Avoiding Costly Charge Offs

While many car dealers have seen spikes in voluntary repossessions, general manager Stacey Foerster says there has been no increase at Car and Credit Connection in Bay City, Mich. And that’s bad news.

“Unfortunately, in Michigan, they’re just taking the car with them,” Foerster said.

Foerster would be happy to get whatever she could for the skips, if only the vehicles could be found.

“In Twenty Group e-mails, there are articles and discussions about a lot of voluntary repossessions,” she said. “We consider those people to be lucky.”

Both voluntary and involuntary repos are on the rise at many buy here-pay here dealerships, and some owners are taking a leading role in tackling the problem. Repos are one of the most costly situations for dealers. Instead of money coming in, the cash flow stops, and dealers must expend money to either remarket the vehicle or get it ready to sell again. And when someone skips town with the vehicle, dealers are either left with nothing or must spend time and funds to track the car.

Naturally, when customers come in to return their vehicles, dealers want to work with them as reasonably as possible to salvage the deal. But at a time when so many BHPH customers are being laid off or relocating to look for work or simply having trouble stretching their paychecks, dealers often get the crankshaft.

In an effort to get a grip on the problem, dealers try talking, deterrents and technology.

Jim Winterick, owner of Gulf Stream Motor Credit in Miami, said repos at his store have tailed off in recent months, but are still up 40-50 percent over a typical year. Gulf Stream is strictly BHPH, with about 100 cars on the lot. Winterick sells about 50 vehicles monthly at retail, plus others for wholesale. Overall, about 30 percent of his deals result in repossessions.

“A lot of people in Miami are going through rough times,” Winterick said.

“The people we do business with are on the leading edge of getting laid off,” he added. “They always seem to lay off the low-pay people first, which has always amazed me.”

One particular stretch shocked Winterick. His store has always done well with guys who buy pickups or work trucks with tool boxes – they pay on time because they need the truck to make a living. But six trucks were turned in during a two-month period earlier this year because the buyers had lost their construction jobs.

“That’s when we started the new program,” he said.

Winterick said he used to encounter very few repos, and he didn’t give them a second thought. But nowadays, he has borrowed a few ideas from Twenty Group meetings to take a more proactive role to resolve repo cases – “It’s only my money,” he quipped.

When a customer returns a vehicle, staff members will send a letter to them the next day and then a few days later follow that up with a phone call to see if they have changed their mind. If the driver has lost a job, often they will have found a new one in that interim, Winterick said.

“We tell them we understand you have some problems and we want to work with you,” Winterick said.

“After three or four days or a week, they might have another job and they look at life differently,” he added. “You have to let them cool off.”

Similarly, if a customer returns a car because it needs repairs, Winterick and his staff take a low-key, helpful approach.

“If it’s a mechanical problem, we decide what to do: are they a good customer? Can we fix it easily?” Winterick said. “If there’s a mechanical problem, we have to fix it anyway, so if they want to give it back, I’d sooner fix it.”

Gus Camacho also said that voluntary repos used to be rare, but they now account for about 35 percent of the repossessions at Camacho Auto Sales in Lancaster, Calif. His four locations use both buy here-pay here and subprime financing, and keep about 170 vehicles on site and sell about 100 a month. His overall repos are up about 20 percent.

“When they come in to surrender the car, we try to come up with a payment plan and work with the customer to amend the contract and refinance so they have a lower payment,” Camacho said. “We’ve been able to save some of those voluntary surrenders by doing that.”

He said the negotiations also require a little guidance counseling, because if the customer has lost their job, they tend to panic. Camacho’s staff will go over their budget and remind them that someone else in the household may be bringing in enough income to afford the car. And Camacho is watching those deals closely.

“I definitely have gone from reviewing them once a month to reviewing them weekly,” he said. “I’m also taking a closer look at any delinquency over 30 days. We’re keeping an eye on them, they’re going to my desk.”

Owner Robert Blankenship said repos have tripled in recent months at Texas Auto Center in Austin, and folks aren’t just dropping off their cars and leaving town – they’re leaving the country.

He said the 100 percent buy here-pay here dealership sells vehicles to a lot of undocumented workers. If they can’t find work, many head back to Mexico.

He said he’s selling as many cars or more than last year, but the business isn’t growing as fast because it has suffered twice as many charge-offs. He keeps about 250 vehicles on the lot and sells about 130 per month.

Blankenship said most of his voluntary repos can’t be saved – “They’re not listening to reason,” he said. So he has resorted to filing credit reports on customers as a deterrent to returning the vehicle, a tactic he never used before.

“A lot of dealers do it, a lot of dealers don’t do it. We never wanted to, but it’s another reason to deter them,” Blankenship said. “That’s the only thing I’ve come up with.”

Bob Shaver isn’t having very much luck with salvaging deals, either. He’s the owner of Cars N Credit, a BHPH business in Winona, Minn. He keeps a total of 150 to 175 vehicles on his five lots, which sell about 140 to 150 monthly.

“(The customers) seem to be beaten down when they come in,” said Shaver, who estimated that voluntary repos have gone from two or three a month to seemingly one a day at his business. He blames it on cutbacks to work hours in his part of the country.

“We try to have a conversation with them, and if slightly lowering the payment will help, we’ll do that,” he said. “I’m not a guy who believes in skipping payments. You’ve got to pay something if you’re going to be driving.”

But often, Shaver and his staff can only grin and bear it.

“If they want to return the car, we thank them and try to be as nice as we can and tell them to come back when they’re ready, because sooner or later they’re going to be ready again,” he said.

Some customers are beyond reason, some are beyond the point of no return. They take off with the vehicle or simply stop making payments. That’s when dealers rely on tracking technology, such as global positioning systems and starter-interrupt devices. Some are designed specifically for the buy here-pay here market.

Blankenship’s dealership uses the devices all the time, but he doesn’t think they’re a factor in increased repos. Oddly, many of his voluntary repos are from customers who are current on their payments. They may have just lost their income and can’t make the payments anymore.

Winterick says he has used SysLOCATE devices the past few years, and they’re in about 1,000 of his vehicles on the road. He says the system can find just about any vehicle, and it sends out e-mail alerts if a customer leaves the area.

“If they’re moving out of Miami, I want to know,” Winterick said. “If they don’t want to pay, I’d rather they give (the car) back than hunt them down.”

Foerster, the general manager at Car and Credit Connection, said the business has never used tracking devices – and won’t – even though she has seen an increase in skips and knows it’s hard to recover vehicles out-of-state.

Her main reasons are collections and costs. The company, which has two BHPH locations with a total of 40 cars on the lots and 40 vehicles sold monthly, has always had an excellent collection rate. So the expense of adding tracking technology doesn’t make economic sense to her. Shaver echoed that sentiment, saying the initial expense, versus the repo losses, is too costly to justify the use of GPS or starter-interrupt devices at his dealership.

“Recently, the way things are (in Michigan), we’ve seen this spike, but I still don’t find it necessary to buy them,” Foerster said. “It’s not going to do any good to pass the expense on to the customer … and I don’t want to pass the cost on to me.”

Despite the skips, there still is good news at Car and Credit Connection. It has less than a 10 percent delinquency rate, and Foerster said that when all the costs for repossessed vehicles are weighed versus the payments already collected, it’s not losing any money.

“We’re debt-free and we want to keep it that way,” she said.