Assignment declines and low recovery ratios – A simple solution

If you want to know the problem, go right to the source!

GUEST EDITORIAL

Recently, I have learned that multiple lenders and clients are actively seeking answers to the same question. Why are assignment declines on the rise and the repossession success rate dropping? It is my understanding that these questions are being asked and meetings being scheduled involving associations, forwarders and even platform providers in search of answers. These meeting of the minds and conversations are healthy and without a doubt bring a perspective that might be beneficial. However, the most powerful and influential insight is being overlooked….the AGENT!

So, to help bring this awareness from the street level to the board room, allow me, a humble repossessor who sometimes says more then he should (I’m a work in progress) to bring some much need perspective to these conversations.

Let’s jump right in, and for these purposes increase in declines and reduction in success rates are one in the same. Agents are choosing to accept less assignments because they cannot absorb the risk of volume on contingent work. Additionally, when they do choose to accept an assignment, they are reducing the number of touches/runs that assignment will get because of the financial risk involved.

Allow me to apply some basic numbers to this to explain why, first the $300.00 repo fee that they were charging last year is now worth $270.00 after almost 10% inflation in just one calendar year. This does not take into account the standard inflation over the last 10 years that have increased 20% (2010-2020) while the repo fee remained the same.

As we pointed out in the case study International Recovery Systems and St. Joseph’s University presented at NARS in 2021, the repo fee has remained flat over that time frame while a ten-year build of 2% average inflation year over year. Now add another 10% in one year it is economically not sustainable and agents are really feeling the pain.

In addition to the reduction of purchase power of the dollar, the same agent is now paying on average greater than 100% increase in fuel expense than they did this same time last year. Yes, agents have been successful in obtaining a temporary fuel surcharge to help offset this increase but not all lenders are participating, and the amount may not equal an adequate balance.

Now let’s talk equipment, most importantly Tow Trucks. In our current market trying to find a new wrecker is harder than finding a fifth-tier skip assignment. If the agent does find one in most cases, he will need to auction off his first born to pay for it. For myself personally I was able to find one single truck that is last year’s model and I paid over $100k for it from one of the largest and well-known dealers on the east coast, not some fly by night dealership. This stung as you can imagine, but the business needed it, so what choice did I have? That same truck last year from the same dealer was about $80k. Ouch!

The agent now has their truck that they had to overpay for, only problem is they might not have the employee to drive it. The agent that had guys earning 15-20 per hour as professional drivers have been poached by Walmart and Amazon and so on making 20+ with amazing benefits program and in a much safer work environment. That agent is struggling to compete for employees and let’s be honest there isn’t a trade school or farm system for new Repossessors to fill the roles. Also, this industry is not getting any safer, we hear far too often of agents getting hurt, robbed, shot, and so on just because of the society we live in. So how do we possibly make this job attractive to new hires?

Add all these items up and what do you see? Well agents can’t afford to go out on limbs to service the assignments like they once did. They are making the best financial decisions for their companies so they can survive.

At the same time, we are seeing a mass exit from the industry as company owners fail or give up which is causing a vacuum. The 200 car a month company that is the backbone of the industry and covers the bubbles between the larger metro companies simply can’t hold on at those numbers. Those gaps in coverage created by the nonexistence of those companies will continue to expand as even the larger companies pull back on coverage.

Simply put it is all just plain economics and it will get worse before it gets better.

I provided you all the doom and gloom above and hopefully painted a picture that we can all understand. I’ve listed the problems and provided the explanation now this is the part where I attempt to provide the solutions.

Without speaking of direct numbers with regards to fees or monies charged I will say that the entire process needs to be increased. Throughout the entire process there is room to increase fees charged for our services, and in my opinion, the most important of that is not the repo fee. The most important is daily storage.

Of all the problems I laid out above the one solution that offers immediate relief for the agent and can be controlled by the client and permitted to be charged by the CFPB is daily storage.

Real Estate is at an all-time high in most places in the country, finding suitable land to store cars with the right zoning is a premium and then cost to insure the cars on the lots increase year over year. But this is the one area that the agent must supply that is almost a 100% cost of doing business.

In the last two months there have been at least two publicized incidents of vandalism on Repossessors storage lots, one in Chicago and one in Arizona where multiple cars were set on fire. It is presumed that those agents extended insurance coverage on those cars, are now forced contractually into a position to make the lenders whole and then pay for the insurance increase that comes all for little to no compensation. These are not isolated examples but ones that are most recent and show the direct correlation of risk to the agent and lack of fees being collected to offset.

I make this suggestion to the industry; agents charge a daily storage rate beginning on day one that will give the company the ability to offer the services it once did at a healthy profit margin. In exchange the lender will set standards that they want for these vehicles, such as releasing cars five days a week instead of two for example. This exchange would be beneficial to all parties involved and be the best “medicine” for the industry in my opinion.

This is not a cure all though and shouldn’t be treated as such. However, this is an opportunity to get the industry on track for the least amount of financial pain to the purchaser and seller of those services.

As I stated above a lender is free to seek out all the information it can and ask the questions to everyone willing to give answers but don’t overlook the best source of information and that’s the guy doing the job! Someone once told me, if you have a problem with your plumbing you don’t go to the contractor who built your house, you go directly to the guy who installed the pipes.

Jeremy Cross

International Recovery Systems