NEEDHAM, Mass. — TowerGroup's senior analyst of consumer lending recently released a report discussing the current trends and challenges facing the auto lending market and how lenders can successfully circumvent these obstacles.

Bobbie Britting reported that auto delinquency rates are growing. Accounts 60 days past due are up 25 percent from the second quarter of 2007 to the fourth quarter of last year, she found.

"Like mortgages, auto loans are secured by collateral, the vehicle that is financed," she wrote. "However, in reality, the lender does not want the car or truck, but simply wants to be repaid on a regularly scheduled basis. Therefore, financial institutions are seeking new ways to stem the tide of auto loan delinquencies.

"Delinquencies in direct auto loans increased the least in the fourth quarter of 2007 and mortgages the most, but the indirect auto loan category is worrisome to lenders because of its quarter-over-quarter increase of almost 17 percent," Britting explained.

"Equally worrisome, in the fourth quarter of 2007, subprime and below subprime auto loans accounted for almost 28 percent of new originations," she pointed out.

Basically, delinquencies in the captive, bank and credit union segments were up. According to Britting, finance companies received a "brief reprieve" in the third quarter of last year, showing a slight decrease in delinquencies. However, this was followed by a sharp climb in the fourth quarter, up to 2.01 percent.

Saying that auto loans are not similar to mortgages, Britting indicated, "So a delinquent auto loan payment is not the direct result of an increasing rate or payment on that specific loan, but a sign of trouble in other aspects of the consumer's financial health.

"Auto lenders must take care not to ignore these trouble signs, but instead dive in and address delinquency problems on a number of fronts immediately. Waiting to take action will only yield delinquency rates matching those of the mortgage industry, illiquid portfolios and a diminished overall market," she highlighted.

So how can a lender react? The simple solution is to constantly be evolving collections rather than maintaining the status quo. This is particularly important for lenders with a lot of delinquent accounts, Britting noted.

For example, one thing she pointed out was, "Younger customers require younger collectors and new personal technology."

The three basic steps to change include people, process and technology.

Interesting enough, Britting found that, "One lender noted that its best collectors are college students. These employees stay with the organization for several years and typically work shifts of four hours, thus avoiding burnout."

Part-time employees may also come in handy to cover peak hours and seasonal collection shifts.

Also, while it used to be the norm to avoid collectors with prior credit problems, Britting said this has evolved. "But today, it's seen as beneficial to have a collector who can understand the customers' situation."

Other key focus areas include constant training, strong incentive management to reward collectors and correct collector capacity.

If needed, lenders swamped with delinquencies may want to consider outsourcing collections to Fiserv Lending Solutions, PNC Consumer Services or Polaris.

"When all else fails, when calls to customers with delinquent accounts go unanswered or unreturned, the customer has no listed phone, skip tracing fails and more, some lenders are finding success with field visits to the borrower's last known address," Britting highlighted.

While this type of trip isn't the same as a repossession, she stressed the need for this to be done with "caution and training."

When it comes to process, Britting noted that many lenders find success if they're willing to work with the consumer who is delinquent by rewriting loan terms or whatnot. Another import factor is constantly updating contact information for customers. One way to do this is by utilizing welcome calls.

She found another key aspect to surviving the current market is the constant evolution of technology and the various services and programs offered now.

"They range from entire collection platforms serving multiple channels and products across an entire franchise to technologies supporting home-based employees," Britting said.

"TowerGroup once again encourages lenders to think beyond existing collection practices to combat rising delinquencies and support loss mitigation strategies," she wrote.

For collections, Britting indicated that at least one lender found success by having different call centers, with each focusing on just one stage of delinquency.

"This approach helped the lender support the best treatment for each type of customer because each collections center was able to focus its staff, processes and technology on the best treatments for the specific level of delinquency it was assigned to address," Britting explained.

In conclusion, she said, "With delinquencies growing in every segment of consumer lending, lenders are quickly becoming overwhelmed by the volume in collections.

"Institutions must act swiftly and on many fronts, taking steps to manage the situation before it has significant long-term consequences for their organizations," Britting continued.

To do this, lenders need to be constantly challenging old practices, testing new strategies and taking advantage of new technologies. Benchmarking is at the center of discovering what works, what doesn't and what can be improved.

For more information, or a complete copy of "Stay in Your Car Ma'am: Best Practices in Automotive Finance Collections," visit