Why Forwarding?

I just received this note from a TFA member about the state of the forwarding business.

Having helped create this industry within our industry, its a subject I am passionate about, as you can tell by some of my other blogs. He raises some good points and I've copied his letter below for your reference.

I agree with most of what he says, but I disagree with his statement that the reason lenders went to Forwarders was gouging? Maybe on a few occasions, as is the case with any industry, but lenders are paying more now for a managed process, so it is doubtful to me that it was a cost issue, or a gouging issue.

I witnessed first hand the transformation of Chrysler Credit from a hundred or so branch company to a 3-4 call center company. That is one reason lenders went to forwarders as it became difficult for these companies to manage so many relationships after they went to a national call center model. It killed the days of getting to know your local repo man. When I was a collector in the Sacramento branch, and a collection manager in Long Beach and Cerritos for Chrysler Credit, I knew all the agents in town, and I knew who to use, and who not to use. Being the president of some association didn't automatically qualify a repo company as being good in my book back then, or even now. I respect those who serve the industry, but for me the bottom line is always the bottom line, and that's performance.

Good luck knowing your local Wyoming repo man if your at a call center in Dallas. Relationships are built on trust, and that's tough when you've never even met the person who owns the repo company. Relationships as difficult as the one between a lender and a repo company are more complex than most business relationships, and in many ways, they're built on trust and hard work. When we brought on a new lender to handle their forwarding back in the 90s, each of those relationships had evolved over years of trust being built.

IMO, the second reason forwarding became common was inexperience. How many clients had departments or people managing the repo process on a national basis? At Chrysler, the agents you approved was a decision made at the branch level back then. We were successful at ARS with our first client in 1993-94, VW credit, for this exact reason. We had started Skipbusters in 1988 and for the prior six years, we'd been managing a group of 300 or so agents, and believe me, it wasn't easy getting the number whittled down from 2000 to 300 of the best agents in the country. We were repossessors and we understood that business, so it was easier to manage, but it took six years to get it right. We'd also been skip tracing and managing the VW skip repo's for several years and we had built trust with them.

Back then we charged a reasonable fee of $75 per assignment, and the next reason lenders outsourced this process is the cost was less, and by cost in the VW example, it was driven by actual cost and also productivity gains we showed over the results they were getting before they were using ARS, so their bottom line improved. If more lenders looked at "cost" as a bottom line number and not a line item repo expense, we wouldnt be in this mess. It still blows my mind the same effort is expected and the same price per repo is paid for a car worth $1500 as one worth $50K. That certainly doesnt make sense for a finance company, but that's the way it is, and that's another topic for another blog. I could also ask why a client pays the repo man less, or in most cases nothing, when they make contact and the customer pays from their contact. If they took the car the lender suffers a several thousand dollar loss, but if their efforts get the customer to pay, they dont lose that money, so why wouldnt they reward an agent for dong this, versus penalizing them as they do now?

The next reason I believe forwarding became so popular, at least for us at ARS, was the explosion of the sub prime market. Companies like LSE were jumping into servicing and they didnt really understand the repo assignment model and they were getting eaten alive with wrongful repossessions, inefficient vendors, volume, etc. We handled a then industry record 50K repossessions in 98 and most were sub prime loans serviced by companies like LSE, Harvest group, and a bunch of other names I don't remember as they're all long gone. We knew the decision makers they hired from prior business relationships we'd established and we gave them an immediate solution, at a fair price. We also paid the repo guy back then $275. It blows me away when I read things like this that say the fee is still $275, or less. We didnt even have tow trucks or computers back then, and now you need all that and more, wages and insurance is much higher, but the price per repo is still being driven down? Why dont lenders see repossessors as valuable commodities to improve their bottom line? FWIW, we pay all our agents $375 a repo, and a $75 to $150 close fee for positive resolution, which we believe is still below what it should be, but at least we have a few clients who see the results and agree this is a fair price.

The next reason is it became attractive for a lender to push the liability to the forwarder as it gave them an extra layer of insulation if something went wrong. This is still the case, and will always be, but the liability exposure from a PR and actual dollar standpoint pales in comparison to the losses some of these lenders are taking by using the current forwarding model. When he says now clients are driving down the price for forwarding, that's to be expected, it's the same thing they did to us as repossessors when I ran my repo companies in the 90s. Clients see expenses as something that should be reduced, and although you can reduce your line item repo expense by making the repo guy charge less, is it really improving your bottom line? No it is not. I guarantee it.

Finally, the selection and management of agents is a process that's difficult to manage when doing it manually, and when you add in metrics, it's still something very few, if any lenders or forwarding agents have a good handle on. Most lenders or forwarders want the cheapest guy and the rest of the details are less important. The one's who measure performance are only scratching the surface of what really needs to be measured.

You cant manage what you cant measure is never more true than when applied to a difficult business like skip tracing and repossession. Just because an agent recovers 60% of the cars does that mean he's great? He may get a better percentage than others, but does that have more to do with the agent or the paper, the area he is in or the quality of the collection work and the assignment preceding the repossessors work in the field? I want to know what an agent does by zip code, how they do overall in all aspects of the job, especially when they have multiple offices.

I can guarantee you J&B Recovery in LA pulls more cars and resolves more accounts out of South Central and Compton than most of the other three dozen guys who advertise in those areas, and that's because Jake gets out of his truck and knocks on doors. The thing is, recovery percentages in South Central have to be low, so if his numbers only show 50% is that bad? Everything is relative, and measurement of as much of the repo process as can be measured is the name of the game when it comes to managing the process, from a lender standpoint, down to a repo agency standpoint, and especially down to an repossessor standpoint so they can become accountable to themselves as well as to their boss.

This is the exact reason I have spent three years re-entering this crazy industry. I believe a change is in order, and if I'm right, lenders will gladly pay more money for results that improve their bottom line, which will start going direct to agents again, as it can be a process they not only will be better able to manage with our software, but after seeing how we manage the process, there is no way they would ever again consider outsourcing such an important decision to a company ran by guys who don't have their best interests in mind, i.e. most forwarders today.

John

Here's his note:

Something new and very interesting is happening.

Chrysler told PAR they would no longer pay more than $350 per repossession. That's $350 total to PAR. In response to this PAR is contacting every agent and cutting their fee to $275 per repossession (Los Angeles agents were given $25 more). PAR wanted to make the cut even greater and tell agents they would only get $250, but they figured too many agents would quit so they settled for $275. At $75 per assignment PAR can't make enough money to make it worthwhile to forward. They also get fewer services from agents, poorer quality of agents and more incidents as they use less experienced and cheaper agents.

How long is Chrysler or anyone else going to use the forwarders when their recovery rates are dropping every year? Some companies are seeing recovery rates as low as 20% from forwarded accounts.

If Chrysler paid me $350 to pick up a car, I'd still do it for them and do them a good job, but how good a job can I do for $275? As you know, I work for most of the forwarding companies and have a good relationship with them, but I'm firing more companies every month. I tell them they want a top of the line agency, but they want to pay for a grease monkey with a sling truck. It just isn't going to work.

PAR made another change a short time ago. They doubled the number of assignments their employees must work each month. They have a quota and if they don't meet it they are gone. Consequently, the employees don't have time to verify addresses, locate new addresses or even talk to the agent in the field about an account.I see this happening more and more often with the forwarding companies.

I've long said the pendulum swung away from agents because they were gouging the lenders. It was our own fault the forwarding companies ever got started. Now, the pendulum is going to swing back toward direct agents and it will be the fault of the forwarders.

I believe in 2010 you are going to see a few of the lenders leaving the forwarding companies and going back to direct agents to get their recovery percentages back up.

The biggest change in the Auto Finance Industry has been...

WOR.

You may have no idea what WOR means, unless you've been around since the early 80s.

When I started at Chrysler Credit there was a clause in most auto finance contracts called "Recourse".

Recourse meant that the customer, the debtor, the guy buying AND Financing the car, was ultimately the responsibility of the dealership if he went beyond the point of basic delinquency.

It's been a while, so my memory may be a bit rusty, but I believe most deals were 90 or 120 day recourse. That meant that when the customer bought the car at the dealership and they sent us the credit app and contract to consider the customer for a loan, we knew that the dealer was also a part of that credit decision as they would be on the hook for the FULL BALANCE if the customer went into default beyond 90 or 120 days.

When we got to day 60 of the delinquency we would notify the dealership that the customer was late on his payment(s) and they were being put on notice, and that we could, and would, be asking for a payoff of the loan if that delinquency was not immediately corrected. Sometimes we let the dealer slide a few months and we allowed them to make a payment or two versus having to pay off the entire loan.

Can you imagine the ramifications of this in today's market? Think about how that would have affected the sub prime mortgage industry if the brokers would have ultimately been responsible to the bank if the guy buying the house defaulted. Would they have been so quick to falsify the documentation to get the loan approved if they knew they ultimately could and would be responsible? Of course not. Would they have been selling everyone who could walk, talk and sign a contract a house, if they would be responsible of the person went into default? Of course not.

At Chrysler, our dealers were our partners. When WOR, or With Out Recourse paper became the rule instead of the exception, that partnership went away. It started to go to WOR when some finance companies offered WOR as an alternative to Recourse contracts, and the rates were competitive enough that the dealer would start placing those loans to finance companies offering WOR contracts. Pretty soon, Chrysler and all the other major lenders had no choice but to offer WOR contracts.

