealership numbers at the end of the quarter? A well-told, captivating story can affect listeners on multiple levels. This discussion illustrates storytelling and provides a guide to get started in telling powerful stories.
“Selling F&I products successfully, regardless if the customer is buying online or sitting in front of you inside the dealership, requires the right combination of trust, education and consideration,” Protective Asset Protection vice president of training and specialty sales Bill Koster said in a news release.
“Our training curriculum is among the very best in the industry, and we pride ourselves on equipping our dealer partners and their staff with the right training that helps drive trust and education so they can achieve high transaction volume and increase repeat business,” Koster went on to say.
Go to this website to access the training videos.
Not only are finance-company leaders likely are thinking of the health of themselves as well as well their family, friends, employees and customers, but also the condition of their outstanding portfolio.
In an attempt to aid the status of the last segment on that list, Wolters Kluwer’s Lien Solutions is hosting an informational webinar on Wednesday titled, “Practicing Sound Loan Management in a COVID World.”
Beginning at 2 p.m. ET, experts plan to share perspectives and practical tips on managing portfolios in the wake of the pandemic’s broad economic impacts.
Scheduled to present is Robert Inskeep, who spent 33 years as a national bank examiner at the Office of the Comptroller of the Currency (OCC).
Inskeep will share insights on how lenders can protect themselves by improving loan portfolio management practices, tightening controls and performing self-assessments. He will also explore the Interagency examiner guidance and offer practical tips, from an OCC examiner’s perspective, on the potential consequences of poor execution of policies and procedures as banks deal with auto-financing challenges amid the COVID-19 pandemic.
Also on the agenda is Wolters Kluwer’s Rick Vanko, senior product manager for iLien Motor Vehicle Solutions. He will share advice on how to protect and perfect one’s motor vehicle collateral by addressing any possible loan exceptions, including managing the costs of those exceptions.
“While the regulatory and legal obligations behind auto lending remain unchanged, the ways in which lenders are adapting to operate in a disrupted economy present unexpected challenges. The increasing volume of loan defaults and car repossessions means significant challenges for lenders in managing higher loan portfolio risk while maintaining compliance with banking laws and regulations,” Wolters Kluwer said.
Registration of the webinar can be completed on this website.
According to the recently released S&P/Experian Consumer Credit Default Indices, United States auto loan defaults dropped 10 basis points to 0.56% in May. This comes on the heels of the release of Experian’s State of the Automotive Finance Market Report, which showed significant decreases in delinquency rates on automotive loans Q1 2020.
In fact, the report indicates that both 30-day and 60-day delinquencies dropped compared to last year, with 30-day delinquencies seeing a more significant decrease from 1.98% in Q1 2019 to 1.93% in Q1 2020.
In routine times, these figures would absolutely be looked at as positive economic indicators. However, due to new realities during COVID-19, lenders should be particularly wary about these seemingly positive indicators. The reality is that these figures are being masked by a variety of factors. In fact, I am certain that the “real” numbers are unquestionably quite a bit worse than what this data shows.
It’s been well-documented that the CARES Act has essentially stopped negative credit reporting, provided that consumers enter into agreements with lenders. And lenders have been very open to these agreements and have provided a tremendous amount of goodwill deferments to borrowers to help them through the pandemic. Not surprisingly, we’re already hearing chatter from organizations like TransUnion that millions of Americans are taking advantage of this goodwill and have been skipping payments.
I’m not here to send a doom and gloom message, as I believe that auto finance will always be one of our economy’s strongest industries. Nor am I suggesting that these deferments were inappropriate — millions of Americans lost their jobs through no fault of their own and were entitled to some level of support.
However, Kroll Bond Rating Agency recently pointed out that modifications made by lenders now will “simply delay the inevitable” as lenders’ ability to collect cash has been reduced so dramatically. I agree with this sentiment to some degree, but there are many good borrowers who want and will be able to make timely payments once their temporary problem is resolved. These deferments will provide the assistance necessary to deal with their short-term financial crisis.
With that in mind, I believe now is the time for lenders to take collective action to balance fiscal responsibility with taking care of only those customers who truly need help.
