Repossession best practices as a whole are under regulatory scrutiny, and in response, lenders are proactively reviewing repo processes and policies, particularly around borrower communication, repossessed vehicle storage, and evolving compliance for recovery processes.
Defaults are on the rise with delinquencies up 91 bps and digging into net income.1
Defaults and Demographics: Let’s Talk About X (Gen X that is)
Generation X is marking the end of an era. This demographic cohort is the last generation to purchase vehicles primarily in person (versus digitally) and also holds the highest volume of leasing. Gen X makes up 35% of the vehicle-buying population, the current largest segment.2 However, as Millennials grow in their buying power, they are also growing in delinquencies, as they hold responsibility for the largest demographic of delinquencies. A wave of repossessions is already crashing over the industry, and as Gen X hands buying share over to the younger generations, it won’t be an isolated surge.
When it comes to communicating with borrowers about delinquency and recovery, compliance is no doubt at the forefront but knowing how and where to speak to your borrowers’ based on their demographics is key to driving up delinquent account repair efforts. For more information on how every generation spends their money, download this white paper.
Managing Surplus Repo Inventory Amid Rising Defaults
As delinquencies and defaults tick up, the increase of repossessed volume is causing true logistical problems. One question countless lenders are asking is: where are we going to store these repossessed vehicles?
Physical space to store vehicles in between recovery and remarketing is limited and as a result, lots are becoming overcrowded. Overcrowding is perpetuated by volume and it’s a significant nationwide issue. Plus, forwarding agencies are consolidating at a remarkable rate and are largely unable to keep up with the volume of jobs. Add in state specific storage laws and the sluggish pace of the remarketing process and so the cycle continues.
Charge Off Dilemmas and Strategies
There is an obvious feedback loop of abundant delinquencies and repossessions plus a slow remarketing environment. But creditors have a couple paths to mitigate charge off risks.
Option #1: Repossess less. Lenders have more options than ever to stale the repossession process. Leverage digital tools and strategies to communicate payment and refinance options with lower risk borrowers. Integrate artificial intelligence into the collection process as borrowers are 200% more likely to settle debts with an automated process from Interface AI with Allied Solutions as compared to a human collector.3
Option #2: Repossess more leniently. Hear us out: Even though many states allow for the initiation of the repossession process after the first missed payment grace periods are subject to lender discretion for how they want to support borrower hardship. Extending repossession grace periods bring benefit for both the financial hardship of the borrower and the hardship lenders face storing repossessed vehicles. Determining the right level of leniency depends on the charge off risk you’re willing to trade for the risk of running out of storage space.
Option #3: Repossess with greater confidence. When repossession is the best option (and it often is) you can repossess with confidence of high quality recoveries.
Instead of retaining multiple forwarders, aggregate volume with other institutions through a nationwide marketplace forwarder. Aggregated volume gives you the confidence that your jobs will be worked in a timely manner by highly qualified agents. Leveraging the expertise and scale of a nationwide network improves the timeliness of repossession as well as returns at auction.
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1https://ncua.gov/newsroom/press-release/2024/credit-unions-loans-assets-and-delinquencies-rise-net-income-down
2https://www.alliedsolutions.net/resources/podcasts/risks-and-repos-the-current-state-of-auto-financing-and-delinquencies/
3https://www.alliedsolutions.net/solutions/expand-lending/ai-virtual-assistant/