With WOR, the dealership no longer had any interest in what deals they sent us, how those loans would perform, how we collected payments on their customers, etc. Once the deal was financed, the dealer was off the hook, so what was their motivation to make sure they got good reference numbers, valid POE info, a Co-Signer who could and would pay, etc? There was no motivation, and when that happened, the quality of the paperwork dealerships would collect in terms of customer documentation started to decline.

I believe the dealerships were also responsible when we repossessed a car before the 90 or 120th day. We'd bring the dealer the car instead of taking it to an auction and the dealer would pay off our contract.

At the same time this happened, Chrysler and all the other major lenders started consolidating to large call centers, another major change. This further segregated the finance company from the dealership.

It's interesting to see Chase getting back to a local branch model in regard to their auto finance collection strategy. As time goes on, I believe you will see this model succeed for them, and you may also see other lenders try and look to copy what they've done when they acquired WAMU and took over their branches, in many cases setting up auto finance collection centers. I've often wondered if they thought of this as a pre-acquisition strategy, or as a "what do we do with all these branches?" after the acquisition strategy?

As banks and lenders continue to keep their belts tightened, will we ever see Recourse paper come back?

If it does, I think it would be a way to rebuild the bond between car dealers and finance companies, especially for captive lenders who so greatly rely on each other. I believe the industry should revisit the benefits this relationship used to bring each other, and maybe this could be the catalyst to rebuilding a stronger auto finance model in the future. Now that banks hold more cards in regard to lending, there may not be a better opportunity to revisit recourse lending.

John Lewis
President
www.FindJohnDoe.com

Repossession assignments and fine wine; a case study

The Auto Finance summit is convening in a couple weeks, and while I unfortunately won't be able to attend, I have replied to a question by the organizer of the event who asks what challenges does the auto finance industry face as we enter the 4th quarter of 2009.

Here is my reply:

A huge challenge lenders continue to face is in regard to assessing and managing risk; i.e. high risk loans on their books that go delinquent.

I have been on the cutting edge of the back end of our industry for nearly thirty years, and when you ask about challenges and solutions, I believe I have identified the challenges many lenders face on the back end, and I have worked very hard and invested a significant amount of my own capital to come up with a solution that can assist lenders, and one that can reward, instead of punish, the solid repossession companies, which is the direction I unfortunately have seen our industry headed in the two and a half years since I got back into it.

We have been working diligently to create an opportunity through a software product that assesses and manages risk, and we will be launching it in 2010. We have an immediate interest in adding one lender to our team of three external financial institution beta test users in Q4 2009. There is no cost to the lender during testing, and if our software works as we project, it can save a lender millions of dollars in annual losses.

As the person who started the first exclusive Skip Tracing company for the auto finance industry in 1988 in SkipBusters, and the first forwarding company to handle more than 50,000 assignments a year in American Recovery Service in 1993-94, I have re-entered this industry after my five year non-compete expired, and my goal was to create a software product that could assist lenders to identify, and better manage, their high risk accounts.

We have finished our internal beta testing of the new software and in a 90 day contest against two of the largest skip companies in the country, working a captive lenders oldest, most difficult charged off skip accounts, we won this contest handily. The results are a direct reflection of the power of our new software. In this 500 file per company contest, we've more than doubled the amount of repossessions the 3rd place company has gotten, and we've gotten 40% more repossessions than the second place company. We also helped our client get twice as many accounts paid in full than the second place finisher, with the last place finisher getting zero paid in full. These paid in full accounts are a direct reflection on the work done by our approved and contracted outside repo agents as they get paid a close fee when a customer pays, and they are not working on a strictly contingent basis.

As a comparison, we also beat these same two skip tracing companies in the last contest that ended July 1st, but we only were using the new software for the last 30 days, and in those last 30 days, we came from last to first to win by 10%, which happened as soon as we started using our new software.

These results are not a reflection on our two competitors as both are leaders in the skip tracing industry and I'm sure they do a fine job overall, in fact, I personally trained the owner of one of those companies when he used to work for me. These results do show that when utilizing the proper software, you can increase your efficiency and if you're a lender using this in a pre-charge off environment, you can reduce your losses significantly.

How many of you are on an old legacy software platform that isn't much better than using a green screen when it comes to measuring and analyzing data?

How many of you cringe when you or your collection managers need to deploy resources from your internal IT department?

Those are some of the major challenges our industry faces today, at least from what I've seen through the interaction I've had with some of the largest lenders in the industry in the past two years. I've created a back end solution for this problem, and so far, the results are positive.

In addition to these internal challenges facing lenders, they also are facing new challenges posed by two relatively new industries, and one older industry; Skip Tracing, Forwarding and Repossession.

When we started Skip Busters in 1988, there were no skip companies that exclusively handled skip tracing on delinquent auto loans. Now there are dozens, and its a several hundred million dollar a year industry. While this helps lenders, it also opens them up to risk as they now have outside vendors working their files by phone, and between FDCPA, SOX, GLB and many other federal and state laws, plus ID Theft issues, this is now a greater risk to lenders who outsource this work then they've ever faced. Due to this, you need a solid software program that analyzes and manages this risk. If your customers ID is compromised at a vendor level, you need specifics answers and metrics to back up those answers, otherwise, the liability and exposure you and your vendor face can be in the hundreds of thousands to millions of dollars range.

When we started exclusively managing the repossession process for VW Credit on a national basis in 1993, Manheim had just closed its doors on a division they had started a few years earlier that did the same thing. There were a few other industry leaders from the repossession industry, i.e. Minnesota Repossessors, who had gained market share through trust in terms of direct repossession assignments as we had done with Skip Busters, and through our No Calif repo companies; River City Auto Recovery.

As a result of our growth, we were starting to get requests from clients to help them manage their national needs. The industry had grown from individual branches to large, national call centers, and the managers of these places were now facing new challenges in identifying their best repo companies on a national level, and not as they used to on a local level. Almost immediately after we started seeing success, ADT got in and soon they were purchased by Manheim, and many others followed suit on what we were doing for VW Credit, and then for a number of large, new sub-prime lenders; managing their repossessions.

They now call it Forwarding, a term I never really liked as it implies there is little or no skill involved. Our idea was to "manage" the process by paying the repo company a fair price, and then we would charge a flat service fee based on our work. We charged a $75 mark up back then. Nowadays, you'll be hard pressed to find anyone doing over 20% of their forwarding work for less than a $100 mark up per repo.

When I got back in the industry in 2007, I was shocked to see how much traction the forwarding business had gained, and I was also shocked by what it had done to the industry. Most forwarders now make their money on the mark up they get by charging the lender as much as possible, and by paying the repo agent as little as possible. This raises the stakes to the finance company significantly, and it's not just the cost of the insurance claim, it's now also the exposure on CNN they may someday get, something every lender would be more concerned with if they could see what's really happening on their repo assignments placed with most forwarders.

Repossession management was a good idea, and it still is on a limited basis, but only when lenders hold the forwarder liable for their actions and when they audit them to insure their practices are within the best interests of the lending institution. Are all their outside repo agents contracted? Do they have proper insurance? Do they drug test their employees and do the repo agents they hire hold their employees to certain standards? Do they perform background checks and do their agents? Do they allow repo companies to use independent contractors versus hiring employees? Do they get out of their truck to kick in a deal, or is it not worth it because they are being paid on a contingent basis and there is no commission for the repo man when he tries to help the lender resolve the account, unless its through repossession.

"Oh, but we pay our guys $25 on every deal they close".

Show me the documentation.

I challenge you CEO's out there reading this to pull a report on the average amount of days your repossession assignments are assigned to the agent they are currently with, forwarder or direct. If it's higher than two weeks on average you have a problem. Accounts need to be moved through queue's, followed up on, and managed to the point where there is always some form of forward progress. I don't mean the type of backward progress we see in our end of the industry when a collector runs a bureau or a public records report and throws the last three, or six addresses reported for the customer at the repo agent to run "and kick in hard", making the repo agent do the work the collector or skip tracer should, and can do with a couple phone calls to verify first if the address is good or not. Those are the challenges a lender faces, and if you have a high charge off percentage, you might want to start by analyzing those trends and numbers.

High risk accounts need to be identified and worked diligently, or they will become more difficult with age in the same manner a fine wine becomes better with age, by sitting around and aging. The difference is your customer is driving and causing your collateral to lose value with every mile whereas your wine is sitting in a wine cellar aging gracefully, increasing, noty decreasing in value.

Many forwarding companies do a good job, but if they're paying a tow jockey with marginal, if any insurance a $175 repo fee and then charging the client a $475 repo fee so they can make their margin that they're losing because 50% of their deals are being worked on a contingent basis, the client, and the successful repo agent who doesnt get the deal are the one's taking it in the shorts, not the forwarder. I"m not saying a repo agent needs to get paid on every close, but they should expect to get deals with verified addresses, one address at a time (two if there is a POE) and if they resolve that address in a positive manner, they should get something for their effort. This allows you to move the account to the next queue, and by doing so, you are addressing and not pushing aside your risk.

