ATLANTA -

Manheim didn’t hesitate when compiling this year’s Used Car Market Report to emphasize what it believes is the more important element to remarketing repossessions.

The auction company insisted days-to-sale remains the key focus. Manheim explained that even though wholesale used-vehicle pricing was exceptionally strong in 2009 and 2010 — meaning that used units were depreciating less rapidly — lenders remained focused on converting repossessed units into cash as quickly as possible.

“Generally speaking, the biggest stumbling blocks to a reduced number of days-to-sale are outside the control of auctions and lenders, as state and local laws dictate the process of both collateral collection and liquidation,” Manheim noted.

“And obtaining clear titles in a timely matter can sometimes be difficult,” the company added. “Nevertheless, in recent years, auctions and lenders have been successful in streamlining the processes they control and, thus, reducing overall days-to-sale.”

Manheim cautioned about further issues that could arise when using Internet resources as lenders work toward remarketing these repo units.

“Taking full advantage of upstream online selling opportunities can be hampered in the case of repossessions when the initial inspections and photos are done under poor conditions,” analysts said in the report.

“But the online remarketing of repossessions works well for units located at auction lots, where professional inspections and photos are available,” they continued.

So how are finance companies responding when Web technology seems to be everywhere?

“The special challenges in remarketing repossessions — and the fact that some lenders have low volumes, a diverse mix of vehicles, and collateral that can be far away from their base of operations — have led some lenders to outsource their remarketing to third-party providers,” Manheim responded.

“This practice places the lender in a position similar to the relationship between fleet managers and their fleet management companies,” the company went on to state. “In both instances, the one with direct financial exposure (lender or fleet manager) must ensure that the remarketing company provides adequate feedback showing that best practices are being employed to achieve maximum net returns.”

Removing the Stigma of Repossession Through Reconditioning

Manheim pointed out some lenders consider the reconditioning of repossessed collateral a case of “throwing good money after bad.” However, analysts contend a larger number of lenders recognize that buyers are looking for some sort of assurance as to the vehicle’s basic reliability.

“As such, these lenders have found it worthwhile to segment their pools of vehicles, perform strategic reconditioning, and then ‘certify’ vehicles to one or more levels,” Manheim explained.

“Over time, the three-pronged approach of strategic reconditioning, the ‘certification’ of vehicles into special categories and the marketing of what these certification levels mean has proved very effective at improving remarketing results,” the company surmised.

Repossession Recovery Rates Rise

Manheim discovered recovery rates were exceptionally strong in 2010 whether the repossession was coming from a prime or subprime contract. The report looked at performances by two companies — Ford Credit and GM Financial Services.

Starting with Ford Credit, which generally handles prime contracts, Manheim noted the company’s severity of losses has fallen almost consistently since the fourth quarter of 2008. At that point it was above $10,000, and Ford Credit said last year closed 38 percent lower to near $6,000.

Turning over to the subprime side, GM Financial shares its recovery rate quarterly and often compares it to the Manheim Used Vehicle Value Index.

At the low point in late 2008, GM Financial’s recovery rate sunk to near 35 percent as the index reading dropped below 100. At the close of last year, the company’s recovery rate crept up near 50 percent as the index soared beyond 120.

“Recovery rates are influenced by a host of factors other than the overall wholesale pricing environment — for example, the contract’s loan-to-value ratio, maturity, contract age at default, and vehicle-specific characteristics and condition,” Manheim explained. "Nevertheless, the Manheim Index does explain a lot of the variation in recovery rates over time.”