Auto Loans With Bad Credit

With the weakened economy, most auto finance companies are taking active steps to keep car buyers from losing their cars to repossession. This often involves either extending the time lenders allow before beginning repossession proceedings on customers who miss payments or restructuring monthly payment plans to make them more affordable.
 
But don’t expect these tactics to lower the number of autos going into remarketing-at least not yet.
 
“The rate of repossessed cars coming into are market may decline over time, but we have not seen it yet,” says Tom Kontos, chief economist for Carmel Ind. based ADESA. “Lenders tell us they are doing what they can to keep buyers in their cars and maybe that might keep the number of cars we’re seeing coming from repossessions from being even higher, but we’re not seeing a decline in the total numbers yet.”
 
Indeed, ADESA’s statistics show the number of repossessed autos continuing to grow. According to its research, there were 1.6 million repossessed autos in 2007 and 1.8 million in 2008. Kontos is predicting between 1.9 million and 2 million repossessed autos this year and next, and then about 1.8 million in 2011.
 
But while the total number of cars being repossessed may not ebb, the composition of cars being repossessed will change. “Early on in the recession, particularly around January to March 2008, most of the cars we saw were older subprime autos. These cars were purchased one to two years ago when they were three to five years old. So now, they’re five to seven years old,” Kontos says. More recently, newer cars- those that are one to two years old- are moving into the mix.
 
The younger cars also tend to include more high-priced autos, including SUV’s and luxury cars whereas the older subprime cars tend to be smaller, less expensive autos, Kontos says.
 
Other remarketing companies are seeing similar trends. “We’ve heard a lot of auto lenders say at various conferences that they are doing as much as possible to extend the time they’re giving, but we still end up with the same number or more of repossessed autos coming into the market,” says Thomas Webb, economist for Atlanta-based Manheim Consulting.
 
So, what does Webb see as the effect of auto lenders extending the time before they begin repossession procedures? “We’re getting back the same number of vehicles, just a few months later,” says Webb.
 
For their part, auto lenders confirm they are making stronger efforts than ever to avoid auto repossessions. A spokesperson for Chase Auto Finance, a unit of New York-based JP Morgan Chase, says that the auto lender “evaluates each customer’s situation individually and encourages qualified customers to seek an extension when facing a temporary hardship, such as short-term layoff.” Chase also tries to negotiate a settlement whenever possible, Mary Kay Bean, a Chase spokeswoman says. An example of the latter would be if the customer finds a buyer willing to pay more than the vehicle’s wholesale value, but less than what is owed to Chase.
 
Despite these efforts, Bean acknowledges that auto repossessions are still up from a year ago. While Chase will not reveal the number of cars repossessed in the first quarter of this year, Chase’s auto loan net charge offs climbed 47 percent year over year to 1.66 percent. For the second quarter of this year, the net charge-off rate dropped to 1.36 percent compared to 1.07 percent in the second quarter of 2008. That would indicate a drop in charge offs from the first to second quarter of this year, but still an increase over the year-earlier numbers.
 
A similar scenario is reported at Seattle-based Boeing Employee Credit Union. “We spend a lot of time working with our members with the goal to keep them in their autos during a time of economic strain,” says Carol Friend, vice president of portfolio management for the credit union. Despite these efforts, the number of repossessions is up over a year ago. “But we expect it would be up even more had it not been for our efforts,” Friend adds.
 
A few lenders, however, have noticed a decline in the number of repossessions as a result of their efforts to help car buyers. One such lender is Anchorage-based Alaska USA Credit Union.
 
“More lending provisions are used to temporarily or permanently reduce monthly loan payments, which allow borrowers more flexibility to retain their means of transportation,” Daniel McCue, senior vice president of Alaska USA CU, says. Yet repossessions that are made are sold through private auctions, he adds.
 
What is happening at these lenders appears to be part of a broader trend to limit repossessions as much as possible. Atlanta-based Benchmark Consulting works with auto finance sources on programs to keep repossession as a last resort.
 
“Auto finance sources have an average net loss of about $6400.00 on repossession, so it is in the companies’ best interest to keep customers in their cars,” says Rich Apicella, practice manager of Benchmark Consulting.
 
Benchmark teaches collection agents from auto finance companies to understand the reason for delinquencies and then to come up with plans to avoid repossession. “The first thing is to identify why the customer is delinquent-is it a job loss, health problem, divorce or decline in income? Once the collector knows what the problem is, he or she can help the customer develop a payment plan. Sometimes, this requires an extension in the payment plan, other times they delay the next few payments and other times they help negotiate short-sale of the car,” says Apicella
 
Additionally, Benchmark recommends software that helps auto finance companies identify customers early on who might be in trouble in meeting payments. This way, they can approach customers with potential payment programs before they actually get into trouble. One such program would notice that a customer who always paid on the same date was progressively paying a little later every month. By approaching this customer early on, the auto finance company will be in a better position to help the car buyer find a solution than if they wait until the individual has few payment options.
 
And many lenders seem to be taking the approach advocated by Benchmark. “In this economic downturn, more lending exceptions are considered,” says Alaska USA CU’s McCue.
 
This article was published in the 3rd Quarter 2009 edition of GreenLight Remarketing by Royal Media Group on behalf of Santander Consumer USA Inc. The article was written by Laurie Giesen