The decline of used-car values has had a “significant and material impact” on loss rates at Consumer Portfolio Services, Chief Financial Officer Jeff Fritz said during the company’s first-quarter earnings call.
“From what you read and hear about in the industry, about this never-ending pipeline of vehicles heading toward the auctions at some point, I think we have to be realistic about near-term prospects for that market not really changing very much — certainly not improving,” he said.
Recoveries at auction came in at a rate of 35.2% in the first quarter, compared with 39.9% last year, and 43.8% in 2015 during the same period, he said on the call.
“There are a lot of cars in the market, which is impacting our resale prices,” Chief Executive Charles Bradley said on the call. “Overall, it certainly feels like there are too many [used] cars out there, and until that changes it’s going to be a bit of a burden on the industry.”
The company has had to increase its provisions to prepare for the uptick in annualized net charge-offs, which rose to 7.91% of average loans in the portfolio, from 7.57% the year prior. However, through improvements to CPS’s collection practices, the company believes it is at the peak of its losses, even as values continue to decline, Bradley said.
“We don’t think recoveries are going to improve, so that’s not in the solution or the equation either,” he said. “But what we really see is, we just think our branches are performing better, they are working together better. Everyone is now marching to the same tune in terms of how we collect loans.”