Forwarding, as it currently is being used, and from what I've seen, is not good for the finance industry, yet accounts are assigned to Forwarders thousands of times a day. Forwarders now control a material portion of the repossession assignments, which is scary when you see how most of them are operating their companies. That's a challenge lenders face, and the solution is to re-establish direct relationships with solid repo companies they identify, and then use software and training to manage the process. I know why Outsourced Repossession Management made sense in the 90s, but as I see how it's evolved, I believe it has trended in the wrong direction and that's a challenge lenders who use Forwarders face.

Some things were meant to be outsourced, and while early stage collections on an account that is not a high risk is a good idea, outsourcing the management of your entire repossession portfolio without a clear understanding of the relationship between the Forwarder and the repo agent and the metrics behind that to verify what you are being sold is accurate, its a recipe for disaster. I think the assignment and verification of specific pieces of your portfolio like impounds and assignments in remote locations is an idea worth paying a mark up for, but there is no reason to pay the mark up to a guy pushing the paper when you can, and are better off, making those decisions yourself.

If you are a lender and agree with some of what I've said and would be interested in speaking with me about becoming a beta test user for our software, please contact me at 916 730 3335 or jlewis@FindJohnDoe.com

OK JJ, now you can ask your programmers to limit the replies to people's posts to xxx characters. Sorry for rambling about a subject I'm passionate about, but this industry has been good to my employees, my family, and to my wife and I, and if we can somehow give something back, we're hoping it can be through the technology we've created with the software we've written that's based on thirty years of experience as a lender, a vendor, and an outsider who is now back in.

John Lewis
President
FindJohnDoe.com

It ain't over..

I just got back from a family vacation in Mexico. Through the years, we've been to all the major resort cities, and Ixtapa and Puerto Vallarta have been our favorite to date. We last visited Cancun when we were first married, and during that stop we took a cab to Playa Del Carmen to catch a boat to Cozumel. This trip had us staying at a friends place in Playa, with a couple nights on the back end of the trip at a resort in Cancun.

When we last visited Playa, the year was 1989. I recall it being a lot like Ixtapa's port city, Zihuatenejo. Old Mexico.

We arrived in Playa at night and immediately noticed the remarkable changes in the town. It had a vibe on the main street, 5th Avenue, that reminded me of a street in the Latin Quarter in Paris; lots of people on vacation partying together at all the upscale and neighborhood restaurants, clubs ad bars. Most had outdoor tables and the people watching was as good as it gets.

While down there we stayed at a place called Porto Playa, a condo/hotel. It was built by a guy named Jack Perlman and even though the place was a few years old, it was like a brand new development that someone had plucked out of an upscale US beach town and transplanted in Playa Del Carmen. Jack is a former executive with the NY Yankees and he retired from the hustle and bustle of the states to develop property in Playa.

Like us, Jack stumbled on this town back in the late 80s. He saw the potential, so he rode out the real estate boom in Manhattan and he found some partners and they started buying property in Playa. He's built three or four projects and each one is magnificent. I have to believe he's also been one ofthe catalysts in helping urbanize Playa. While its always had white sand and beautiful warm turquoise water, what it lacked was nightlife, and a place Americans, Europeans and Canadians could invest in and feel comfortable. I know a couple people in our town who have invested in his projects in Playa, and they couldnt be happier.

Direct Repossession vs Forwarding - Price vs Cost

Repossession Forwarding – Price vs Cost

Newspapers and TV crews love to tell stories about Repo Men, but the stories I’m seeing lately seem to be more about the Forwarding Industry than the Repossession Industry.

FROM USA TODAY 2/29/2009

Violence up between Repo Men, Car Owners

HALSELL, Ala. (AP) — Alone in his mobile home off a winding dirt road, Jimmy Tanks heard a commotion at 2:30 a.m. just outside his bedroom window: Somebody was messing with his car. The 67-year-old railroad retiree grabbed a gun, walked out the back door and confronted not a thief but a repo man and two helpers trying to tow off the Chrysler Sebring. Shots were fired, and Tanks wound up dead, a bullet in his chest.

The man who came to repossess the car, Kenneth Alvin Smith, is awaiting trial on a murder charge in a state considered a Wild West territory even by the standards of an industry that's largely unregulated nationally. Since Tanks' death last June, two other repo men from the same company Smith worked for were shot, one fatally.

Smith worked out of Birmingham with XXXXXXX Recovery (Repo agency) , a subsidiary of the Chicago-based XXXXXX Services (Forwarding Company). The same recovery firm employed a repo man who was shot and killed on Jan. 8 in Birmingham, as well as a third worker who was wounded while towing a vehicle in the city on Feb. 10.

I removed the name of the Repo Company and the Forwarding Company that hired them because my point is not to bad mouth a specific company, but to make a point about the state of the Forwarding Industry.

Before I do that, let me give you a little bit of history. I know a little bit about the “Forwarding Industry”. I started a company in 1994 called American Recovery Services, or ARS, as it’s known in the industry. It was one of, if not the first large volume Forwarding Companies, handling upwards of 50,000 assignments for repossession a year in the mid to late 90s.

We started it by accident. We had formed one of the first Skip Tracing companies that exclusively serviced the auto finance industry in 1988; Skipbusters. By the early 90s, we had several hundred Repossession Companies across the United States under contract to repossess the cars we located on the skip accounts we worked for large financial institutions.

One of our clients was VW Credit, and ironically, I had been one of the first VW Credit employees back in the early 80s when they first started financing cars in the US. VW had hired Chrysler Credit to manage the finance and collection process, and I was a Chrysler employee. By 1994, VW had split from Chrysler and they had gone out on their own, and I had done the same.
I’d landed VW as a client at the first repossession company I had started in 1990 with my wife and a business partner; Crown Recovery Services in L.A. By early 94, we’d sold our half of Crown and we’d started River City Auto Recovery at several locations in Northern California. We were doing all of VW’s repossessions in Northern California, and we were also were handling several hundred skips a month through Skipbusters.

While visiting VW’s HQ they asked us if we would be interested in managing their repossession process through our nationwide network. We did some research and formed ARS within a few weeks. We never called it “Forwarding”, in fact, we never even gave it a name other than ARS. By the late 90s, all the national auction houses had jumped in and started similar companies, and even Manheim got back into the business with their acquisition of ADT in 2000, even though in 1994 when I first started researching the formation of ARS, they told me they tried it a few years earlier on a small scale and almost immediately got out because it was just too difficult a business to manage. Interestingly, I heard last week they were recently sold to XXXX Forwarding company, probably a smart move on Manheim’s account, if they got a good price and didn’t have to guarantee revenue. It’s tough to run a successful Repossession company, and running a successful Forwarding company is even more challenging, in my opinion.

So yes, I know a little bit about the Forwarding Industry, and what I’ve seen recently is not something I’m proud of when my name is mentioned as a pioneer of this industry.

Here’s another recent, similar story:

From NBC Augusta, GA. 4/13/2009

Repo Man wanted for murder of Augusta Man

MARTINEZ, Ga. - A vehicle repossession turned deadly. The man called his lender to have his vehicle voluntarily repossessed. "As the reposessor was attempting to leave with the truck, he was causing damage to Mr. Jacob's vehicle, it was a van," said Captain Steve Morris with the Columbia County Sheriff’s Office.

"When the truck came forward, he hit me. I was able to push off and get out of the way," said the man. His friend of 20 years, William Jacobs, wasn't as lucky.

"They went diagonally across my front yard and I saw Bill falling and I saw the guy turn and he ran over him...and he never slowed down," said the man. Jacobs was taken to the hospital, where he died.

Now the couple who hit and killed him is on the run and wanted for murder.

Columbia County investigators are working with the repo company, (XXXXXX Forwarding Company) and XXXX (Tow Company) to help find XXXXX and XXXXXXX.

And here is another one…

Tow Truck Driver Arrested, Charged With Hit And Run

By RNW Staff Writer Hayden Jennings • on June 15, 2009 (Rome, GA.)

Police arrested a local tow truck driver for felony hit and run after he ran allegedly ran over a woman in what police are calling a car repo gone wrong. Residents began giving the driver problems after he failed to produce any paperwork dictating the repo. As the situation continued to escalate, the driver reportedly brandished a hand gun and jumped into the wrecker. At that time the victim, Tina Ferguson, 41, of the same address, walked in front of the wrecker and was struck by the front bumper. The collision sent Ferguson into a barrel roll beside the truck before she rolled under it and was struck by the rear wheels as the wrecker left the scene.

The common denominator is the unprofessional and downright criminal actions of the repossession agents in question. The other common denominator is the fact that most, if not all of these accounts were assigned by the finance company to a company they trusted to handle the management of the repossession process for them, i.e. Forwarding.

In 1994, I believed Forwarding was a good idea, and even today, it still makes sense for some clients who struggle with the repossession management process. The problem is that like everything else, costs of doing business have gone up, and as a result, many forwarding companies are lowering the rates they are willing to pay the repo agent in the field to make sure they can make their needed, or desired margins. I’ve heard some repo companies offering their prospective agents $225 or $250 a repossession, and half that on a voluntary, which very well may be why there are two towing companies mentioned in the stories above.

