Repossession Crisis on the Horizon?

Once the dust settled and banks began recuperating from the financial beat down of the housing market that resulted in the peak numbers of repossession, came the valley.  The few years that followed were some of the roughest times to be a professional repossessor.  Banks had put the brakes on writing new loans and the pool of assignments began to dry up.  The flash in the pan guys with tow trucks began to die out and unfortunately even some of the mainstays that had been in the industry for decades fell victim to the same fate.  It was tough times for sure.

A few years go by and the banks begin lending once again.  As we know banks can’t survive without making loans, and as time went on they began taking more risk and lending deeper into the sub prime market, which can be a recipe for disaster.  Bloomberg.com published an article today discussing that very fact and the losses that companies like Flagship Credit Acceptance, Exeter and even Santander Consumer USA have experienced over the last few years.  Each of these entities have had seen net operating cash losses or in Santander’s case loss in value of their shares by as much as 25% since 2013.

So, what does this mean for our industry now? Well, in my humble opinion I believe professional repossessors have never been in a better position then they are today.  Clearly, we are headed for another market correction that will happen most likely in the next two years.  As the losses mount for the banks, the rush to get the metal off the street will increase and unlike the last down turn the banks are unable to hire those companies with sling trucks due to the compliance regulations set forth by the CFPB.  Compound that with the exorbitant cost of insurance, it is very difficult for new companies to form in our marketplace.

Also, different from the past, at that time there were a handful of forwarding companies and most lenders were direct.  Fast forward to 2017 and that has clearly shifted as seventeen of the top twenty lenders go through the forwarding model with the recent change by Wells Fargo and now Ally.  There are more forwarders in the space that service the portfolio of these major lenders, but even less repo companies to pick up the metal.

We all know that in any market the forwarders all generally use the same repo companies.  The lender may pull the account from one forwarder to another but the guys with boots on the ground are the ones that get the assignments back.   In this scenario the larger and more efficient company in a market will continue to grow and squeeze the smaller guys out.  As that happens and there is less competition in a market the prices have nowhere to go but up.

Banks may not be aware of the supply crisis that is happening as we speak, but I guarantee the forwarding companies are.  It is my understanding from Used Car Week in Palm Springs last month, during the Forwarder Panel the forwarders are beginning to relay this information to the banks.  Banks will have to raise their prices to stay competitive in the coming months and years as Agents are going to find themselves in the driver’s seat.

I truly believe we are at the beginning of change.  Professional repossessors are going to continue to grow and see some relief in our very slim margins.  How we prepare ourselves for this is what makes us successful.   Good days are ahead!

Link to the article is below.

https://www.bloomberg.com/news/articles/2017-12-21/subprime-auto-defaults-are-soaring-and-pe-firms-have-no-way-out

Happy Hunting!

Jeremy Cross

President /International Recovery Systems