Vehicle owners default on loans at record rate - East Valley Tribune: News

Vehicle owners default on loans at record rate

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Posted: Thursday, December 4, 2008 5:11 pm | Updated: 11:47 pm, Fri Oct 7, 2011.

As the economy continues to sour, debt-strapped vehicle owners are defaulting on automobile loans at record rates, providing repo men, auction wholesalers and dealers with loads of work.

"Business is booming," said Jeremy Rowland, owner of Mesa-based Rollin Recovery. "It's a double-edged sword. The worse the economy gets, the better it is for the industry."

Thomas Webb, chief economist at Manheim Consulting, a wholesale vehicle auction operator, said auto repossessions spiked 20 percent nationally in the past two years and estimates show more than 1.6 million vehicles will be repossessed in 2008 - a third more than 10 years ago.

"Pressures on household finances, such as higher fuel prices, mortgage rate resets and higher overall debt, caused auto delinquency rates to rise," he said, adding the current situation is the worst he's seen in more than 30 years in the business.

National Automobile Finance Association's latest numbers showed that delinquencies on subprime auto loans jumped from 6.8 percent in 2006 to 11.6 percent in 2007. This year's numbers are looking to be even worse, said Jack Tracey, NAFA executive director.

"Repo numbers are trending upward because of the state of the economy," he said. "Many people are unemployed or underemployed and just can't pay off their loans."

According to documents filed with the state, at least 10 new towing and recovery businesses have opened within the last year. Rowland started Rollin Recovery about a year ago after working for another repossession company in the Valley. But despite the added competition, there's still enough work to go around.

The American Bankers Association reported that in the second quarter of this year about 3.1 percent of loans made through car dealerships were delinquent. It was the third consecutive quarter that delinquency rates were more than 3 percent. Since 1990, the figures had never hit more than 2.87 percent.

Josh Lamey, office manager with Blackjack Recovery in Apache Junction, said his company is now making 25 to 30 recoveries a week. That's about 10 more than they previously did. At $200 a vehicle, it has allowed the company to steadily increase its work force.

Lamey said vehicle loans are often the first to fall into default because people will often choose first to pay their utility bills, rent and mortgage.

"People aren't going to decide to live in their cars," Lamey said. "They're more willing to fall behind on their car payments."

When cars are repossessed, they are held for at least 10 days before they are sold at an auto auction - often at much-rebated prices. Megan Wininger, fleet lease manager for the Arizona Auto Auction in Phoenix, said the auction is selling about 400 repossessed vehicles a week. It's a 12 percent increase from last year, she said.

"Repo sales have definitely increased," she said. "But it's all relative. In a few weeks, who knows how many we'll get."

Carol Kaplan, director of public relations for the American Bankers Association, said it's not in a bank's interest to have a car repossessed and sold. First, banks have to pay the repo company, then it takes a hit on the rebated auction price.

"Debtors often want to bury their head in the sand when they fall behind," she said. "But it's better for them to call their bank and let them know if they are going to miss a payment. Banks want to keep people in their cars."

In order to remedy the situation, banks are now renegotiating loans after vehicles are repossessed. They are also ratcheting down on credit standards, insisting on larger down payments and higher credit scores.

"Banks don't want to be in the car business," Kaplan said. "The only one that benefits is the repo men."

Not always. Randy Moore, owner of Ghost Recovery in Peoria, said repos just aren't worth it. It's too dangerous. He had guns and knives pulled on him and beer bottles flung at his truck. Now he sticks to towing only.

"Every night there would be a confrontation," he said. "At $200 a pop, I don't want to risk it. Good luck to those who will."

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