If you wanted to get Lasix surgery on your eyes, would you hire someone who doesn’t use the best equipment, isn’t licensed, or doesn’t have a successful track record with solid references? Repossessing a car isn’t performing surgery on someone’s eyes, but if I own a finance company and I know what I have learned in the nearly thirty years I’ve spent in this industry, I’m not hiring a tow truck driver to pick up a voluntary just because he will do it for less than a qualified repossessor. I’m also not hiring the cheapest repo guy in town unless I’ve made damn sure he is also the best in town, and those two denominators do not usually mix.

I believe Forwarding companies hire these second class repo and tow jockeys because the deal they cut with the finance company is based more on price than it is on results. They also do this because the finance company doesn’t hold them accountable unless a serious problem arises, and the finance company doesn’t perform the due diligence they should be doing before they give them their first assignment. If they did, many of these Forwarding companies wouldn’t pass the test, and then the one’s who do Forwarding would only be able to perform the services at a certain rate, because otherwise they would go out of business as it’s not inexpensive to properly run a legitimate Forwarding business, Skip Tracing Agency, or Repossession Agency for that matter. The Finance Company would also make sure they knew exactly who the repossession company was contracting with, and instead of not wanting to know, they would demand to know not only who their approved agents are, they would audit them and ask to see the contracts, their insurance policies and the endorsements naking the Forwarding company, and they would perform an acid test on their Forwarding companies policies, procedures and practices to insure that an assignment to a sub-standard repossession agency, or an unlicensed or unqualified tow company would never happen on one of their assignments.

Since I started in this industry in 1982, most clients I’ve known have been focused on getting their repossessions performed for a lower price. I was trained this way at Chrysler. Once I started my first repossession company, I started to see the other side of the picture. Through the years, I’ve built relationships with a few forward thinking clients who have allowed us to charge a fair fee that could be evaluated and renegotiated as we delivered or exceeded their desired results. As I’m building Find John Doe, I’m trying to work with clients who think this way, and I applaud the vendors we do work with who hold their companies to the same core business values. If a client asks us to perform a skip locate for less than our normal rate, I tell them that I just can’t do it as I’ve built an organization that produces results, and we have a level of expected results we have to meet or we would go out of business. Lowering our revenue by even a few dollars makes it that much harder to meet our expectations, and our employees expectations. We work from a results-driven fee basis. If we don’t find people and get the collateral recovered, we make no money. This means I have to build an organization that finds people, or at least enough people to make up for the one’s I don’t find.

Many repo agents say contingency is bad, and while I agree to some degree, it is the way our industry has been built. It will take a long time and some forward thinking clients to make a change. I believe if the repossession fee is high enough to cover the accounts that are not repossessed, and if there is a secondary fee that can be generated for the agent who gets out of his truck and generates a positive resolution, and most importantly, if the repossession company gets a positive resolution on a majority of the accounts they receive, they can make a profit. If they spread themselves too thin and try and cover too large a service area, the chances of making a profit are reduced. If they take on more work than they can handle, the chances of making a profit and building lasting client relationships are reduced. Based on my experience, I’m confident that if the agents we contract with can track their results and build relationships with our company based on results and trust, they can grow a solid business.

The only problem with this is there are times when our industry makes no sense, and then it’s almost as if we have to start all over again in trying to legitimize what we do. A typical example of this is when a client assigns an account for repossession and lets say the balance is $20K. If the agent repossesses the car, the client pays them between $325 and $395 on average, and then the car goes to auction and they lose around $10K. If the repo agent makes contact and as a result the customer pays the account current, avoiding a repossession and a potential $10K loss, the client doesn’t pay the agent more money, they usually pay them considerably less, and in some cases they pay them nothing.

As I approach my fiftieth birthday and the twilight years of my career in this industry, it would be nice if I could have a hand in helping clients see the benefits of building relationships with their vendors that are results based, with fair fees paid to the vendors that are justified by a solid ROI for the client, and for the vendor.

In another example, I had an agent tell me the other day that they had a client giving them about 100 accounts a month for the past several years and they were charging somewhere in the range of $350. They tracked their stats and were getting close to 90% of the accounts either repossessed, or the people would pay from the direct contact they were making in the field and they charged them a $150 cure fee. The agent said they were considering asking the finance company for a 5-10% raise because the cost of fuel, state of the art technology, health and unemployment insurance increases and now that their staff was more experienced, their staffing costs had gone up and as a result of these expenses, their profits had been reduced to barely above a break even at $325 a repo, even when they got 90% closed or recovered. The agent called and asked for my opinion and I suggested they open their books and show the client how their margins had been cut, but their performance had been consistent and even if they couldn’t raise their fees enough in one year to make up the difference, maybe they could get a 5% raise, and an extra 5% if they increased their positive resolution to 92% from 90%.

I didn’t hear back from the agent and about a month later I put in a call to follow up. Unfortunately, what I heard was not surprising. Before they made that call they got a call from the new collection supervisor who said they would have to reduce their price to $325 or they wouldn’t receive any more business as they were going with a national forwarding company who was charging $325 a repo.

This is a typical example of a story I hear many times over. If the Forwarder is charging $325, then what are they paying the repo company and what is the quality of the repossessor they’re getting for $225 or $250 - see above stories for the correct answer. How much will the lawsuits in the above stories cost the finance companies? I guarantee it will be seven figures, plus the intangible bad press every finance company seems to be most scared of.

In this example, if the forwarder still got them a 90% recovery rate on an annual basis, they would be saving $25 per repossession, or a total of $27,000 for the year. I’ll bet the average charge off this finance company pays for every full balance skip charge off is about $15,000. So, if the Forwarding company got them a 70% recovery rate, which is a high rate for a typical forwarding company, that would be 20 less repossessions a month, or 240 less a year. At $15,000 per charge off, that’s a loss of about three and a half million dollars a year.

As I’ve said, using a company to help you manage the repossession process can be a benefit, but make sure you hold them accountable. If you have a repossession agent that’s getting you 80% or higher and they meet your other requirements, use the forwarder in the areas where your percentages are less, or in remote areas, and keep the company who has earned your trust and find a way to incentivize them to get an even higher percentage and pay them what they’re worth.

“Is it Price you’re concerned about, or is it cost?” One of the most famous sales consultants of our time, Zig Ziglar, wrote the gospel to this question, and ultimately it’s answer. If you haven’t heard him speak on this topic, please take the time to Google his name and listen to one of his podcasts, which are available on line for free. It certainly can be applied to the Repossession and the Forwarding industries.

Decrease in Forwarding Industry likely

After a six-year sabbatical away from the repossession industry, we formed Find John Doe in 2007. For the past two and a half years, we've focused on building a solid skip tracing agency. Simultaneously to doing this, we've been in the development phase of a software product that we believe will streamline the analysis and management of high risk collateralized loans.

When you operate a skip tracing company, you find some clients want to just get the location of the collateral from you and some clients want you to manage the whole process from locate through repossession. Based on my experience, I can confidently say there is a significant difference in productivity between the two ways. When we pick our own agents, we control the process to some degree. In doing so, we eliminate the middle man, which is what the client becomes when we give them the locate and then we have to wait and find out what happened. In a sense, it's almost like Reverse Forwarding, and as I get further into the industry and the processes and procedures, nuances, and guidelines that dictate how many clients operate, it causes me to reflect on the Forwarding part of our industry.

When VW Credit assigned every one of their repossession assignments to my company in 1994, we didn't call it Forwarding. American Recovery Services (ARS) was a Repossession Management option for VW and many other Sub-Prime lenders in the mid to late 90s. In hindsight, I now see why this option became so popular.

In the 80s I worked at one branch of many for Chrysler Credit. When I was a collector, I had several options of companies I could assign my repossessions to, and I knew every one of these companies, and I knew their owners as they would come in my branch quite often. As a result. it became a manageable process to know which one's performed better than the others. When I was transferred to Long Beach, then Cerritos and then at Mitsubishi Acceptance, the process was the same. I knew the repo companies and their owners and I knew who was good, and who wasn't.

In the early 90s the auto finance industry consolidated. Chrysler Credit, for example, became Chrysler Financial and they went from about 100 branches to four. As a result, those collectors didn't personally know the repo agent, and at the same time the management of the repossession process started to become more and more difficult. For one thing, auto sales started to climb and with that came more units financed. In the mid 90s, Sub-Prime finance became commonplace, which meant repossessions increased significantly. While all this was happening, technological advances were taking place and this was a big advantage for us at ARS as we were the only company I knew of in 1997-98 that could receive assignments and send updates in bulk via email, a much more efficient way to manage volume. We also were tracking stats that clients did not have the capability of tracking, as their legacy systems were old and obsolete, and their internal IT resources were non-existent in many cases.

Due to these factors, sending all your repossession assignments to a Repossession Process Management firm like ARS made sense. The cost benefit analysis we would perform would show potential clients that they could not only save internal costs to manage the process, but they also could save losses as we had an inside knowledge of how these repossession companies operated that most people in the finance industry did not possess, so it was easier to get them to perform at desired levels, and if they didn't, we recognized it immediately and we sent the work to another agent we contracted with if the first agent couldn't correct their deficiencies immediately.

Little did I know that this sub-industry within the auto finance services industry would explode. Today, a significant amount of repossession assignments are ran through "Forwarding Companies". Tens of thousands a month.

