DALLAS — The auto finance industry is now doing all it can to send more business into the repossession market by loosening underwriting standards and looking to originate more loans, according to speakers and attendees at last week’s North American Repossessors Summit, hosted by the American Repossession Association.
“We’re already hearing that within the last 12-13 months, dealers are telling me they’re starting to see irrationality on the part of lenders looking for volume,” said Jim Bass, the chief executive of Auto One Acceptance Corp., during his keynote address. “I don’t know when the market will peak, but it will likely be in the next 18 to 24 months.”
Bass spent much of his keynote address discussing the up-and-down cycles of the auto finance industry, demonstrating to repossessors that as the economy improves, lenders are flooded with requests from capital providers like investment banks, private equity firms, and hedge funds. In order to make the most of those investments, lenders alter their underwriting standards to originate more loans. In most cases, lenders look down the credit spectrum to borrowers with less-than-perfect credit as the primary sources for new volume. This next downturn, Bass said, will not be as severe as the downturn that started with the Great Recession of 2008 because the auto finance industry “won’t have the subprime mortgage industry pushing us down the hill.”
But even though the downturn is likely not to be as dramatic as the one that the industry is emerging from now, Bass said to count on it occurring. “I can not emphasize that enough,” he said.
Someone who echoed Bass’s comments was Tom Webb, the chief economist at Manheim. And while he jokingly admitted that he “didn’t know what the heck was going on,” he was sure of the cyclical nature of the auto finance industry.
“If you talk to a lender or a dealer, lack of credit is not a problem in making a deal anymore,” Webb said during the three-day conference that hosted more than 400 participants from the repossession industry.
While credit is readily available, the demand from consumers is shifting to the point where vehicle sales are likely to flatten or decrease in the coming years.
Webb pointed out a study that revealed the number of 16- and 17-year-olds who have drivers’ licenses has dropped to 65% and 75%, respectively, from 80% and 87% back in 1985. As well, there are more cars on the road, and they are being driven fewer miles, Webb said, which means they will likely stay on the road longer, delaying the need for consumers to replace them. Finally, the loan terms for new and used vehicles are getting longer. More than 47% of all used vehicle finance contracts and nearly 60% of all new vehicle contracts are for terms longer than 60 months, Webb said.