In my view, going forward lenders will need to move away from offering blanket deferments to all customers, and tailor their loss mitigation programs to an individual’s circumstances. Many Americans have remained employed, with some even increasing their income — these borrowers can and will pay. Getting these borrowers weaned off of the assistance programs and back into the habit of paying is paramount.
This should serve as a reminder of the importance of having experienced and skilled loan servicing professionals staffing your portfolio. A skilled professional is trained to interpret each unique situation and encourage those customers who can pay to do so. By no means should we stop offering assistance to those most affected, but it’s time to start employing a strategy to get your portfolio performance moving in the right direction.
Louis Ochoa is president and chief executive officer of Servicing Solutions, a full-service beginning to end loan servicing solution powered by compliance, technology, analytics and a management team of experienced industry leaders. Headquartered in Irving, Texas, Servicing Solutions has additional Class A call center facilities in Orange, Calif., and Tijuana, Mexico.
Many automotive lenders face challenges today associated with maintaining compliance in all facets of their business. Automotive loan compliance requires knowledge of federal regulations that govern applications, processes and practices. While it can be assumed lenders strive to remain compliant to the rules and regulations that govern them, remaining compliant can become a struggle if regulations are interpreted incorrectly.
There’s no question that automotive-loan compliance is top of mind for almost, if not all, lenders today. National legislation regarding privacy and consumer financial information changes frequently. At the federal level, automotive lenders are governed by the Federal Trade Commission (FTC) and the Office of the Comptroller of the Currency for banking. What’s more, several states have introduced local legislation to govern automotive lenders and their practices. Specifically, Maryland, Pennsylvania and Virginia already have consumer financial protection unit’s in place. In January, both California and New York announced they were looking to follow suit.
In order to remain compliant, automotive lenders must understand which regulations affect them prior to taking the necessary steps to implement precautionary measures. Legal counsel must actively play a role in the interpretation of regulations as well. Among the many automotive loan compliance regulations that affect lenders, there are four that stand out. The Equal Credit Opportunity Act (ECOA), the Servicemembers Civil Relief Act (SCRA), The Truth in Lending Act (TILA) and the Unfair, Deceptive or Abusive Acts and Practices (UDAAP).
A breakdown of each includes:
—The Equal Credit Opportunity Act (ECOA) prohibits applicant creditworthiness discrimination based on race, color, religion, gender, marital status or age. Lenders are required to notify applicants regarding any decisions made on their application and collect information for government monitoring.
—The Servicemembers Civil Relief Act (SCRA) protects active military from foreclosures or property seizures. Military members have the option to terminate an existing vehicle lease if they are deployed over 180 days and are further entitled to interest rates under 6%.
—The Truth in Lending Act (TILA) states that lenders must disclose details such as cost of loan, monthly payments and interest rate in writing to the consumer.
—The Unfair, Deceptive or Abusive Acts and Practices (UDAAP) protects consumers from any situation where a they may be intentionally misled in a financial situation.
With so many regulations governing lenders and ongoing legislative changes, how can automotive lenders remain compliant? The answer is found in automotive lending technology systems that are designed to give transparency, provide analytics tools, automate and store digital documents. All of which are pertinent to maintaining compliance as regulations quickly change.
Modern automotive lending technology systems have artificial intelligence capabilities that allow for a deeper dive into patterns of behavior that may identify an applicant as high risk. For example, if an applicant has a lower credit score, they may traditionally be a risky decision to that lender. However, AI is allowing for lenders to identify which individuals within a credit score group may perform worse than others if the credit score is not the only factor. AI looks at a complex set of data and circumstances that can combine dozens of factors rather than just one factor such as credit score.
These AI systems can create a set of automated “rules” to follow that measures applicants based on specific criteria, allowing for a quicker non-biased decision on each applicant. This further helps the lender remain in compliance with the above regulations such as ECOA and SCRA by removing the human element. For example, if an applicant has a credit score lower than 600, a rule can be written to evaluate their creditworthiness based on alternative credit data and factors. If an applicant is active in the military, the loan can be structured around the SCRA regulations through Artificial Intelligence systems. The rules in this case are more human driven than AI controlled, where the AI element is beneficial for harder to spot circumstances that may be less obvious.
