Lenders Offer Repo Incentives: Major Lender Recovery Incentives May Make Repos Challenging for BHPH
Buy here-pay here dealers looking to secure a quick, low-cost vehicle recovery may have some challenges in the weeks and months ahead, as major finance companies such as Wells Fargo Auto, Exeter and SCUSA have incentivized recovery agencies for prioritized repossessions.
According to Auto Finance News, Wells Fargo began offering a $500 incentive on top of the agencies’ regular fees. The finance company has extended the incentives through Jan. 31, 2023, after seeing an increase in successful recoveries.
The American Recovery Association has called attention to its members’ ability to make a profit and stay in business for several years. Even before the Covid-19 pandemic, in which repossessions declined significantly, the industry faced numerous challenges.
The economic headwinds for the recovery industry have been strong and have resulted in at least 30 percent of recovery agencies exiting the business, according to Auto Finance News. The challenges were numerous even before the pandemic. Legal and regulatory compliance added financial burdens to the operators. Because of the multiple risks associated with vehicle repossession, liability insurance is difficult to find and expensive.
Operators are forced to consider their coverages as “catastrophe” insurance. One operator told us that when his tow truck driver sideswiped a late-model sedan, he “just bought” the vehicle rather than file the insurance claim. When repo professionals file insurance claims, they are often dropped by the insurer. Without coverage, they are out of business.
As the effects of the pandemic waned and repossession demand grew again, though slowly, other costly challenges arose. New and used vehicle prices were the “canary in the coal mine” for the inflation that has driven up prices for everything. For many operators, buying tow trucks and other recovery equipment is more expensive than it’s ever been. Filling the seat behind those vehicles’ steering wheels has become far more costly. Labor shortages have affected the country, and finding and keeping quality employees for recovery agencies has been difficult. There are millions more job openings than people willing to fill them. Recovery agencies must train their personnel to meet regulatory and insurance requirements. It’s been taking more time and more money to hire and keep employees.
Though many recovery agencies have seen an uptick in business, it’s not because there are more repo assignments. It is due to having fewer operators.
According to Auto Finance News, on average, repossession agencies have been paid $275 and $350 per vehicle recovered for the past four decades. Wells Fargo’s incentive increases that average to about $815. That’s welcome news for recovery operators. Wells Fargo’s executives say the move recognizes the economic hardships the industry has endured. It moves their recovery to the front of the line, and since the recovery agency is only paid when they successfully recover a vehicle, agents will make extra efforts. Finance companies offering the incentives see increases in their recovery rates and their bottom lines.
Lenders, including buy here-pay here dealers, and recovery professionals will have to work together to ensure those left in the recovery industry can remain profitable to provide this much-needed service. Providing the recovery agency with additional tools and information to reduce the amount of time and effort they must expend is vital to assisting them to reduce expenses. Providing solid information from verified stips and data and analytics from GPS technology helps agencies tremendously. Considering the recovery agency as a partner, rather than just another vendor, will be vital to success of the recovery and auto finance industries.