RALEIGH, N.C. — The challenges of the current economy have most industries reeling as they experience a decrease in activity.

However, the repossession industry is experiencing the exact opposite. Activity is at an all-time high. That's because tough economic conditions call for tough decisions. And in today's economy, that means getting rid of assets.

In 2008, the number of repossessions for cars and trucks alone was an estimated 1.9 million (only 50 percent of assignments were repossessed).

Currently, however, only halfway through the year, numbers are already approaching an estimated 3.8 to 5 million; in addition, asset recovery has expanded to include boats, RVs and other equipment not typically seen in 2008. This significant increase and change in assets is causing many challenges for lenders, repossession agencies and auctions as they try to cope with increased losses and escalating costs.

In response, lenders are rethinking the way they do business, causing three main trends to emerge. These trends will change the complexion of how repossessions and late-stage delinquencies are handled.

Trend One: Lenders are starting to question whether it makes sense to dedicate in-house resources to a part of their business that generates a loss.
Recognizing that repossession is the last resort for dealing with non-performing assets, it is understandable that lenders would rather find a solution for keeping the debtor in the vehicle and continuing to pay the balance of the note rather than repossessing the vehicle.

Therefore, a trend is rising where lenders are reallocating key resources to collections and outsourcing the repossession and remarketing to a full-service repossession management company that can leverage economies of scale.

This allows lenders to focus on keeping debtors in their assets, reducing internal staffing. When repossession becomes the only option, lenders allow their repossession management company to perform the process cost-effectively. In addition, outsourced services can be used "on demand" so the lender incurs costs only when there is a need rather than an anticipation of demand.

Trend Two: Repossession costs represent hard dollars, and lenders struggle with how best to control these costs. As a result, lenders are starting to rethink agent compensation. Because the recovery rate for repossession agents is directly related to the way in which they are compensated, cost-cutting measures have to be balanced with performance.

This way, agents who have the best performance and a competitive price in a market get rewarded with an increase in case load. Capped or contingent fees restrict supplier performance by encouraging an agent to limit the amount of time and effort they will apply in the recovery of an asset. The result is a reduction in recovery rate that impacts lenders by increasing account charge offs.

Trend Three: Because delinquencies in small businesses have increased dramatically, and in order to avoid having to write off an entire business loan, lenders are left with the responsibility of getting rid of business assets such as manufacturing equipment, airplanes, large boats, heavy trucks, yellow iron, farm equipment and delivery vans. However, lenders do not have the resources to secure and then sell these assets.

In response, they are outsourcing these responsibilities to someone who can handle the entire process, which allows them to focus on working out arrangements with business owners in an effort to help them through these challenging times.

In conclusion, because the market is rapidly changing for the repossession industry, agents must rethink how they do business in order to survive in this changing economic climate. Increasing costs, the constant pressure to reduce them and the need to improve performance continues to challenge even the best agents.

That's why agents are now looking to leverage technology, such as mobile PCs, PDA phones, GPS tracking and starter-interrupt and license-plate recognition technologies to make the recovery process more efficient. In addition, agents are now accessing Web-based portals to receive, track, invoice and communicate. The days of fax, phone calls and paper-based reporting are gone.

Ultimately, the combination of real-time resources, efficient processes and cutting-edge technology delivers the best results. That's why losses and costs are controlled best when given to a service provider — who distributes infrastructure costs across several lenders' portfolios and manages supplier optimization — to provide significant savings up to 40 percent.

New trends like these will continue to emerge in response to changing market conditions forcing lenders and agents to find new ways to cope with increasing demand while controlling costs. One thing is clear. The companies that survive in today's economy will be the better for it.

About the Author:

Steve Norwood is the president of Consolidated Asset Recovery Systems, a leader in repossession and remarketing services. Norwood has built a software as a service (SaaS) company for prime, subprime, captive and regional lenders attempting to simplify the traditionally paper-based repossession and remarketing industries. Norwood can be reached at steve.norwood@ez-recovery.com. See also www.ez-recovery.com.