‘Dude, Where’s My Car?’

By Steve Finlay
WardsAuto.com

A sound outside awakens a man in the middle of the night. He looks out in time to see his car being towed away.

At first he thinks it’s an auto theft in progress. Then, half awake, he recalls how far behind he is on his car payments. Could it be…?

It could. About 1.5 million cars a year in the U.S. are repossessed from owners seriously in arrears.

That’s expected to increase, as the auto-financing industry anticipates more loan delinquencies in 2008, according to a survey of lenders.

“Better than 50% of respondents project that,” says JJ Hornblass, chairman of the Auto Finance Summit, an annual industry conference. “It is consistent with a poor credit-performance environment. More lease delinquencies also are expected.”
It will be “a tricky environment,” he says.

The forecasted rise in repos would continue an upward trend that started in 2006 when 1.4 million vehicles were confiscated, a 5% increase, according to Manheim Consulting.

Tom Webb, chief economist for Manheim, estimates delinquency rates increased repossessions by 10% in 2007.

There are assorted reasons car owners default on their loans to the point that a lender sends out agents to get the vehicle back. Reasons range from falling on hard times to irresponsible behavior with finances.

Auto-recovery specialist repossesses car in New Jersey.

Another cause is that some dealership customers pay less attention to the price of a costly car and more attention to the monthly payments, without grasping how long those financial obligations can last.

“It’s sad,” says Mark King, general manager of Roy Robinson Chevrolet Subaru in Marysville, WA. “They lose sight of the effect of 6- to 7-year payments. All they’re looking at is the monthly payment.”

Protracted payments can lead to loan defaults, especially as vehicles age and depreciate, and owners risk becoming “upside down,” or owing more on a car than it is worth.

“Dealers don’t advocate 84-month loan payments,” King says. “It’s really a last resort. The problem is that a new SUV on the high-end side is $40,000 to $50,000.”

Some financially unsavvy customers need to be educated on the downsides of long-term loans and of buying a vehicle beyond their means, say experts.

“We need to make sure that the loan you are buying is the loan you think you are buying,” says Alexander J. Keechle, senior vice president of Drive Financial Services in Dallas.

“Also, get more money down,” he advises dealers. “That’s not an industry secret, but yesterday’s exception is today’s expectation.”

Lenders differ on when to pull the trigger on someone who is delinquent on a car loan. Some lenders are more patient, trying to right-size the situation in hopes of getting the money due. Others are quicker to repossess the car.

“I’d rather take the money than the car, even at the risk of the delinquency going up,” says Joseph Pendergast, group vice president-operations manager for Chevy Chase Bank.

Keechle disagrees.

“We wouldn’t adapt that policy,” he says. “If the customer can bring the payment up to date, and if there are indications of that, it is best for everyone. If not, it is best to collect the car ASAP. Waiting means the car is that much more devalued.”

People depending on a car to get to work “will do everything they can to pay their car loans,” Keechle says. “But when they can’t pay, they won’t. When they make that decision, it’s best to get the car without delay.”

It’s not that clear cut, says Jonathon Levin, president and CEO of auto-lender Turner Acceptance Corp.

“There always will be some customers who will stop paying on their loans,” he says. “But if you give the tools to others to pay, they will – or will try to. It is not wise to just yank the car from them.”

Levin says his firm is “reaching out to borrowers more than ever” in efforts to make sure customers don’t default and risk vehicle repossession.

There’s a chance for success “as long as there’s a voice on the other end of the line,” he says. “We make it clear that we want them to succeed. And they want to, as well.”

Contributing to the expected rise in car-loan defaults is the ripple effect of the subprime mortgage crisis, some lenders say.

“There was a shock in the mortgage market, and liquidity dried up,” says.

Keechle. “Clearly there were some missteps in doing loans without proven income.”
But the shock to the system “allows a return to a more rational way to underwrite,” he says. “It’s good for all of us.”

Some financially strapped consumers, facing a choice of defaulting on their car loan or home mortgage, will choose the latter.

