There’s a general consensus among automotive retail finance experts and used vehicle retailers who finance their own contracts that repossessions which rose gradually beginning in the spring of 2020 and then continued through the summer, may result in an “avalanche” in the winter and spring of 2021.
While that might be the general consensus, for specific dealers and finance companies much will depend on where the contracts were financed, and the policies and procedures put in place to deal with the pandemic and subsequent economic crisis. In short, if there’s an avalanche, some may fare better than others due to “avalanche mitigation.”
This is the first of a three-part series focused on the outlook of automotive recovery industry. Today, we will take a look at the impact 2020 had on vehicle finance professionals.
“Where” your finance company is located plays a key role in whether or not you “can” repo a vehicle and how many you may have coming down the pike. For instance, the District of Columbia (through emergency legislation) and the state of Maryland (through an executive order) still have a moratorium on auto repossessions in place. States with strong governance over repos such as Wisconsin, Massachusetts, and Iowa, still allowed repossessions during the economic shutdowns and relied on their existing laws and regulations. Kentucky issued a repo moratorium in the early spring of 2020, then let it expire after only 30 days. States like California didn’t issue moratoriums, but locked down business so tightly during the pandemic and threatened repossessors with losing their license. Even though repossessions were allowed, a de facto moratorium was in place. As lockdowns ease and moratoria are lifted, there may just be the avalanche that’s been predicted.
Early on in 2020, we at Advantage Automotive Analytics saw that most smart auto retailers and finance companies called their customers and asked about their personal situation. With a little fact checking to determine whether the client was truly out of work or if their financial situation had changed otherwise, they agreed to a forbearance and added several payments to the end of the contract. Clients who worked in the hospitality industry were obviously challenged, but many went to work for big box stores or online retailers. Within a few weeks, their cashflow problem was rectified, and the financier earned their good will and kept a paying contract on the books. We saw many of our Advantage GPS clients use their GPS devices to verify unemployment claims, new jobs, and other stips.
As summer wore on and PPP money dissipated, enhanced unemployment benefits ended, and stimulus money was long spent, repos began to climb. Much of the increase across the spectrum had more to do with how businesses treated their customers in the spring and early summer, rather than the new contracts they wrote as the year progressed. Most finance professionals adjusted their underwriting criteria to mitigate risks given the economic conditions in their markets. As we closed out 2020, many are ready for life to get back to “normal”.
Tune in tomorrow as we talk about how delinquencies and compliance will play an important role in repossessions.
