We’ve enjoyed some very good economic times in recent years, especially in the automotive retail sector, but industry economists say higher interest rates, rising new- and used-car transaction prices, and higher loan defaults and delinquencies dim the outlook for 2019. I concur.
As 2018 ended, top economists from KAR and Cox Automotive said though lower fuel prices and federal tax reform put more money in the pockets of consumers and drove retail purchases, this was at odds with where we are in our current automotive economic cycle, which is ripe for a slowdown after years of record-breaking sales.
Consumers are opting for more luxury SUVs and Crossover vehicles and demanding optional technology features that only add to the transaction price. Couple those high transaction prices, with higher interest rates, now at a seven-year high, and you have a recipe for even higher late loan payments and defaults. The Fed, though it softened its interest rate hike position, it is still looking at perhaps one or even two rate hikes in 2019, though that remains to be seen. Even a quarter point hike in interest rates would put them at a level we haven’t seen since 2011 and before that 2004.
Strong demand, higher interest rates, higher vehicle prices have led to higher payments. The average Dealertrack payment is now $567, $25 more than November 2017 — a 4.4 percent increase. Average new-vehicle prices have increased 3 percent. These higher payments mean, when trouble strikes such as job loss, divorce or medical expense, consumers, especially the subprime consumer, are almost immediately late or default quickly on these contracts.
Our business puts us in close touch with new and used vehicle retailers, finance companies, and repo agents. There are challenges ahead for all of us, and with auto loan delinquencies rising, now would seem to be the perfect time to be a repossessor. However, that’s not the case, and of all those professions we work with repo firms are definitely the most challenged. This is one of the reasons we recently announced a strategic partnership with the American Recovery Association (ARA), the world’s largest association of certified, trained and compliant recovery and remarketing professionals.
Tow truck and vehicle insurance prices continue to rise. Costs for licensing, bonding, and compliance-related costs have increased, as well as spending increases to keep pace with improvements in technology. Rising costs are not the only issues facing this industry. In the face of those rising costs, the finance companies they rely on are looking to reduce their losses, and putting pressure on repossessors to accept lower fees. They are challenged on both ends of the profit equation, and this has put many right out of business. In the past five years there has been a 3 percent decline in repossession service companies, to 11,000.
For those remaining in the business, the economic struggle is real, and has forced them to become far more selective in which repo jobs they will take. They take jobs where the vehicle can be located and impounded quickly, efficiently, and with the highest profit possible. Where they would take any job that came across the screen, this is no longer the case. They have to be selective, or end up like the 3 percent of their colleagues now pursing success in other professions. Obviously, if it takes more time to locate a vehicle, it comes off the bottom line. Finance company needs for transport, additional photos, condition reports, and compliance-related issues, are add-ons they have come to expect, and for which they do not want to pay extra.
It’s a perfect storm for repossessors, but we can help, and that’s why we’ve entered into strategic partnership with the ARA.
We have recently introduced Revo, the first low-cost, wire-free GPS device in the marketplace is made possible through the introduction of powerful, long-lasting batteries coupled with sophisticated hardware and software, to provide a powerful, “smart,” and useful tool to mitigate losses for finance companies, and also reduce costs for recovery agents. We will be working with our dealer and finance company clients to assist in lowering costs for them, but at the same time reducing costs for their repo agents.
The Advantage GPS platform includes smart impound lot technology, including all locations of ARA members across North America, and automatically creates geofences around the ARA impound lots and sends lenders alerts when one of their vehicles enters. This along with a risk mitigation dashboard powered by artificial-intelligence greatly enhances the ability of finance companies to mitigate losses, while making it easier for recovery companies to locate and access vehicles.
Repo agents can get access to real-time vehicle location information, and because of the date-stamp history of top vehicle stop locations and predictive analytics and they can locate a vehicle quickly and plan for its retrieval proactively.
Because of our long-standing personal and professional relationship with the ARA and our dealer and finance company clients, I know our technologies can help everyone be more profitable and achieve common goals.