"So many vehicles are being snatched from owners who stop making payments that some repo operators and auto auctioneers say lots are overflowing." This from USA Today; another sign that the U.S. automotive market is headed for the buffers, Big Style. Thomas Webb, chief economist Atlanta-based Manheim auctions, says that repos will rise 10 percent this year– for the second straight year– to 1.6m vehicles. As TTAC warned at the time (and subsequently), Webb says "overly generous" auto loans in the past couple of years are driving-up defaults, leading to a surge in repossessions. Last month, Wells Fargo wrote off $1b in auto loans, compared with $857m in '06. The new figure represents 3.5 percent of its portfolio; the bank says it expects a higher write-off rate this year. As repos increase, they flood the market with used cars, lowering residuals, trapping more and more customers in "backwards" loans. Burned banks (and credit companies tied to automakers) also raise their rates, making it harder for carmakers to move the metal. One part of a perfect storm?
Find Reviews by Make:
Read all comments
Cool. So where can I pick up a repoed car on the cheap?
Easy credit.
Low levels of finacial skill and personal restraint/responsibility.
Disaster. Cars…home…toys, etc.
Duh!
It looks like the home foreclosure situation and car repo situation could be similar with one important exception:
With home foreclosures, the house is usually abused by the occupants for several months before the defaulters are pushed out the door. With cars I suspect that the repossession is done without much forewarning, reducing the amount of abuse the defaulter can dish out. Plus, if you buy a repossessed car you can always drive it to a better neighborhood–no so with a home.
Lots of good deals if you know where to look. I’ve already ran into two people who picked up repo’d low-mileage Evo’s for under $15K.
People with expertise in the used car business need to weigh in on this, but some say repossessed vehicles are bad bets. A friend had a job with a financial institution, and he occasionally had to go out on a repo. He said almost always the borrower hadn’t taken good care of the car, and when they realized the car would be lost they often badly abused it. Sort of a “if I can’t have it, no one else can” attitude, it seems.
There is something perverse in the way some people treat machinery. It doesn’t have to be motivated by resentment at the finance company; once in a while on this site there are commenters who brag about thrashing a rental or company car. In the old days I guess they abused horses from the livery stable.
I’m all for personal responsibility, but these banks and loan companies have done all this to themselves. Yes, people should pay their debts, but the banks shouldn’t be throwing credit at them recklessly.
I have a friend whose household income is about $75,000 per year. He recently sat down and looked at his credit reports and discovered he has about $100,000 in available credit cards (he is in the process of canceling most of them). He doesn’t have anywhere near that kind of balance, but he could if he wanted to. The minimum payments on that much balance would be at least $2,000 per month or $24,000 per year – one third of his annual income! Maybe higher.
The point is that the banks should never have granted him that kind of spending limit considering he already has a house payment (only about $300 due to some excellent decisions) and two car payments (about $800 total). One can only imagine what happens in other situations where people don’t have the restraint of my friend.
When creditors are that stupid when granting credit, they deserve to get burned. Unfortunately, it is the rest of us, who pay our bills, who get burned through higher interest rates and lower residuals…
You know, if the government wants to bail out people who got in over their heads in real estate, what is to keep them from doing the same with automobiles and credit cards? Of course, the answer is there is nothing keeping them from doing so and if we get certain candidates in the White House, it could happen…
VIVA LA CHASE!!
I liquidated over 10,000 vehicles a year for Capital One Auto Finance. Believe it or not, a substantial portion of the repos were voluntary. You will of course have a healthy number of vehicles with certain mechanical issues (most of which can be solved by changing the oil and filters), but buying repos is something that is really best left to someone familiar with inspecting vehicles on a regular basis.
However, you are legally allowed to purchase a repo at an auction depending on the state where you reside. In Ohio for instance, the public has to be given the opportunity to bid on the vehicles. Period. The auction can not discriminate.
