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.