Eugene auto repos are on the rise as economy tanks
By JOE MOSLEY
The (Eugene) Register-Guard
Saturday, March 7, 2009 11:57 PM PST
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| CHRIS PIETSCH | Associated Press
Repossessed vehicles sit in a line in front of Oregon Community Credit Union in Eugene Feb. 24. Car repossessions are on the rise as owners lose jobs and face other financial hardships. |
EUGENE (AP) — He enjoys the thrill of his work, but sympathizes with his often unwilling “clients.”
He’s happy that his workload is surging, but is well aware of its correlation to a decline in the fortunes of others.
Such are the conflicts of a repo man, and the mixed feelings of Jay Gates.
“This just seemed like the thing to do at the time,” says Gates, who has owned F and J Recovery in Eugene for the past 10 years. “I owned a wrecking yard for many, many years and I’m an adrenaline junky.
“But the repo business is no different than any other business — you have your ups and downs,” he says. “The economy definitely plays into it, though.”
Like a handful of other repo firms in Eugene-Springfield, Gates’ business saw a noticeable uptick last summer that has continued into the first couple of months of 2009, as more people got behind on their car payments, or defaulted entirely.
“This is definitely a high-water mark for us,” says Jim Craft, director of lending at Eugene-based Oregon Community Credit Union. Credit unions and the financing departments at auto dealerships make the most car loans.
Oregon Community Credit Union’s headquarters has developed its own impromptu car lot in recent months, with an average of five to 10 repossessed vehicles parked along the street each day with price tags on their windshields.
“Bad things happen to good people, and we’re seeing that happen right now,” Craft says. “They have to make a choice between making their house payment, buying food and driving their car. When it comes down to that, it’s not much of a choice.”
Vehicle repossessions rose from 1.47 million in 2007 to 1.67 million in 2008 — a 12 percent increase, which followed a 9 percent increase the previous year, according to Atlanta-based Manheim, the nation’s largest vehicle auctioneer.
That figure is expected to rise by another 5 percent this year, to slightly more than 1.75 million vehicles.
At Eugene’s SELCO Community Credit Union, director of lending Jim Mau says defaults on vehicle loans have historically been in the 0.5 percent range, or about one out of every 200 loans. That increased in 2008 to 0.72 percent, or one out of every 139 loans.
“While it’s risen, it’s to be expected with the tough economy,” Mau says. “We still love to make auto loans, though.”
The current wave of auto loan defaults is an entirely different beast than the ongoing flood of nationwide home mortgage defaults, according to local lenders.
Many of the home loans that have wound up in foreclosure over the past couple of years never should have been made, mortgage officials widely agree. Most have been subprime mortgages — often made to borrowers with borderline credit or unverified income.
The auto loans that are now resulting in repossessions just don’t fall into the same category.
“These were good loans,” says Bill Woods, vice president of lending at Springfield’s Northwest Community Credit Union, where loan defaults have also grown.
“We verified income, did all those things.”
Oregon has been hit hard by rising unemployment — the state’s jobless rate was 9.9 percent in January, compared with a national average of 7.6 percent.
Even those who have kept their jobs have in many cases had to take cuts in pay or benefits as their employers struggle to remain afloat.
“That’s been the big change this year,” says Mau, at SELCO. “We’ve had some major employers reduce work forces or cut back on some incomes.”
“In those cases, many of our (credit union) members do call us and we try to work out arrangements (to modify loans),” he says. “We don’t want to take anyone’s automobile back.”
Craft, at Oregon Community Credit Union, says many of his customers’ lives have been changed by the ongoing recession, and some struggle to find a way to meet their financial obligations.
“Over the last 30 years really most people are basing their lifestyle on two incomes,” Craft says. “If one of those incomes is impacted, it’s going to make a big difference in what they’re able to do.
“If you look at the vast majority (of delinquent auto loans), these people were great (credit union) members,” he says.
Thus the 2007 GMC Yukon Denali and the 2008 Subaru Forester recently listed for sale on SELCO’s Web site or the 14 vehicles listed on Oregon Community’s site.
“We decided to try to retail some of our cars — the high-end ones — to make the impact to members that much less,” Craft says. “The more money I get on the retail side, the better it is for our members (and) the bottom line to the credit union, if we don’t have to take that loss.”
Most financial institutions send their repossessed cars directly to auto auctions, where they are sold at wholesale prices that rarely cover the amount owed on the loan.
The credit union or other lender loses about $8,000 on each repossessed vehicle, according to the American Financial Services Association.
As is the case at other local credit unions, the first option at SELCO is to work with customers who are having trouble making their car payments.
Loan terms can often be lengthened — a loan with 24 months remaining can be stretched to 30 months, for instance — or rates can sometimes be adjusted, late charges waived or an upcoming payment deferred and tacked on to the end of the loan.
“We try to help people establish a payment they can pay, and that we can live with,” says Woods, at Northwest Community Credit Union.
Woods estimates that Northwest Community has processed about $4 million in modified loans since increasing numbers of its customers began having difficulties with payments a year or so ago.
“If we do the right thing for our members, hopefully when this whole (recession) thing is over, they’ll remember we helped them out,” he says.
Craft, at Oregon Community, says his staff tries to intervene as early as possible in an effort to prevent loan defaults and vehicle repossessions.
“We are making every effort we can to say to people, ‘What can we do to keep you in your cars?’” Craft says. “The car is worth more sitting in our member’s driveway than it is sitting on an auction block.”
Only when all else fails do lenders turn to repossession — whether voluntary or involuntary.
About half of those who default on their loans willingly give up their vehicles, either driving them to the financial institution and turning over the keys or allowing a repossession firm to pick them up at a prearranged time and place, lenders say.
That’s consistent with what Gates is seeing at F and J Recovery. But he says even the involuntary repossessions are rarely a surprise.
“They know it’s coming, and they know they’re way late (on payments),” Gates says. “But really, I think I’ve only had in the last two months — as far as involuntary repossessions — maybe 20.
“Most people are real decent,” he says. “It’s just, hard times are hard times. And whenever a repo’s done, both sides lose. There’s no winner there.”