Furthermore, automotive lending technology can help lenders prove their compliance by recording decisions. If a lender is to be audited, the lender can show how their applications and decisions are processed and executed internally. While the system rules are designed to make decisions with specific outcomes in the lending process, the automation factor executes the action of approval or denial on a loan. This ensures that there are no missed steps in the application process, and essentially eliminates human error from manual processes. Using AI functions can create a more tailored outcome specific to the needs of that particular lender.
Not only can compliance be proven and maintained through automation, but credit decisions can be made almost immediately. An applicant with a high credit score may be approved within seconds, eliminating the need for time-consuming review on an applicant who the lender is going to approve regardless.
In years past, lending regulations have been focused on direct communications between borrowers and applicants, many of which were completed through a paper trail. Today, digital management of documents and communications eliminates the need for written documentation that can easily be misplaced or lost at any given time. Sensitive items such as social security numbers, credit score disclosures and borrower decisions can be securely stored and accessed if compliance is questioned. From a compliance perspective, it becomes easier to prove that legislation has been followed as required.
Another benefit seen by incorporating automation into lending practices is the ability to leverage analytics. Analytics only further help demonstrate that a lenders processes and policies comply with regulatory laws as well as improve efficiency. Analytic tools make it easier to understand where processes are slower, giving lenders the opportunity to improve in those areas.
While no automotive lending technology system will meet every facet of a lender’s needs, many can be integrated with systems such as Salesforce, and all add consistency and compliance transparency throughout. All documentation, rules, and decisions will always be stored as part of an automated underwriting process and stored digitally. Auto loan compliance requires continuous monitorization and interpretation of regulations. The more automation that is incorporated into lending practices, the easier it is to demonstrate and remain in compliance.
Vladimir Kovacevic is the co-founder and managing partner of Inovatec, a leading software provider to financial institutions. Inovatec’s products are designed for origination, processing and management of loans and leases across a broad spectrum of credit quality and asset types.
Perhaps you cannot go to your local public library, but Protective Asset Protection recently made its library of professional development training courses available to all dealership personnel and agents.
The provider of F&I programs as well as services and dealer owned warranty company programs designed its educational curriculum to help industry professionals sharpen their skills during the COVID-19 pandemic and containment efforts.
Protective Asset Protection insisted that dealers will need to leverage new resources in order to provide the right F&I product experience in a quickly evolving retail environment where digital and contactless transactions continue even throughout the COVID-19 pandemic. According to a recent report from McKinsey & Co., companies will leverage training to survive and thrive in a post-COVID-19 world.
That report also said, “Increase the speed and productivity of digital solutions. To deal with the crisis and its aftermath, companies not only need to develop digital solutions quickly but also to adapt their organizations to new operating models and deliver these solutions to customers and employees at scale. Solving this ‘last mile’ challenge requires integrating businesses processes, incorporating data-driven decision making, and implementing change management.”
The Protective Asset Protection Training Institute’s online training solutions can provide the professional skills necessary for dealer and F&I professionals to be successful in today’s industry. The firm highlighted that each course is designed to maximize content retention with engaging videos, study guides and quizzes.
Officials went on to mention users may participate in the online courses at their own pace, at anytime and anywhere.
“Investing time and resources into more F&I training will benefit employees during COVID-19 while foot traffic is down from pre-virus levels,” said Bill Koster, vice president of specialty sales and training for Protective Asset Protection.
“All of the F&I training curriculum offered contain videos designed to help dealership personnel maximize their sales opportunities during COVID-19, and post-pandemic when online shopping will continue to be a growing makeup of transaction activity,” Koster went on to say.
Go to this website to access the F&I training institute.
Editor’s note: This commentary is the second in a series compiled by Joel Kennedy, who is the current president of the National Automotive Finance Association and board adviser at TruDecision, looking at the intricacies of repossessions and recovery. The first segment is available here.
I founded an auto-finance business during the peak of the Great Recession in early 2009. I knew credit, risk, analytics, finance, compliance — you name it. But when it came to loan servicing and managing delinquent borrowers, skips, recoveries, asset disposal — it was a trial by fire.
