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Monday, February 28, 2011

The State of the Repossession Industry -2011 -

The State of the Repossession industry: 2011

A friend asked me, “Can you explain the repossession industry?”
“Funny you should ask”, I commented, “because after reading blog after blog, and comment after comment about all the in-fighting and grandstanding that’s been going on in the repo industry lately, my knee jerk reaction was “Wow, that’s a loaded question”.

“Why is that? she asked.

“Well, for starters, repossession in general has always been a highly fragmented, mom and pop kind of industry, but it appears to quickly becoming more corporate, and those who don’t take the steps to keep up may find themselves left in the dust. We seem to be on the verge of a great deal of consolidation activity as larger players have emerged and they need market share to survive,” I said.

“In the past couple of decades, and especially in the past ten years, many of these mom and pop operations have grown, some due to a passing of the torch to a younger generation within the same family, and some due to new blood coming into our industry, and many of these “newbies” are not afraid to take the risk required to rapidly grow their organizations, ” I explained.

“Ok, so why the fighting?” She asked.

“Well, that’s the tricky part. Let’s start by looking at the players:

Lenders- this is where it starts- these companies loan money and they range from small finance companies in your local shopping center to credit unions to small, medium and large banks as well as companies built to finance a certain manufacturers car, and these companies are called “Captive’s”. General Motors Acceptance Corporation (GMAC) was a captive that always used to finance only GM products, or sometimes other models if they were sold used off the GM dealer lot, but like many companies they got in trouble. Our Government helped them out last summer by making them an offer they couldn’t refuse; “Become a bank and be open to financing anyone, and help out Chrysler btw, and if you do that we’ll give you TARP funds and you will succeed if you follow the plan”. They followed it better than anyone expected, probably because unlike most start up banks they had the deck stacked with GMAC veterans, and their catchy marketing plan and 24 hour internet based business model came on the scene at just the right time and now they’re either on pace to pay all the money back or they’ve already paid it back, and they’re positioned to do an IPO later this year.

Repo Companies- There’s somewhere between 2500 and 5000 companies in the US that perform this service, most are reputable, a handful are not. The larger they are the better chance they’re reputable, but even the big one’s can take part in questionable business practices at times. A few states license and regulate this industry, most don’t. Most of these companies are small, one-location mom and pop operations doing less than $500K in annual revenue. The larger one’s do in excess of fifty million in revenue, some may even double that. The larger ones cover large areas of a state, all of the state, multiple states, or in a couple cases they cover most of the country. From my experience, running a repossession company has to be one of the more difficult businesses to manage. Finding good people to work in the field is extremely difficult, and training and managing them is even tougher. Your customers who give you work: lenders and companies they use as “middle men” can be demanding, and they’re not usually very loyal, although good repo companies build “brand name loyalty” by providing above-average levels of service. The lenders clients, and people whose cars are being repossessed are rarely happy, and you’re better off avoiding the debtors at all costs, when it’s practical to do so. If you are going to own a repo company you should not have high blood pressure, you shouldn’t be afraid of working 24/7/365 and you need a good lawyer, and a mentor who knows the industry if you’re just starting out, or if you’re struggling. You also better have kick ass software these days or you’ll get left in the dust by those who do. Many people think LPR- License Plate Recognition (see below) technology will change the face of the industry. I’ve seen the industry change with forwarding and skip tracing, and LPR seems to have the same potential impact as these innovations, but as is the case in many businesses and in our lives, (think Facebook and Google) Software as a Service is what will define the future of the repossession industry and without the best software available, repo companies who don’t have it will struggle to compete with those who do, and its as simple as that.

Repossessors- The un-sung hero’s. Most are male, most drive tow trucks, and most are pretty resourceful. These guys are performing a job that ranks right behind the repo company owner in terms of degree of difficulty. Like the company they work for, they’re paid for results, and unfortunately only certain results count, which usually means no car, no commission. There are a handful of legendary, great one’s, many good one’s and many who are mediocre or just flat not good and in many cases a liability to the company they work for, and to themselves and the general public for that matter. This is a job that requires risk, but when those risks are not calculated, things can go wrong in a hurry, and that can be deadly.