Conceptually, it's the same process we developed when we built ARS in 1994. The difference is the forwarding companies margins have increased significantly, which means in many cases they are now using Sub-Prime repossession companies as they are unable to get Prime repossession agents to run their accounts as they are only offering a repo fee that is considerably below market rates. They are doing this more frequently as the competition has heated up in the Forwarding industry, and I'm now hearing some Forwarding companies are offering the clients their service for fee's barely above $300. The other day I heard of a pretty large sub prime auto finance company changing from directly assigning accounts to their agents to using a forwarder and the cost the Forwarder was charging the finance company was $310. That means the Forwarding company has to be getting all their repossessions done for $275 or less, and I would guess the average is closer to $250.

The first problem we are starting to see with the Forwarders use of Sub-Prime agents should be scaring the clients to death.

Changes in the Repossession and Auto Finance Industry over the past Twenty-Five years

Today a client asked me how the industry has changed since I became involved in it. When I thought back, I realized there have been some pretty significant changes in the auto finance and repossession industries over the past twenty-five or so years. Many of these changes are things that have changed the way we live, and some are specific to our industry. Its interesting to look back on the past, and as we test and prepare to release our new software, its also interesting to wonder if what we’ve built can have an impact on our industry in a positive way. From the repossessor in the field to the huge auto finance company, both may be fighting for their lives, but in a different way. I’d like to think the software we’re building could have a positive impact on both.

As I reflected on some of the changes I’ve seen, I’ve made a list. Here it is, in as close to the order the changes happened as my memory would recall:

The Computer
Chrysler Credit didn’t have computers when I started there in 1982, at least not at our desks. We had a main terminal connected to Detroit, and we printed hundreds of pages from the computer every day to help us manage our delinquent accounts. Even when I was at Mitsubishi in the mid to late 80s, we still didn’t have computers. Sherlock Recovery was the first place I worked that had a computer, and that was in 1989. I immediately saw the potential to streamline work, and to this day, I still see that potential. As we work to finalize our software, I’m still blown away with the ability that technology gives us to improve our daily workflow.

The other interesting thing about computers is they basically wiped out a whole industry. When is the last time you saw someone using a typewriter? My kids are 12 and 16 and neither has ever used a typewriter. Computers have also gotten smaller, the displays have gone from a thick, green screen to a flat screen with full and vivid color, and now I have a computer in my iPhone that I carry in my pocket.

Elimination of the Field Rep
Chrysler Credit hired me in 1982, and my job title was “Field Representative.” My job description was to audit car dealerships, collect payments from delinquent customers at their homes or jobs, and when the need arose, repossess their cars.
The auditing was pretty boring. I’d go to dealerships and count cars, looking for dealers who were floating on their obligation to pay Chrysler Credit in a timely manner after they’d sold a car. Collecting payments from people was more interesting, but that paled in comparison to the rush I got when I repossessed a car from someone who was playing cat and mouse with one of our collectors.

Don’t get me wrong, it’s a drag when you have to take a car from a nice person who is really struggling. That’s not what I’m talking about, or what keeps me coming back to this industry. What I am talking about is the classic deadbeat, a person who has been given every opportunity to pay, and every chance to surrender their collateral, and now they’ve purposely gone under the radar and they’re hiding form the inevitable. More times than not, either I or my people have become the inevitable for them.

Back in my Chrysler Credit days, I wore a suit, drove a “K Car”, and carried a Curtis Key Gun in my back seat. Using a “key code” and a “key blank”, I could snap off a key in about a minute whenever I needed to take a car. We were supposed to call a professional repossessor, or a “Pro”, when the repossession was too dangerous. No one ever called a Pro because that meant you were a sissy. Besides that, Chrysler was coming off a government bailout unlike any our country had seen in decades, and we were supposed to do everything we could to save a buck.

My territory was Reno, and with it being a pretty rough town, I learned one important thing about taking someone’s car. You need the element of surprise because the last thing you want to get is caught. If you get made, you better be able to talk your way out of a bad situation, because that’s what your usually in the middle of when your taking someone’s car, especially in the middle of the night.

After about six months in the field, I got promoted to being a collector. We’d still go take cars from time to time, but as a collector, I had my own field rep assigned to me. I only had to go in the field for training if my rep couldn’t find a car I knew I could locate. As my job as a collector evolved, one of the main reasons I spent more and more time in the field was to skip trace. We didn’t have all the skip tracing tools that are available now, so when you needed to find someone, many times the best way was to get out and ask neighbors and people who lived or worked near the last known address for the person we were trying to locate. Funny thing is that’s still one of the best ways; it’s just not always practical. As our industry evolves, I believe this part of the business will come back into fashion, but with it will come the financial incentive the clients need to pay the repossessor to motivate them to get out of their tow truck and ask those key questions that you can’t ask when your telephonic skip tracing efforts are not producing the results you need. When we ran our repo companies we tried having non repossessors in the field to make contact and find people, but eventually we gave that up as it was difficult to justify when the clients weren’t willing to pay for any investigation or additional fees beyond a repossession. Now that many are losing millions, I believe we can create a model where our better agents will get out of their truck, acting as field reps in a way, because they know if they produce results, its another way to earn commission.

Chrysler transferred me to the Long Beach branch in 1984. I was sent there with a bunch of collectors from every Chrysler branch on the west coast. The task at hand was to help them reduce their delinquency. They had more accounts over 90 days late than the rest of the west coast Chrysler branches combined. When you have a situation like that, that means you have to repossess a lot of cars. Long Beach didn’t have Field Reps, and when I requested we transfer some in, I was told that wasn’t an option. Chrysler had pretty much eliminated field reps by 1984, and it seemed that Sacramento was one of the last branches that employed field reps.. As it turned out, GMAC and Ford Credit followed suit within a few years, and that pretty much was the end of the Field Rep position for large auto finance companies.

A few years after that, a couple companies started field rep companies. They’d charge $75 and send someone out to make contact or leave a note on someone’s door, but I’ve never heard of anyone who really made an impact doing that. It makes more sense if the guy with the repo order can make the contact, as many times that contact results in an immediate lead and the hand off from field rep to repossessor can cause a delay that loses the opportunity to get the unit picked up.

The Fax Machine
This was a big deal. In the old days, when we wanted to assign an account to a Pro, we had to call their office and dictate all the info to them over the phone. I literally remember my hands being tired at the end of the day Friday as that was the big day for a client to call in 5-10 deals at once.

When the first fax machines came out, the fax paper came in rolls. It also was the type of paper that after a few months, the printing disappeared. We all found that out after it was too late.

Next, the fax machines were built to be able to use regular paper, and then they became multi-function devices that could fax, print, copy, and scan. At American Recovery Service we had five high-speed machines that cost five grand each. They could process hundreds of pages a day at lightning speed, but it was still a cumbersome process. We had to manage this process by having a full time person standing by the machines all day.

Now our fax goes to an email so we can save and easily move documents to the appropriate places. We also can fax out using email to those who haven’t quite caught up in terms of technology.

Cell Phones, Caller ID, 800 numbers and pagers
When I was a Field Rep, I’d leave the office in Sacramento on Friday night with a roll of quarters and a stack of deals on people who were late on their payments. I also had the necessary paperwork to conduct a couple dealer audits. That was my work in Reno for the following week. I was supposed to drive there on Monday morning, audit the first dealership, and then start collecting payments in the field from people who broke promises to pay over the phone. The quarters were to use pay phones to call and check in. I don’t think we had 800 numbers then, or if they were around, Chrysler was not hip enough to have one.
This was six to eight years before Cell Phones, and a few years before Pagers, which came just before cell phones. Due to the fact that it was pretty hard to keep tabs on a field rep working out of town, I’d go straight to Reno on Friday night. I’d start working the delinquent accounts, collecting as many payments as I could over the weekend. On Saturday morning I’d show up at Reno Dodge to do my first audit, and on Sunday I’d audit Reno Chrysler Plymouth.

Between Sacramento and Reno is a slice of Heaven on Earth called Lake Tahoe. During the winter, I was one of twenty or so people who paid a few hundred bucks to a guy to have a key to his six bedroom ski house just outside of Squaw Valley Ski Resort. It was first come, first serve on the bedrooms, and if you didn’t get a room, you got a couch.

I love to ski, and because it was so crowded on the weekends, I’d work all weekend so I could ski during the week. I’d usually finish all my work for the week by Monday or Tuesday, and then I’d have the rest of the week to ski. Without Caller ID, I could call in from a pay phone at the lodge at High Camp at Squaw Valley Ski Resort to check in, and because I had finished my audits and collected most of my payments (or the cars) of those who couldn’t pay, I had the job figured out. I’d still have to make an occasional trip back down to Reno to collect a payment on a deal they would give me over the phone if someone’s check bounced, and as long as they didn’t live in Winnemucca or Battle Mountain, it was no big deal. The most difficult part of the job was explaining the goggle tan I got during spring skiing. With Cell phones, having this type of freedom, with this type of job would have been impossible.

When pagers first hit, they were good and bad. The good part was you now had a connection to people working for you, so it made them more accountable. The bad part was they could drive you crazy. You got a page, pulled off the freeway and struggled to find a pay phone. When you finally found one that worked, you called in to the person who paged you. Anyone old enough to remember these certainly recalls the “911” pages you’d get, especially if you were in the repo industry. Of course, as soon as you got back on the freeway the damn pager would go off again and you’d have to pull off and look for another phone, which was a bitch in South Central L.A. a place that must hold the record for most non-working pay phones.
I remember the first time I ran into a bunch of gypsy accounts in LA in the mid 80s. These guys used pagers and they installed a pay phone in their house so the number was harder to trace, break, pull tolls, whatever. In the old days those practices were common place when skip tracing, but not any longer.