Despite our team’s collective naiveté, we did a decent job of handling these activities early-on. In fact, we did well enough to get through multiple rounds of funding and “servicing retained” deals. After the second round of funding (the “big” round) the loan portfolio really grew, and along with that growth came a lot of new issues and problems to manage. The hallmark of these issues was that they were largely centered on finding borrowers and collateral that we had lost our grip on, and these problem accounts have a way of hiding from you, so you really run the risk of missing some big things.
In hindsight, there were choices to be made on how to manage these operational components that I should have outsourced entirely from day one. The problem was that my partner and I put too much stock in building all of these capabilities internally, and we viewed outsourcing them as dilutive to our brand. We figured that building a finance company that is nothing more than a bunch of outsourced systems, vendors, etc. cobbled together, can that really be unique and create enterprise value? We certainly got a passing grade in Management Hubris 101.
I now reflect on the opportunities from my auto-finance company with a much better understanding of all of the moving parts operationally and how they manifest in the financials. Nowadays, it doesn’t matter to me who does an activity — just is that activity optimized and maximized — or am I at least getting the best possible service or result. My time embedded with Flying A Information Resources, a skip/locate and recovery company really opened my eyes to the full power and scope of outsourcing in a way that eliminates a lot of the pain, friction, and knee-jerk management that I self-inflicted.
Top 8 challenges
Through my experience, I identified what I believe to be eight primary challenges.
Challenge No. 1: Lagging repossession, skip, and recovery rates
For non-prime banks and finance companies (mostly small-to-mid-sized), repossession rates generally run in the low-to-mid teens, but have been rising in recent years. Similarly, the unrecovered skip rate (as measured by the number of unrecovered repos in the current year / number of repossessions for the prior year) runs on the lower side of the mid-teens as well. Recovery rates (net post-charge off deficiency) for the non-prime segment generally run in the mid-to-high teens. So, now that we have the general benchmarks, how does your institution stack up? If you are outperforming, then you probably already know that, and have a good thing going. For underperformers turning the tides on lagging performance can be tough – there are a lot of moving parts with systems, process and people, which can make diagnosing the problem a substantial undertaking.
Challenge No. 2: Days to recover are increasing
The longer the days to recover, the worse your collateral recovery will be. Plain and simple. And the reasons for nonperformance can come from a number of prior actions that resulted in misses. Did you start off with good customer contact and get ahead of delinquency and roll rates? Were there misses along the way where your collectors decided to wait rather than advance an account to assignment for repo? Do you have a solid process that is followed consistently on which accounts need to be skip-traced or assigned? All of these misses add up to a huge hit on your bottom line because when cars are missing for too long, the more busted up they become, and the less you have to recover at auction if and when you get it. Even worse, you end up recovering a total bomb that you should have just abandoned.
Challenge No. 3: Poor / declining collateral sale proceeds
Poor collateral sale proceeds can be a function of many things. For example, just as automotive retailers look to match the collateral they carry to their local clientele, auctions have some differences that are worth noting. A vehicle that does well at a larger, higher volume auction may not do well at a smaller auction, and vice-versa. It is a good idea to be constantly evaluating your auction returns, and looking for ways to improve the top line and reduce your recovery and reconditioning costs. Do you have someone representing you at auctions? Do you have good lane placement and time of day for your cars to roll through? At the end of the day, the CFO’s question on this one is a good one; what was our expectation for collateral sale proceeds versus what we are actually recovering?
Challenge No. 4: Volume of recoveries and agent management is unmanageable
When delinquency and roll rates increase or even spike, regardless of whether it was weaker credit quality for a particular vintage, seasonal / exogenous factors, or poor collections performance, you have a bubble that needs to be addressed. This is often the time that outsourced options are seriously considered and deployed, and for good reason; you have a bump in volume that you don’t want to staff to, you just want to solve it. In my opinion, this is the time when a longer-standing relationship with an outsourced vendor gets crucial. The lender knows that the accounts were mismanaged, but most will look to hold the vendor to a standard that is more suitable to a well-managed account. If this understanding gap can be overcome, then chances are that vendor becomes strategic.