“You can always sleep in your car, but you can’t drive your house to work,” Pendergast says.

Adds Keechle: “If you default on your car, the options are much fewer. In the U.S., people need cars to get around. If you default on your home, you have the option of renting an apartment.”

The No.1 reason for auto loan defaults is the vehicle owner can’t afford it, and No.2 is the car breaks down, he says.

Avoiding loan defaults includes making sure dealers are acting properly, Levin says. “It’s a matter of putting customers in the right car with the right payment plan.”

Lenders that proceed with vehicle repossessions should make sure they are following the letter of the law lest, they be sued by an irked consumer, says lawyer Mark Edelman, who represents financial institutions.

“We’re seeing litigation involving repo notices,” he says. “You can’t use the same form in all 50 states. Eighteen states require a notice before repossession. Eight more states have a requirement that you must say, ‘I’m not taking late payments; you must come up to date or we’ll repo your car.’

“It requires a high level of specificity or you risk court action,” he says. “And in the court of public opinion, you don’t want to look like someone who is abusing customers.”

The legal term for a repo is “loss recovery.” In effect, it is a “dispossession of property,” Edelman says. “My legal advice: take care.”
As an auto-auction owner, Lynn Weaver can easily spot the repossessed vehicles in the bidding lanes.

Compared to “a bunch of program vehicles of the same model and color, the repo cars are different colors and have different variations,” says Weaver of Harrisburg Auto Auction in Mechanicburg, PA.

He says lenders selling such repossessed cars are up front about their origins when putting the vehicles on the wholesale market.
With good reason.

“It doesn’t do us any good to sneak anything by anyone,” Neil Boardman of the Regional Acceptance Corp. says at a recent National Remarketing Conference in Las Vegas.

Adds Steve Norbut, vice president of dealer sales for Universal Special Auto Finance: “A national lender is not going to slide something by.”

Most repossessed cars are in pretty good shape, although “a few are tagged with a golf club or every window is broken out,” evidence of a former owner’s anger at the prospect of losing the vehicle, Boardman says. “On average, our vehicles are three years old and with 45,000 to 50,000 miles.”

Repossessed vehicles at auction include a broad mix of models, mileage and conditions because they come from an array of lenders financing various products and customers, says Manheim’s Webb.

Weaver says, “There is no stigma at all towards repo cars.”
Still, some wholesale buyers steer clear of them.

That includes Mike Cunningham, owner of Payless Cars and Trucks in Tucson, AZ. Almost always, he personally buys cars in his inventory.
That doesn’t include repossessed vehicles.

“I almost never buy repos,” says Cunningham. “People quit maintaining those cars longer before they quit making payments. I’m skeptical of any repo.”

Man indicted on charges alleging car sales scheme

By DON LEHMAN
FORT EDWARD — The former special finance manager of a Greenwich car dealership has been indicted on 23 felony charges in connection with an alleged scheme in which he defrauded numerous lenders by creating false documents to get financing for car buyers.

Raymond Marvelas Ray, 44, of Stillwater was charged in connection with 11 different car purchases made at Whalen Chevrolet Oldsmobile that prosecutors claim were made after Ray created fake financial documents to get loans for the buyers.

He faces 11 counts each of forgery and criminal possession of a forged instrument and a count of grand larceny in an indictment handed up Thursday in Washington County Court.

State Police arrested Ray in late November, after an investigation that began when the Social Security Administration was contacted by financing company Capital One about inconsistencies in documents used in car loan applications.

Investigators said Ray created false Social Security benefit letters, tax returns and employee W-2 forms to make it seem that prospective car buyers had higher incomes than they really had.

He benefited because finance managers are typically paid commission for each loan they bring to a lender, said Washington County Assistant District Attorney Christian Morris. Falsely inflating someone’s income would increase the likelihood they are approved for financing.

Ray told police he nearly tripled his salary annually through the scheme, which he had also used while working at at least two other car dealerships in the Albany area, officials said.

Morris said the financing companies lost money because the loans were not paid off, but the car buyers and dealership were also affected.

