Despite default rates remaining steady on repossessed vehicles, the cars are selling for less and causing lenders to experience more loss, Micky Watts, senior vice president of indirect lending at Anderson Brothers Bank, told Auto Finance News.
“Defaults have stayed steady for the last few years as far as percentage, but we’re actually losing more money because the cars are selling for [less],” Watts said. “At one time we were losing 25% by the end of the repo, now we are losing 50%, and [lenders] are limited in what they can do about it.”
Used vehicle value retention is up 0.7% on average year over year, according to Black Book. However, full-size pickup and full-size luxury SUVs have been declining in value despite high demand for those segments. Lenders do have options to mitigate the loss. One way is recognizing that certain traits, such as cars with high mileage, do better at certain auctions.
“Make sure that if you can repair [the vehicle], you do,” Watts said. “A green light car is going to bring you a whole lot more money than a red light car. But sometimes you have to sell it as is.”
Lenders can also check repossessed vehicles for “ghost options,” which is when a car has been financed for options it doesn’t possess. For example, the dealer may have told the lender the initial loan was for a more expensive Chevy Tahoe LTZ model. However, once the car is repossessed, the lender may discover it’s a Chevy Tahoe LT model with fewer features, and the lender may be able to recover money from the dealer.