Challenge No. 5: I am not confidently managing specialty accounts
Specialty accounts can quickly eclipse a finance company’s abilities. Military, BK, Non-self-help states, and sovereign nation reservations all have particulars that if not properly managed can equate to serious legal, regulatory, and reputational risks, along with the risk of losing recoveries, or even the lender’s claim to pursuing the deficiency balance. It has been my observation that most finance companies fall into two camps on this: one that relies on the most expensive and comprehensive legal guidance they can buy, and those that ignorantly apply their normal process to these accounts. To shed further light on the issues involved with the most prevalent categories, I interviewed some experts.
• Military: Kelly Blankenship of KRB Partners, a regulatory compliance consultancy provides some caution in handling military recoveries, said, “Make sure you have policies and procedures in place to verify the military status of your borrowers before your company begins the repossession process. A best practice would have checks and balances in key places along the repossession process, for ex., at the time the vehicle is categorized as eligible for repo and prior to assigning it for repossession agent or forwarder. As a reminder, protected service members are people who have made an installment payment (one payment is enough) prior to entering military service and were in the military at the time of repossession.”
• Bankruptcy: Brad Cloud of National Bankruptcy Services (NBS), a bankruptcy administration and management firm serving lenders and loan servicers, said, “Our clients who have built up internal bankruptcy management functions know the pain of having to manage multiple different law firms across the country to assist in the management of bankruptcies. The cost of court filings can really add up, and it is not always easy to staff bankruptcy teams with experienced administrators. In general, NBS can deliver results for half the cost of doing the same internally. And, when you consider that bankruptcy files generally represent between 50 and 100 basis points in a portfolio, even the captives (who have the capacity to do it themselves) choose to outsource this work.” Cloud adds that the first step for them is to audit what the client has done, and what he sees are that debtors and their attorneys tend to err on the side of less (in terms of validating assets, and their values) and it is on the lender to identify this, call it out and correct it – with real financial impacts.
• Sovereign nation reservations: Gabriel Garcia of Flying A Information Resources has been working specialty accounts for some time. According to Garcia, “Each reservation has their own laws, so if an agent is not fully familiar with the tribal laws, it is better to check in with the tribal police before going to make contact with the borrower or touch the collateral. It is actually best to have a native of the reservation to act as an agent while performing the recovery and performing any contact with the borrower.” Garcia had some interesting tidbits on the stickiness of a recovery that pertained to the use of a GPS (can be sticky on a reservation), and the fees (legal fees + access fees + native lawyer fees) that can quickly add up when you don’t even have eyes on the car and you have no idea of the vehicle’s current condition. Another interesting fact is that geography can be an issue in the recovery of a vehicle when it is recovered outside of tribal lands. You can end up recovering a vehicle just outside of tribal land, yet the only road back to the tow yard requires that you re-enter tribal land on your way back home. In many cases, the agent can be forced to surrender the vehicle to tribal police unless they have a signed surrender form from the customer.
• Non-self-help states: On the topic of non-self-help states, Garcia continues, “It is important that the self-help laws are written into the contract. Lenders that do not put that verbiage on their sales contract are not able to use self-help. If self-help fees are approved and available to the client, then the repossession agent has to file paperwork and pay fees to both the parish and the local sheriff’s office. There are always two fees paid, one to each municipality.” Garcia sites a specific example, with the state of Louisiana, “You approach the customer with a voluntary surrender form, and if they sign, you can repossess the vehicle. If they refuse, you can pay a fee to the sheriff then you can do a self-help repossession.”
Challenge No. 6: Loan and payables associated with recovery and sale activities are unmanageable
Some auctions provide transport, and reconditioning and net those charges out of your disposal proceeds, while others invoice you directly for these services. When contemplating a skip that flips to a deep skip, then moves to recovery, is then stored for some time, transported, reconditioned and sold, you could have quite a lot of invoices tied to that single account. Further, if you do a good bit of business with any of these vendors along the process, chances are they will invoice you for all the services and then you have to break it all out and assign it to each unit. And, this assignment of all recovery, reconditioning, transport costs is super-important, and must be correct on the deficiency balance notice, and in many states the issuing of that notice must be timely. This is just one of the reasons why you want to stay far away from the accounting team during month’s close activities. They are literally ripping their hair out (and for good reason).