"Everyone all around lost money," he said. "The banks lost money. Whalen had to buy back some of the cars."

Those who purchased the cars also lost because they wound up paying for cars that were ultimately re-possessed, and their credit was also hurt, officials said.

The charges relate to car purchases dating back to June 2006.

Morris said 80 other car purchases that Ray was involved with are also being scrutinized by police and may result in additional charges. Police said charges were likely in Albany County as well.

Ray, who was fired by the Greenwich dealership the day of his arrest, was jailed without bail at the time of his arrest because he has at least two prior felony convictions. No arraignment date in Washington County Court has been set on the new charges.

He could face up to 4 years in state prison for each transaction, and as a prior felon, he faces a mandatory prison sentence if convicted of a felony.

Ray is being represented by Washington County Public Defender Patrick Barber, who could not be reached for comment Thursday.

Be Careful What You Wish For

By Peter Brandow
Ward's Dealer Business

Be careful what you wish for. The domestics Big Three (General Motors, Chrysler and Ford) are hoping for new dealers, new plants, new workers and new vendors. They want to replace what they have with what their competition has. They're sure those guys would be better.

The Import Big Four (Toyota, Hyundai, Nissan and Honda) want to conquest all of what the domestics are giving up in an effort to grow to the next level. They predict those dealers and customers will become raving fans.

It just doesn't seem that simple to me. Conquested customers and dealers will not be a bunch of raving import fans; many have had all the loyalty and trust beaten out of them. They feel abandoned.

As importantly, the domestic holdouts are not going to be examples of survival of the fittest. Domestic survivors may just be desperate hangers on, very lean, and mean (angry at the least), but not necessarily fit. The domestic three are not becoming stronger through combat.

The domestics may not yet realize that the dealers they are shedding have the right coping skills for the opportunity they offer.

These are dealers who accept margin squeeze, and customers who want products for cost and service for free.

These dealers brim over with inventory that sells to the public at the same price dealers pay the manufacturer in the first place.

They're dealers who do not get depressed over the knowledge that that they need the next customer more than that customer wants their vehicles. They faithfully contribute to manufacturer advertising cooperatives after years of false promises and poor results.

Moreover, domestic dealers manage massive red ink and hold on with devotion.
Given the selfless support of such dealers, I am confused why the likes of Cerberus, excuse me, Chrysler, are so hell bent on dumping so many of them.

The Big Three see their declining dealer wherewithal as a good thing.

It seems to be their wish that weak dealers will give up and that wealthier import dealers will buy in. I get it that old franchises wallow in the self-pity of having old dealers and that they long to conquest new dealers rather than create new opportunity.

I don't understand why the next group would support them as well as the replaced dealers have.

The old dealers had a reason to hang on to the hope that their sacrifices would be rewarded in the future. Many of the new dealers are the living proof that there is no reason for trust. Domestic manufacturers should be careful what they wish for.
Looking past this domestic quagmire, I wonder what the triumphant import manufacturers think they are inheriting by conquesting the domestic cast offs?
Do the Big Four understand the consequence of replacing the Big Three? Without the domestics to kick around, our national attention will be undistracted from a riveted focus on those imports.

That spotlight will signal the end of the import's American honeymoon. Gone may be cherry picking for states that will give them tax relief; workers that will give them union relief; dealers that will give them new facilities; and customers that will pay more.

Hanging in the balance is whether the Import Big Four are ready to consent to what Americans want from home industries. Will they employ our huddled masses, give them healthcare and retirement, educate their children, provide for their homes and give cheerful Christmas bonuses?

As the domestics and imports pursue their wishes, will the newly downsized domestics become fit or simply learn that the dealers they abandoned were the ones they needed? Will the imports like the responsibilities of industry dominance or will they yearn for the autonomy they enjoyed before they crushed their competition?
And for American consumers, will their interests be better served with the Big Four or the Big Seven? Be careful what you wish for.

Peter Brandow is a veteran dealer in Pennsylvania and New Jersey.