There are also plenty of public auction that liquidate vehicles as well. It’s best to check the consignor list before you do this (credit unions tend to be decent bets, buy here pay here lots are very dicey). I can pretty much write a tome on this facet of the business alone.
Finally, a person who gets their vehicle taken away DOES have the right to request that the vehicle be liquidated at a public auction. This depends on the state that you’re in and most require you to give a certain level of notice beforehand.
Most repos for late models vehicles realize only about 40% of their loan value. It’s a big loss for the auto loan company. However more often than not they’re primarily interested in the liquidity, not the physical asset, and many banks have a policy to absolutely liquidate a given asset if it’s been on their books for too long.
It’s an interesting world. Overall I prefer to buy trade-in’s on the side but some of my best deals over the years have been cars that were first transported to the sale on two of it’s wheels instead of four.
I wonder what the savings on a repo Audi R8 is?
Since so many people cannot or do not pay their car payments, has anyone ever heard of car companies being burned by people getting into new vehicles that have large rebates (say $4K to $6K rebates), with no money down, then having the rebate check sent to them and then only making a payment or two stop making the payments and keeping the big rebate check and usage of the vehicle for a few months. I think there a lot of dishonest consumers out there and the past few years of easy credit has been ripe pickings for them.
“I can pretty much write a tome on this facet of the business alone.”
I’d look forward to a TTAC story from Steven Lang.
It sounds from what Steven said that repossessed cars are about as damaged as repossessed homes. That’s too bad, because that excessive damage represents pure waste.
but some of my best deals over the years have been cars that were first transported to the sale on two of it’s wheels instead of four.
Same applies to boats…and on the open water, there are no speed limits.
Steven Lang, write a story about this my man.
On the topic of voluntary reposessions, I did some collections work for a while on behalf of a credit union that seemed to specialize in giving auto loans to people who should never had gotten one.
I found it amazing how often the borrower who was willing to hand over his car thought that this would wipe the slate clean. They were usually shocked to learn that once the lender sold the trashed-out car, its next step was to come after the borrower for the deficiency — the difference between what the lender realized on the car at auction and the amount due on the loan (with my fees added in for good measure). These hapless borrowers figured they could drive for months without making a payment, destroy the car along the way, and walk away scot-free.
Boy, were they wrong.
woohoo..time to drop by the repo depot.
Difference between houses and cars is that no one lets a car sit on the market for two years hoping that its price will recover.
Another issue is that there will not be much opportunity to buy repoed cars, fix them up, rent them out and eventually sell them at a profit.
I would guess that there will more F250 diesels being repoed than three year old civics.
There may be some opportunity to upgrade your beater, or to pick up a truck for your business, but I doubt that you will see many interesting or useful vehicles at the repo auctions.
hitguy: I’m fairly certain that this “rebate cheque keeping” thing doesn’t happen. “Rebates” are generally for cars purchased paid in full, you get a X,000$ discount for paying up front (i.e. cash). If you ‘bring your own financing’ I’m not sure if that qualifies you for ALL rebates or the gigantic discounts. Usually they offer a couple thousand off during special (like the GM ‘toe tag’) sales just to move the metal off the lots, because there’s at least that much built into the price they can afford to lose a little bit of the profit (at least on trucks).
When the Thai bhat crashed in 97 they had parking garages full of Mercedes and BMW cars that were given up by their buyers. I won’t call them owners.
I know two people that had their ride jacked, both basically dogged the car for moths until the day came. No maintenance, abusive driving, one guy even burned the back seat with a spotlight bulb while driving pizza delivery.
When the fleet sales dry up, the banks tighten the screws, demand drop, and prices continue to rise then your looking at the abyss in car sales.
Somewhat off topic, but…
TexasAg03, tell your friend to reconsider closing his credit cards if it’s not too late. He’ll screw up his credit score big-time. The fact that he has available credit and isn’t using it shows that he is a responsible person. Also, length of credit history is important. The longer he’s had those cards, the better. He’s going to need that high FICO score sooner or later.