Forwarders- These are companies who receive all or a portion of a lenders repossession assignments and their job is to manage the repossession process. This includes picking a repo company they contract with and assigning the account to them for repo. They’re supposed to assign accounts only to companies that are licensed (if applicable), insured, and reputable, with the key word being “supposed to” as for some reason many lenders don’t do a very good job of insuring their Forwarding companies are using only reputable repossession companies. After the Forwarder assigns the account to the repo company, they follow for the progress through a series of written updates and phone calls between the forwarder and the repo company. Once the account is repossessed, or after the account closes due to the customer paying, or something else happening including the car not being located, the forwarder bills the lender for their services when that result is positive (repo or paid) or if the unit is not located there is usually not a bill generated; this is called contingency, one of a handful of “four letter words” in the repo industry. In addition to the repossession fee from the company they hire, Forwarders also charge a handling fee on the assignments they successfully conclude. This sub-industry within the repo industry has gone from barely a blip on the radar when we started American Recovery Service in 1994 to a major force in the industry where as many as 40-50% of all repossession assignments now are assigned to forwarding companies. The model has also changed, for the worse in my opinion, and many forwarders don’t use reputable companies to send work to, and for some reason many clients don’t seem to care who the forwarder uses to represent their company, which I think is crazy. The most dangerous job a bank is responsible for is likely repossession, so one would think they would want to insure the person doing the job and representing the bank is a professional, licensed, insured, reputable, trained repossessor. That’s not the case too many times, and if you Google “repo death” you’ll find examples of what happens when it goes south, and in many of these cases there is a Forwarding company involved.

Skip Tracing Companies – When the finance company doesn’t know where to assign the account for repossession, they hire a skip tracing company like Find John Doe, or dozens of other companies like this who do the same thing; locate people who are trying not to be found. Back in 1988 when we started Skipbusters, I’d never heard of a skip tracing company and I’m not sure if there were any out there. I thought of the idea when I worked at Chrysler a few years earlier. I’d been sent to different branches to find people who had loans that those branches were trying to stop from charging off. The only option we had back then were finding these people ourselves or utilizing repossession companies and some were great at finding anyone, but for some reason we weren’t allowed to pay repo companies for skip tracing, or if we did it was limited to like $75. I’d heard the reason was the repo guy got caught with his hand in the cookie jar too many times and they didn’t trust them to bill for skip tracing as sometimes they’d charge for skip work and they really didn’t do anything that warranted a fee. Nowadays, skip tracing is a big industry, and a big part of the repossession process, and in many cases they also perform the same service as a forwarder when they coordinate the repo process for the lender.

Skip Tracers – aka Investigators, these are the people who are good at finding people. They utilize public records and information they gather from a lenders notes, from a credit application the debtor filled out when they bought the car, and they gather info through the Internet. Then they contact friends, relatives, neighbors, landlords, ex-places of employment and a variety of other sources, or leads, as they attempt to gain pieces of information on where the customer and/or collateral are located. They are also skilled negotiators, as many times they will make contact and convince the debtor to surrender their unit.

License Plate Recognition Technology Companies – This is a somewhat new concept, high speed cameras mounted on tow trucks and cars that scan thousands of plates a day. The scanned plate and its GPS location are downloaded into a computer and then the unit is either repossessed right there on the spot, or the lender is notified and asked to pay a fee for the location of the unit. I’m not sure how the second part bypasses laws like the one in California that says its illegal to do this:
(j) Soliciting from the legal owner the recovery of specific collateral registered under the Vehicle Code or under the motor vehicle licensing laws of other states after the collateral has been seen or located on a public street or on public or private property without divulging the location of the vehicle. The fine shall be one hundred dollars ($100) for the first violation and two hundred fifty dollars ($250) for each violation thereafter.

Transporters – These are the companies who pick up the vehicles from the repossession yard after they’re repossessed, but they’re just bit players in this story.

Auctions – After the unit is repossessed the debtor is sent a letter and they have a right to pay off the unit, and in some cases they can get it back by paying the past due payments. If they don’t reinstate the loan or pay it off, the unit is transported to a private auction and it’s sold.

Repossession and Collection Software Companies – In 1998, I wrote a business plan that detailed the development of a repossession software to allow clients and repossession companies an internet portal to send and receive assignments, to update accounts, to process repossessions, to coordinate the transportation of the unit to auction and to document the sale process. Prior to that, I’d been involved in some enhancements of a repossession software called eTracker, and I’d used one of the first repossession software’s called Pro’s, but as of 1998, we were just barely starting to email assignments and updates, so the internet was not on anyone’s radar as a way to manage the repossession process. We ended up selling our company in 1999 to a different company than the company I wrote the business plan for, but a few years later the idea I’d written about came to be in a software built by one of the principals and it became the dominant software in our industry; RDN. There have been others written since then, and some have gained market share, and now, thirteen years later, we’ve finished our own software called masterQueue, and we’re preparing to bring it to market in the Spring. We believe it has the potential to change the face of the lending, repossession, forwarding and skip tracing industries, and most of all, I hope it can help repossession agencies manage their businesses more efficiently, because if anyone deserves a break it’s the repo guys. We’ve also written over a dozen interfaces with other software companies and were hoping that other software companies in our industry will follow our lead in working with each other, as no one wins when we don’t all cooperate and work together, and hopefully RDN will also interface with us to make everyone’s job easier.