It seems that the housing market slowdown is taking a toll on other industries – auto industry in this case (which is no surprise). An article on MSN Money today with the title “Repo man is getting busy”
More vehicle owners are falling behind as the economy slows. Many slip when they lack the money to repair cars that they’re still making payments on.
For the repo man, business is always good. But lately, it’s been better than good.
As the subprime-mortgage collapse blares in the background, “recovery service agents” have been cleaning up the wreckage of another subprime-lending mess: that of the auto industry, which in its own competitive bid for buyers has been extending longer, costlier loans to people unable to keep up with their payments.
One in three auto-loan borrowers have payments greater than $500 a month, according to consumer credit agency Experian, and 12% have been late at least once
In a survey for the National Automotive Finance Association, BenchMark Consulting International said monthly repossessions by subprime lenders increased 15% last year.
Manheim Consulting, which analyzes the used-car market, estimated a 5% increase in the total number of repossessed vehicles to 1.4 million in 2006. The Manheim and Adesa auctions resell most of the vehicles repossessed in the United States.
“The shorthand is that for years we’ve lived beyond our means, reflected in record debt levels, and now comes the paying phase,” said Christian Weller, a senior fellow at the Center for American Progress, a progressive think tank in Washington, D.C. “Car loans have expanded as fast as mortgages, and in terms of the categories of what people borrow for, it is the second-largest.
“It fits the overall picture that all the economic-distress measures are trending upward.”
Repossession agents in areas hit by foreclosures say they’ve been picking up vehicles both from people struggling to keep their homes and from those now left without work: construction workers, pavers, landscapers and real-estate agents.
It is actually stunning the number of cars we’re taking from people who are supporting the local real-estate market,” said J. Patrick Altes, the president of Falcon International, a recovery agency with offices throughout Florida. “It’s almost the type of thing where we see it and you wonder if anyone else sees it. . . . It’s like they turned off the spigot.”
Cracks are showing everywhere:
***BenchMark found a marked rise in long loan terms, which lead to greater negative equity. For subprime lenders, who service consumers with low FICO credit scores at higher interest rates, more than 80% of new-car loans were for 61 to 72 months, up from 67% in 2005.
***Among prime lenders, 61% of new-auto loans were for at least 60 months, with 17% of those exceeding 72 months, nearly double the 9% in 2005. “With longer negative-equity situations, there’s a greater chance the customer’s going to walk away,” said Walter Cunningham, the president of BenchMark.
***For the first time in several years, prime lenders increased the number of loans extended to risky consumers. Those with FICO scores below 600 moved from 4% to 8% for used vehicles and 2% to 6% for new vehicles, BenchMark reported. “They’re moving downscale, and they’re also lending money to the higher-risk players,” Cunningham said.
***Subprime lenders also reached down the credit scale, with 54% of deals made to buyers considered a high or superhigh risk, those with FICO scores under 549, up from 34% in 2005. “All of these are kind of pointing to higher delinquencies and higher charge-offs,” Cunningham said.
***More new cars are being repossessed. According to Manheim, the average mileage of subprime repossessions sold at auction dropped from 80,164 in January 2006 to 75,099 a year later, while the average price rose from $6,359 to $7,066.
Repossession: A unique form of collection
Miss a credit card payment or an electric bill and companies bump down your credit score or cease service. Fail on the mortgage and a judge can issue a foreclosure notice. But skip a car payment or the full insurance and a guy in jeans can hook a chain to your car and tow it away, no court hearing required.
“If you think about it, that’s a pretty drastic remedy,” said Nancy Barron, a consumer lawyer in California who specializes in auto claims.
