Ripped from the headlines – The challenges of today’s recovery professional

A letter from the ARA Executive Director

“Soaring fuel prices already being felt by Americans”

“Gas Prices have jumped $1.22 in the last year”

“Why Gas Prices Aren’t Likely to Come Down Soon”

“More than 90% of employers feel labor shortages inhibit growth, per survey”

“Sticker Shock! A New Car Costs $5,000 More Than a Year Ago, on Average”

In September 2018*, I wrote about the willingness of many clients to continue fostering profit levels achieved by paying insufficient fees to their supplier network as ultimately being a tradeoff for poorer returns in the future. Even before the current environment, this short-term approach has facilitated erosion in the supplier network; now we are at a tipping point. Soon delinquencies are projected to rise significantly and the people that made these decisions and their companies will suddenly, although predictably, find themselves unhappy with the results.

Just when the recovery professionals service is most needed, we are seeing business owners leave our industry every day. Professional asset recovery is dangerous, and some towing companies are moonlighting as repossessors to fill the void. Once the insurance companies find out, they will lose their coverages and find it harder to purchase legitimate liability policies. The other thing that the towers will learn, they will no longer be able to drop directly to the auctions leading to an abrupt introduction to our world where we provide free storage. Even worse, I heard today that there is a lender giving authorization for debtors to enter a secured facility to inspect their vehicles prior to redemption…these actions escalate the inherent liabilities in this industry.

ARA has long advocated for fair service contracts. We continue to see contracts that are being put out that are unreasonable and one-sided to the point that it jeopardizes our ability to attract and keep A rated insurance carriers in our industry. It seems that the idea of exclusions may be in our future, or at least a system where the insurance costs will be based on the quality of contracts the business owners are signing.

The headlines very clearly define the issues we are dealing with on a daily basis with little movement by the lending community to address them. I know many agency owners are afraid to say no because they are trying to keep their businesses afloat. What they are really doing is sacrificing their future. It amazes me that lenders that supposedly value the relationships with their vendors would not have already offered a fuel surcharge. According to AAA and the US Energy Information Administration, fuel is up a full Dollar per gallon since this time last year, a 34 percent increase, and not likely to drop anytime soon. At a time when we have already made significant reductions to our staff and equipment, we are being asked to do more with less than ever before.

Ford Motor Company recently canceled existing purchase agreements for medium duty trucks and resigned with an average price increase of more than $6,000 per unit. These vehicles are the workhorses of our industry and this increase in cost will be enough to push even more out of the industry under the current business model. According to Automotive Fleet commercial tires are up 8% with more increases coming. Repair garages have gone from $80.00 an hour to $100.00 per hour. With national parts shortages, prices for original equipment are seeing a 34% increase and up to 8 weeks for delivery if you can get them at all.

This is the absolute best time to do an evaluation of your business operations and the true revenue you are getting from your clients. You must prioritize the resources you commit to unproductive client relationships. I have had several of the good operators tell me that once they committed to this idea, they realized that even in today’s business environment they could become profitable by choosing to work for lenders that paid a fair fee for their services and were dedicated to them as an important part of their business strategy.

Obviously, there are exceptions to the rule in any business but, in this case, likely not a handful. Please take stock of where you are as an ongoing business, and where do you need it to be, to support you, your family and your employee’s future.

We urge our lending partners to engage in imperative discussions to ensure a viable network of companies to service their accounts into the future. ARA will continue our advocacy to educate our industry as to the seriousness of these issues.

*Published on September 28, 2018

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