Challenge No. 7: Immature skip and recovery operations
Loss mitigation is a tough game. You need to apply a significant amount of rigor and structure to keep things organized and not drop any balls. At the same time, it requires a great deal of financial intelligence / intuition, and the more analytic your team the better. Unfortunately for most small-to-mid-sized operators if they have one good person that fits this bill, they are lucky. Grit and determination are great, but they should not overshadow the higher-level skills that need to be present as well. You can hire a “hammer” to do the job (perhaps someone that used to work in skip / recovery for a repossessor), or you can hire a “hand” that will provide more guidance and analytical leadership. The fact is that you need both, and they both need to be gritty since they are always cleaning up someone else’s mess. The reality is that many operators hire out of immediacy and desperation, often thinking that they can develop excellence internally, only to be disappointed.
Challenge No. 8: Managing non-auto recoveries
Similar to the specialty accounts, non-auto recoveries can be problematic for lenders or holders of these different accounts. Let’s say that you picked up a few portfolios of boats, farm equipment and RVs. These are vastly different collateral types that would be housed, stored and even hidden in a variety of ways. So, the real issues don’t start at the point of repossession — they start prior to that in the skip phase. The farmer hides his farm equipment on a friend’s farm, the boat owner hides their boat in dry-dock, and the RV owner is never in one place (or state) for long. If the majority of your holdings are in auto and these other assets make up a smaller number in the portfolio, you may find yourself spending significant time and effort simply lining up vendors to help you.
In summary, managing collateral recoveries is an entire process that can be mapped out, but managing the process tree can be difficult given that there are very few “vanilla” involuntary recoveries. This can often result in these accounts not being worked, or perhaps outsourced to a specialist that understands the legal and regulatory aspects but may not be so great at operationalizing the solution.
Possible solutions
When it comes to managing collateral recoveries, the fact is that there is a baseline level where we all use outside vendors to get the job done; recovery agents, and auctions to name just two. I support a strategic, and financially-driven decision to guide the structuring of this function either internally or outsourced. So, while I admitted bias and hubris on my part at my last finance company (where we outsourced the minimum), I have seen the value of a more exhaustive outsourcing arrangement for everything from skip through recovery and disposition, and I have changed my tune accordingly.
The short answer is that there are organizations out there that do a very good job of specializing this skill-set and function, takes care of the accounts, hires people, handles sub-contractor payment and performance, possesses workflow, and can even share some resources across a variety of lenders that can save you significant money. To me, it is no different than me listening to Spotify and not buying CDs, and buying movies in the cloud and abandoning DVDs, and purchasing cloud space for my digital photos instead of buying photo boxes. Be open to the changes and you may find better results and fewer headaches.
Evaluating what is right for you
When evaluating options of insourcing / outsourcing, I offer a basic framework for assessing:
• Results: Is your team outperforming or underperforming on key metrics such as recovery rate, skip rate, collateral recovery $? If you are underperforming is it because your back-end team is underperforming or is it because your collections team is underperforming and letting too much flow through, or is it because the underlying loans (customer, asset, structure) are poor?
• Cost of achieving results: How much does it cost you to staff, train, and equip your skip, recovery, asset disposition team? Are replacement resources readily available in your locale? Take the time to add up the cost of all the skip tools (e.g. license plate recognition, PACER, information sources, etc) and the success rate associated with your staff employing these tools. Is there a better option available to you?
• Capabilities: Do you have access to an abundance of highly skilled resources that specialize in these activities? Do you have legal and regulatory expertise in the specialty areas such as military, BK, non-self-help states? Is your loan accounting function highly performing, or do they seem all frazzled every month-end?
Joel Kennedy is a consumer finance executive, advisor, and consultant. He has a passion for growing and improving auto finance ecosystem. He has over 24 years’ experience helping big banks down to start-up finance companies to build, grow, improve, and repeat. He is the current president of the National Automotive Finance Association, and a board adviser to TruDecision. He can be reached at (240) 308-2169 or [email protected].
