Repo Storage Capacity – Ultimately the Lenders Problem
GUEST EDITORIAL
The repo industry is facing an increasingly challenging issue: limited storage capacity for repossessed cars. While this may seem like a problem for repossession agencies alone, it ultimately affects the lenders, who need the vehicles recovered. This article delves into the root causes of this issue, the economic impact on repossession agents, and how repossession service providers are adjusting.
Background on the Problem
The current landscape for repossession agencies is marked by rising repo volumes and a smaller pool of agencies due to the impact of the pandemic on the industry. Regarding the issue of storage capacity, several factors are driving this issue:
- Skyrocketing Land Costs: Industrial Outside Storage (iOS) properties are in high demand but remain scarce. Demand from ecommerce companies and the logistics companies that support them, has really had an impact.
- Regulatory Challenges: Many properties face non-conforming use issues, making it difficult to develop or repurpose land for storage purposes. Municipalities often resist such use due to perceived low tax benefits, security issues and aesthetic concerns, thus creating an additional layer of complexity.
These dynamics create a complex environment where the scarcity and high cost of storage space are significant hurdles for the repossession industry.
The Real Costs
Last year, a study across members from 15 state repossession associations provided quantitative insight into the “all in” costs of storing repossessed cars. This includes not only the cost of the space itself, but many other costs (insurance, security, maintenance, etc..) that are directly related. Of course, there are regional differences, but here are some of the findings:
- Monthly Cost per Parking Space: The average cost is $134.60, with some areas seeing costs as high as $507.90 per space per month.
- Daily Cost per Parking Space: The average daily cost is $4.13, topping out at $13.93 per day per space.
When these costs are applied to actual repossessions, the financial impact becomes evident. For example, if a lender’s average days on lot is 15 days, it costs $61.95 on average for every repo the agent completes. Multiply that across an entire portfolio, and the numbers become substantial. The longer vehicles stay on the lot, the lower the profitability for agents, creating a ripple effect that impacts lenders. It is in everyone’s best interest, lender and agent, to move the units off the lot quickly. For lenders that recognize this fact, and have focused on speeding up the process, average time on lot is generally less than 10 days.
Agency Adjustments That Impact Lenders
We have seen a definite increase in the level of financial sophistication at repossession agencies over the past few years. Combine this trend with the general shortage in repossession capacity in the industry and you end up in the current situation where the better agencies can pick and choose the business they will take. The storage capacity challenge is throwing more fuel on to the fire. As result, agencies are:
- Adjusting their profitability calculations to incorporate an appropriate “load” for storage costs especially when average days on lot exceeds the norm.
- Refusing work from lenders that pay low fees and/or don’t move cars off the lot quickly. For those lenders, their business likely ends up with lower performing agents.
- Even if accepted by strong agents, it is often viewed as filler work or work that is of lower priority.
- Frequently reprioritizing cases based on profitability based on expected storage capacity that day, week, etc..
- Passing up LPR recoveries, which often carry a lower fee, if storage space is very limited at that time.
While a lesser issues, storage limitations extends to personal property as well.
There are no easy answers to this issue. The lenders and forwarders that don’t help find solutions will likely see their assignments be less of a priority.
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