Once cell phones hit, all bets were off. You became accessible at any time, and it helped us quite a bit as we could use them to get help on a repo when you needed it. By then I became an entrepreneur, so now I could keep track of my guys who would have been goofing off like I used to do.

Software
I remember the first repossession software I used. It was about 1988 and it was called PROS, or Professional Repossessors Operating System, I believe. When we went from a manual system to tracking everything about a repossession assignment through PROS, it improved workflow two fold.

When we started our first repo company, we wanted to write our own program. While doing some research, we ran across a programmer in Vegas who had written a program for a friend of mine who owned a repo company there. We bought his program at Crown Recovery back in the early 90s and when we sold our half of Crown and started River City Auto Recovery in Sacramento in 1993, we purchased another version and started working closely with the programmer to enhance the system. The first one was called Recovery Management System (RMS) I believe, the second one was eventually called eTracker, and the web version was called WebTracker. It’s a decent software, and the guys at Digital Matrix, Dennis and David, are first class.
By 1998, we were starting to realize the limitations our software placed on what we wanted to do with the business. While we were one of the first to send and receive large amounts of data via email (assignments and updates) we knew we needed to build a web portal to more efficiently handle the way we communicated with our clients and with the hundreds of repossession agents we contracted with.

I got a call in mid 98 from a guy named Todd Hodnett, asking if I’d be interested in meeting with him to discuss an idea he had. He was a lawyer from Texas and said he already had Letters of Intent from nine of the largest repossession companies in the country and he heard we were the largest repossession organization in the industry and he wondered if we’d be interested in being a part of what he was trying to do.

Initially, he said he was trying to help his Dad sell an American Lenders Franchise in Texas, but as he researched the industry, he realized two things. First off, he wasn’t going to be able to help his Dad sell his business as repossession companies were not the easiest businesses to sell. Secondly, and the reason he was calling me, was he figured out during his research that there was an opportunity to “Roll Up” the repossession industry, as many other industries around us were doing , or attempting to do. He cited an example of a company in the process of their own Roll Up; United Road Services. He said they were a towing and transport company that had put together ten “industry leaders” and some were getting as much as 30x value for their businesses. Obviously, that caused my ears to perk up. I’d just finished selling the Concord branch of River City Auto Recovery, and had previously sold our half of Crown Auto Recovery, but neither generated a 30x return.

Todd and I had many conversations over the next few weeks, and I flew around the country to meet several of the other players in the deal. During this process we hired a CEO with Wall Street experience, John Chapman, and it was decided that our site would become the national HQ once the IPO was completed. John asked if we would do this as we were larger than anyone else, and he felt we could coordinate the anticipated volume. Besides that, we had just built a brand new building and we had a five person IT department at a time in the industry where there probably weren’t five dedicated IT people working as employees for all the other repossession companies in the country combined. Our industry has always been behind the curve when it comes to IT, both on the client and vendor side, and unfortunately, it still is that way to some degree. I can’t tell you how many times I’ve seen eyes roll or heard sighs when I ask a client about getting their IT department involved to help us streamline the exchange of data.

Todd and John flew out to our site in June of 1998 and after a tough negotiation, we signed a letter of intent to sell our company for 5 ½ times earnings, which was a long way from 30x, and had I known then what I know now, I wouldn’t have signed that type of a deal. We also were getting half cash and half stock once the IPO came out the gate, and they showed me how the United Road deal had since gone public and those guys who got half stock that was priced at $15 now had stock sitting above $30 a share, so they’d “doubled their money”. That’s another story, because I still am wiping my back side ten years later with that United Road stock that ended up becoming worthless, but we can talk about that in another Blog.
When John and Todd left, they asked me to write a detailed business plan about how we would manage the ten companies, how we would identify acquisition targets, and most importantly, how we would build the software to run the company. I wrote that detailed business plan over the next two months, sharing it with John and Todd, and in that plan I wrote the outline to build a web based software platform we would build to allow clients and repossession agencies a place to meet and share information on the web.

The concept was called Tow America, and we were going to roll all these companies into one nationwide repo agency via an IPO we had planned for October 98. Unfortunately, the stock market dropped noticeably in Sept 98, and our IPO fell off the table. The deal went from a public IPO to a potential private money deal, and after meeting with a couple sets of Harvard Investment banker types, we were out of the deal on Christmas Eve, 2008. Within a year, that deal completely fizzled and all the other nine companies still own and operate their own businesses, and the best part was I formed a couple great friendships with two or three industry leaders. We, on the other hand, found out United Road Service had silently purchased a small competitor of ours in Sacramento and when we inquired to see if they would be interested in acquiring another repo company, they said they were. On March 23, 1999 we sold our business to United Road, and we were their 66th and final acquisition. Little did I know that I’d just stepped on board of the Titanic, but fortunately I had a great lawyer and he negotiated an almost all cash deal for us, and we were the only company of the 66 who didn’t end up with half stock. The stock I did get is what I still wipe myself with when I use the bathroom, as that’s what its worth. Within a year and a half I’d reached my level of frustration in working as a United Road Service employee, and after nearly twenty years in the auto finance and repossession industries, I got out.
Two interesting things happened a few years later. Todd Hodnett came out with a software product called Recovery Database Network, or RDN, which looked and felt a lot like the software I’d written into our business plan in the late 90s. I’m assuming he got the idea from our discussions as prior to our meeting his knowledge of the repossession industry was admittedly “limited to watching my dad run a business I never wanted to be involved with”. When I started Find John Doe I signed up for RDN after a client required us to do this if we wanted to get their business. I called Todd and congratulated him on building a successful business and I commended him on taking an idea the industry needed and running with it. Another interesting thing happened when the other repo company United Road purchased, PK Willis, purchased my company back from United Road. Now were competing against our old company, which is kind of weird, but no big deal.

When we started Find John Doe, we were pleased to see the eTracker program had also evolved into a web-based software, and we’ve been using that for the past two years. Our clients go to our web site and they can see exactly what we do, in a transparent and real time manner. I think that’s important for the clients to know their deals are being worked, and its important to make sure the work is documented before things happen, i.e. “He paid as a result of our contact” is easier to claim to a client when the phone call and conversation is clearly documented in your software five days before the payment hits and the account closes.

While many financial institutions now use different web based programs to manage the repossession process, we think there is room for improvement that will continue to improve the workflow process. In addition to finance companies, there are still a great deal of repossession companies who need to improve their technological capabilities, or they may face a loss of business to those competitors of theirs who can meet the finance companies increasing demands to share information via the internet, email, etc.

The formation of Mega Call Centers
When I was at Chrysler, we had California branch offices that staffed from 20 to 50 people each in San Diego, Orange County, Long Beach, West Covina, The Valley, a couple in the Bay Area, and Sacramento. I don’t remember how many branches we had across the country, but it had to be at least 100.

I’m not sure which company was the first to start consolidating these branches into large call centers, it may have been American Honda, but within a few years almost all the major finance companies had gone from multiple branch offices to large call centers.

This certainly had an impact on the repossession industry. In the old days, you had closer relationships with your repo agents because they were right down the street and they came in your office. When Chrysler moved from California to Kansas City, it was pretty tough for the small repo guy to get his foot in the door if it wasn’t already there, and even then, many times they got squeezed out.

I’m not positive if it was a combination of the elimination of the Field Rep and the consolidation of branches into Call Centers, but at Chrysler, the companywide delinquency rose quite a bit after these call centers were formed. In Sacramento, for example, we used to carry a delinquency of around .25 of 1 percent, or 25 people out of a portfolio of 10,000 who were 30 days late on any given day. They’ve never seen numbers like that again, and today, it’s unheard of to carry delinquency below one percent, not just at Chrysler, but with any finance company.

The creation of Skip Tracing Companies
At Chrysler, I’d never heard of a skip tracing company. We hired repo companies to find the people we couldn’t find, but their resources were limited and if the skip moved from their service area, that was usually the end of the hunt for them. Besides that, the finance companies felt skip tracing was a part of the price they paid the repossessor for getting the car, so billing anything extra was out of the question.

While at Chrysler, I got recruited to work at Mitsubishi Acceptance about a year after they’d hired Chrysler to help them start their finance company. American Motors and Volkswagen had hired Chrysler to manage their finance companies, so this concept wasn’t new, but instead of hiring Chrysler Credit they retained Chrysler First, which turned out to be a huge mistake. Chrysler First was a division of Chrysler that financed everything but cars, and their inexperience in financing cars showed clearly by the time I arrived as Mitsubishi’s Branch Operations Manager in 1986. At Mitsubishi, I saw more skips my first day than I’d seen in the year I spent cleaning up the mess that was at the Long Beach Chrysler Credit branch prior to my arrival.
At Mitsubishi, I lobbied management to create a skip tracing department within the collection department. They allowed me to do this, and within a few months I had a about a dozen skip tracers working the most difficult accounts. Irene “Hot Rod” Rodriguez, if you somehow read this, give me a call.

In 1988, my wife and I started our first business and I believe we may have been one of the first exclusive auto finance skip tracing companies in our industry. The movie Ghostbusters had been a favorite of ours, so when it came time to name our new business, Skipbusters seemed like as good a name as any of the others we came up with. We sold Skipbusters in 1999, and we started Find John Doe in 2007, our second skip tracing company. Besides those two, there are now over 100 skip tracing companies that service the auto finance industry.

Changes in technology by manufacturers in the ignition systems of cars
In the late 80s I managed Key Auto Recovery and then Sherlock Recovery. While the majority of our repossessors used two trucks, there was a guy at Sherlock named Paul Campione and he could take more cars in a night than any guy I”d ever seen, or have seen since. Paul didn’t use a tow truck. He trained himself to be a locksmith and in doing so, he got into cars with a slim jim. Based on the make and model, he’d do whatever it took to get the car started, from picking the lock to forcing the ignition on with a special “force tool” or he would tear down the steering column in less than a minute and he’d drive the car away using a set of vice grips in place of a steering wheel, after he started it with a screwdriver. He was amazing, and when he asked me if I’d put Skipbusters on hold to be his business partner at Crown Recovery Services, I knew we’d make a great team. By adding my wife to handle the finances, and to keep us in check, we were off and running.

Paul, our other repossessors and one of my buddies, Phil Heithold, trained about a hundred guys to take cars with their hands over the next few years. I sold my half of the business to Paul and my wife and I and Phil moved to Northern California and we started River City Auto Recovery, and in doing so, we would repossess hundreds of cars a month and we still did it without owning even one tow truck. That’s unheard of for a repo company now, and it was pretty rare even back then.
Starting in the mid 90s, auto manufacturers started adding computer chips to keys, and then they started making locks unpickable. By the time we sold River City of Concord in 1998, and then the other River City branches in 1999, we had a tow truck in every branch and the company was on the verge of needing to add more trucks immediately. At fifty grand and up, that’s a lot of money tied up in tow trucks. Nowadays, a decent sized repo company almost needs a fleet manager and an in house mechanic.

Besides the expense and liability of towing cars, we never liked repossessing with tow trucks as they made the element of surprise much more difficult, but given the way they make cars these days, you really don’t have a choice.

The creation of Forwarding Companies
At Skipbusters. we had developed contractual relationships with hundreds of repossession agents throughout the United States. In my prior jobs at Chrysler Credit and at Mitsubishi Acceptance, I’d managed the same process in the Sacramento and Los Angeles areas, so setting up the management of a group of repossession agents was something I was familiar with. To anyone who has ever done this job, you know how complex it can be. For starters, you have to identify as many repossession agents as possible, and then you have to choose the best one’s. Then you have to check references, licensing, workers comp and liability insurance, and a variety of other factors which determine if hey qualify to receive your work.

The process of locating agents has become easier as the Internet has evolved. Back in the day, we would use the phone book, word of mouth, or one of the four repossession associations (Allied, ARA, NFA or Time Finance) who provided guides to the financial community that encouraged the finance companies to use the members of their associations. This seemed like a good concept, but for me the problem I’ve always had with these associations is they would usually charge more money than other agents I found in the area, and I always felt there were conflicts of interest. An example is that some of these associations would charge prospective members tens of thousands of dollars to join, which is a way to keep the membership low so the agents in the book would have less competition. As an entrepreneur, I believe competition makes your business better, and a lack of competition makes your business weak. Another example just happened to me the other day. I had a problem with a repossession company we used who was a member of one of these associations, so I called the associations HQ for their assistance. They referred me to the head of the grievance committee, which happened to be a competitor of the company we had an issue with. After we spoke about the problem I was having with their competition, the head of the grievance committee suggested that next time I use his agency and then I wouldn’t have these kinds of problems. If that’s not a conflict of interest, I’m not sure what is.

Once you locate an agent to use, you need to agree on fees, and then you ask for a copy of their Liability (and Workmans Comp) Insurance and you make sure the limits meet your needs, the carrier is a legitimate Insurance company and not some fly by night offshore carrier, and then you have to follow for a certificate naming you as an additional insured or a certificate holder so if the policy cancels, you are notified in advance of the cancellation. Then you need to discuss your service needs and expectations, and ideally you want to enter into a contract so the relationship and liability issues are clearly spelled out. The next step is make sure you know their service area, and then you need to be able to handle the flow of work, from assignment through repossession. If the repo agent doesn’t get the car right away, you need to communicate with them to find out why they haven’t repossessed the collateral, ideally helping them in any way you can. Finally, you would also want to set up tracking methods to insure they are doing the job as per your expectations. As you can see, it’s a complicated process, especially given the challenging nature of every assignment and the importance of having the best possible repossession agencies working your accounts.

When VW Credit split from Chrysler in the early 90s, they hired Duetsche Bank to do what Chrysler had been doing for the prior 10+ years, manage every aspect of VW Credit. When they split from Duetsche bank, VW hired many of their employees and they started their own finance company. It was still called VW Credit, but for the first time it was owned and operated by Volkswagen. At the time, I was working with Paul starting Crown Recovery in L.A., and when the opportunity arose, we handled all the VW repossessions in the L.A. area, one of their major markets. After Crown, we did the same for VW in Northern California, handling their repossessions exclusively through River City. We also did the majority of their skip work through Skipbusters, and when we saw they were struggling in the repossession process in other parts of the country, we suggested they consider allowing us to use the network of repossession companies we had contracted with through Skipbusters to manage their repossessions in the remainder of the U.S.

They agreed to try it, but before we took the plunge, I called a manager I found at Manheim Auto Auctions to ask him about their experience in managing the repossession process. A couple years earlier, they tried to manage the repossession process for some of their clients, and the guy I got a hold of said they failed miserably because it was too difficult to find good agents, they still had several lawsuits they were dealing with, and “the trouble wasn’t worth the effort.” Manheim had done it to “drive more cars to their auctions”, he said. I was a little nervous after hearing some of his war stories, but since we had confidence in our agents, we told VW we could handle it.

In 1994 we formed American Recovery Service, or ARS as it became known. I’ve since discovered that another large repossession company, Minnesota Repossessors, had entered into a similar arrangement with one of their largest clients at the same time we formed ARS. To my knowledge, we both were on the cutting edge of the formation of what is now commonly known as the “repossession forwarding industry.” I refer to it as an industry, as I would estimate that at least 25% of all repossession assignments, possibly as high as 40%, now go through forwarding companies. Interestingly enough, one of the companies who got back into forwarding a year or so after we started was Manheim, and they were followed shortly thereafter by the other auction houses.

By the late 90s, the sub-prime auto finance wave had hit and we picked up several more clients who needed this type of services. By the time we sold ARS in 1999, we were the largest repossession organization in the country at the time, handling over 4000 assignments per month. Today, I’ve heard a handful of forwarders handle over 10,000 assignments a month. I think the main reason this industry within the repossession industry has become so popular is due to the complexity of the repossession management process, and the fact that it’s so difficult and expensive for clients to manage, and the forwarding companies can provide a valuable service for the lenders.

We used to charge a $75 fee for every assignment, and we would send a copy of the repossession invoice to our clients with our bill so they knew how much we paid each agent for every repo they performed. In looking at this industry recently, it seems as if some of the forwarding companies are now marking up the repo agents bill by amounts that can be two or three times the $75 we used to charge. I think that’s a shame, and it certainly wasn’t what we had in mind when we cut our first few deals with our clients. I think the management of the repo process by repossession industry insiders can be a valuable tool for lenders, but I also believe if a client is willing to pay $450 or more to a forwarder, they owe it to themselves to know what the forwarder is paying the agent, and if its under $300, which I hear is still happening, then maybe they should re evaluate what they are paying the forwarder.

Forwarding should be a service with a set mark up, with some incentives for overall performance, and the repossession agents should be rewarded with a fair price, and more business and some financial incentives when they perform at or above expectations.

Email
Before the Internet made a large impact on the repossession and auto finance industry, there was email. Obviously the Internet came before email, but it was through email that we first began to realize how to communicate effectively in a way that didn’t include a fax machine.

We had a client in the mid 90s who serviced many portfolios of sub-prime paper for Wall Street investors. In fact, they were the largest servicer of sub-prime paper in the country at the time. Mitchell Sweet of Loan Servicing Enterprises (LSE and later MSA Solutions) was a very innovative businessman, and when he told me in a meeting that it was my problem and not his that I didn’t have the capability to communicate electronically with his company, it made me realize that this was the beginning of how finance companies and repossession or skip companies would be communicating. That was 1998, and surprisingly, as were now in 2009, I’m amazed that many large finance companies still haven’t embraced the need to advance themselves in regard to technology in a way that can increase their efficiency by a margin that will significantly exceed the return on their investment in adding IT staff and additional resources.

At the time, we were receiving thousands of deals a month and they all came by mail or fax, mostly fax. We had just started using email, probably through AOL, and I had no idea that we could send deals in a spreadsheet through email, eliminating the fax. With LSE leading the way, we got down to one fax machine as he sent us the deals by email and we sent him back the updates every day by return email, and we wrote scripts to automatically populate our systems with the data we were sending each other. It saved us hundreds of man-hours a week, and thousands of dollars.

The other thing about email is the whole dynamic of how its changed our lives, how we communicate in business and in our personal lives.

Mobility, Portability and other cool technological advances
My office phone forwards to my cell, or it goes to my voice mail and sends me an email on my iPhone. This is one small example of a way to make sure I stay in touch with my clients, 24/7.

You can now get your calls and email outside your office, and no one outside your company knows your not at your desk. The freedom that gives a person makes their lives easier in many cases, but it also can cause a hardship on your family life when you don’t know when to “turn it off”.

I went skiing in Vail for Spring Break and found it interesting that I could ski down long runs and then manage my emails on the lift back up the mountain. My bro in law gave me a hard time for not getting away from work, but his company is 10 years old and mine is 2, and as a start up, I still feel the need to be involved on many things and by having the email access on my phone like that, it actually allowed me to relax while being away for a week, versus wondering what's going on.

Click to dial, screen pops, Trap Lines, soft phones, broadband versus dial up, etc, etc.
As you can see, there are many things that have come to market that have increased the productivity of the repossessors job in the field as well as the repossession companies ability to work more efficiently.

I mentioned phone breaks earlier. In the old days we used to break phone numbers every day. We hired a guy who told us the address to a phone number, etc. Since starting FJD, we havent done that once, which amazed me at first, but there have been laws written which just dont make the risk wrth the reward, and with all the info available on line about people, its not as important as it used to be.

The Future:
Now that we’ve looked at the things that have changed, what will the future hold for our industry? We’ve been working on a new software program that we believe will have an impact. I also wonder how much longer state governments will continue to allow repossession in the form its currently in. It seems a bit like Cowboys and Indians to go steal someone’s car legally in the middle of the night. In these times were seeing more repossessors getting assaulted and that’s scary. I would think that at some point the courts would take over the process, unless the customer surrendered the unit voluntarily, but the lenders may have enough control to prevent that from happening for a long time.

Web-Based Communication
We’ve seen one or two attempts at bringing a web-based software to market that let’s the finance community communicate over the web with the repossession community. This is an idea that has been around a while, it just hasn’t really taken off in the way I believe it can. The current versions kind of look like what I envisioned back in 1998. While it’s better than how we used to do it, I believe there’s still quite a bit of room for improvement in this area.

Can we get a little respect, please?
For too long the repossessor has been treated unfairly. They put their life on the line, and they are true professionals, skilled tradesman. They perform a thankless job, where every one of their customers is unhappy to see them and yet, they still perform night and day, weekends and holidays. When they do perform at a high level do they get an extra reward? Rarely. Are there performance incentives from clients to get collateral that’s closer to charging off, or has a higher value, usually not.
The compensation a repo man or a repo company receives sounds crazy to people who don’t know our industry. A guy repossessing a 1982 Ford Escort worth $500 gets paid the same for that repo as he does for a ninety thousand dollar Mercedes S550 he may repossess in the same night. Why is that? Who created that rule? I think it’s about time that changed, for the benefit of the finance companies as well as for the benefit of the repossessor. The collector may want them working the Escort as hard as they do the S550 because it may mean the same thing to them, a reduction in their delinquency. I guarantee if upper management took a harder look at this scenario, they’d realize it would make more sense to incentivize them to work harder to get the S550 as it will cover the loss of 100 Ford Escorts.

Lately, it seems as if the prices being paid are going down, which is crazy. While we may have had a hand in the creation of the forwarding industry back in 1994 when we started ARS, we never envisioned the price war that’s going on now. Forwarding Companies are fighting for business, and somehow the prices keep coming down. I heard the other day about a forwarding company charging $310 to repo cars nationally. What are they paying the repossession agents, and how are they finding reputable companies to do their work? I’m guessing they aren’t, and they’re using companies without sufficient insurance, manpower, technological capability, etc. It’s the old price vs cost equation, and I guarantee the finance companies overall cost will go up by their trying to lower the price of the repo.

By now most of you have heard about the forwarding company that hired a tow company to pick up a voluntary and the tow driver ran over a person and killed them and then took off.

http://www.nbcaugusta.com/news/georgia/42931402.html

Many forwarding company have had questionable things happen on other accounts assigned for repossession, and from my experience, these problems happen when you try and hire companies or individuals who are not qualified to do this type of work. This almost always happens when the hiring decision is based on price, i.e. who will do it for the least amount of money. If a collection manager was going to have surgery, would they shop for price, or try and find the most qualified person to do the job?

License Plate Recognition
This has potential, but in order to see the traction needed to have an impact, the stars have to line up in a number of areas. For starters, lenders need to actually record the plates on the cars they finance and then make them available in a manner that allows repossessor’s to know at 3am if that car is really still out for repo. It also will help if someone can strike a deal with the DMV’s in state’s like California who could make the process more effective if they’d allow an export of their database on financed cars when the lenders don’t have the plate recorded. Last, there needs to be a more comprehensive effort to get more camera’s out there recording plates. When there’s a camera on every UPS truck recording all the plates they see in a day, and there is a centralized database where finance companies can go to see if their unit has shown, and then they can recover the unit for a reasonable price, this could be a viable product.

Repossession Company Consolidation
As I detailed earlier, in 1998 we were part of one of the more serious attempts to consolidate the repossession industry.
As the repossession industry has evolved over the past ten years, we’ve seen some regional repossession companies that have grown to levels that the industry has yet to see. We used to think it was a big deal to repossess a few hundred cars a month, and now some of these companies are repossessing thousands of cars a month, with multiple branches that handle several states at a time.

Given the track record of other industries that have rolled up multiple companies to form mega companies that handle sizeable amounts of volume in their industry, I believe its just a matter of time before that happens in the repossession industry.

Geospatial Mapping Technology
We all have seen Google Maps and every other mapping product, and while its cool to see your house up close on Zillow, there is a lot more that can be done with this technology that will help our industry. When I managed or owned my own repossession companies, I always believed the secret to our success had as much to do with the routes I put together for the repossessors as anything else. Nowadays, it seems as if a lot of companies have a guy cover a territory and they leave it up to each of them to route themselves. I’m sure some repossessors can handle this, but a person can only work so many hours. The organizational skills needed to efficiently manage a large queue of accounts in a specific area, where deals have to be ran at all hours of the day and night, must be a challenge for many repossessors and repossession agencies. As an example, we had day, swing, night and weekend shifts, and every one of those was given a specific route of where to go, which was based on our needs, or our clients needs, on any given day. For this reason, I can see where mapping technology can start to play a more important role in the efficiency many repossessors and repossession agencies gain as they begin to merge this technology with their repossession management software.

GPS technology
We’ve seen where you can put a tracking device on your car to monitor where your kids are, so I’m guessing it’s just a matter of time. The product is out there, has been for years, but its never really caught on because the amount of loans that default is so low it doesn’t make financial sense, with the exception of deep sub prime lenders.
Additionally, GPS has all but eliminated the need to use Thomas guides or other mapping books that repossessors used to use to create their routes, or to locate an address.

Also, there are some pretty cool tracking programs that work on iPhones where you can track where the caller is at, if they’re calling on an iPhone. We watch the laws closely and try and find ways to stay a step ahead of the skips, but it’s a challenge.
iPhone

The iPhone continues to grow in terms of its penetration of the market. There are so many tools available to the repossessor who carries an iPhone, or in some cases a Blackberry or another form of PDA that doubles as a pocket computer. From GPS to location tracking to email to its camera functions and the ability to easily email a status update or a photo of the collateral they just repossessed, or the house they just checked, I believe you will see agents in the field becoming more efficient as they use their iPhone or another similar PDA for some of these features.

Phones with wires
I guess if I’m mentioning iPhone I should mention that all phones used to have to have a cord to attach the handset to the phone.

The elimination of forwarding companies
In the past several years we’ve seen the growth of many mega-agents, repossession companies who cover whole states, multiple states, or who have multiple branches within one state. Years ago we saw American Lenders try to give the impression that they were a true nationwide option, but given the fact that they were independently owned and operated, each branch was only as good, or as bad, as the person who owned it. For hat reason, American Lenders is basically a non player in the repossession industry.

As more large companies like these expand, or are formed, it means that the finance company now has a smaller number of agents to manage, making the process easier and that should result in their decision to pay someone to manage their repossession process less likely.

Another factor is fees. I believe you will see more companies bringing that process back in house versus continuing to outsource it to a forwarding company. Why pay a forwarder so much to manage a process that you can manage yourself as the software options to manage the process improves, and the need to have several hundred agencies decreases.

Skip Forwarding
We’re rolling out a hybrid of skip tracing and forwarding called “Skip Forwarding”. We pay the repossession agents more than the forwarding companies instead of less to repossess and to generate positive resolution of the accounts. We don’t have a desire to get back in the forwarding industry, but since we skip trace and since we see many forwarding companies calling an account a skip when it really isn’t, we see a need for a service to handle these accounts that fall in between repossession assignment and skip tracing. Eventually, we’d like to see the clients using our software to assign these type of assignments direct, as we don’t really need to be involved in the process. The idea is to incentivize the repossessor to work the deal harder just before charge off, which means paying more money. We’ll see how this goes and I’ll report back in a few months.

I’m sure I forgot a few things, but it was fun thinking back about the things I’ve seen that have changed, and I enjoy thinking about the future of our industry and what it could evolve into.

John