Liquidating Repossessed Vehicles

CU360
January 8, 2010 | COMMENTS

When liquidating repossessed vehicles, most credit unions want fast turnaround times and the highest sale price possible, according to respondents to CUNA's 2009 Vehicle Repossession Liquidation Survey.

The need to deal with nonperforming loans—and to dispose of collateral—has expanded during the current recession. On the credit union balance sheet, the line item marked “other delinquent loans,” which includes auto loans, increased from $2.3 billion in December 2006 to over $3.5 billion at the end of 2008. Net charge-offs climbed sharply during the same period, while the asset value of repossessed vehicles also rose steadily.

To find out how credit unions are handling auto liquidations, CUNA's market research department surveyed 2,000 credit unions with more than $50 million in assets between August and October.

“We found that 56% of credit unions use multiple channels to increase returns and handle the various steps in processing used vehicles,” says Jon Haller, director of corporate and market research. These channels include wholesale, retail, and auction remarketing firms. Auction sales were found to deliver the best return on repossessed vehicle sales, yielding an average 87% return on value.

Sales channels

Credit unions are processing and selling an average of 23 vehicles per month. The average increases as asset size increases, from just over 10 per month among credit unions with assets of $50 million to $250 million, to nearly 25 vehicles among those with assets of $250 million to $500 million, and to over 60 among those with assets of over $500 million.

Vehicle sales made through wholesale channels account for the largest percentage (42%) of sales over the past year, followed by sales through retail channels (31%) and those made through independent auction remarketing companies (24%).

Credit unions with assets of $250 million or more favor wholesale-channel sales over retail-channel sales by more than a 2-to-1 margin. Independent auction remarketing companies account for roughly 20% to 25% of the repossessed vehicle sales for credit unions in each of the asset groups studied.

Time and effort

It takes credit unions an average of 46 days from the date of repossession to sell their vehicles via retail channels, and 32 days to sell them via wholesale channels.

Credit unions are spending, on average, 29 hours per month to process repossessed vehicles using retail channels, and 42 hours per month to process them through wholesale channels. For both retail and wholesale processing, those numbers rise proportionately as the number of vehicles sold each month rises.

Processing estimates include staff time spent to transport the vehicles; review condition reports and determine damages; determine values; make phone calls; arrange all reconditioning, detailing, advertising, test drives, and negotiations; and handle sale and post-sale paperwork and analysis.

Satisfaction

Credit unions are equally satisfied with the vendor services and sale prices received through all three major channels—independent auction remarketing companies, wholesale channels, and retail channels. For each channel, nearly 40% of credit unions are “very satisfied” with the vendor services and prices they receive, while approximately 50% are “somewhat satisfied.”

“Credit unions report that retail-channel sales provide the best ways to track and direct sales, stay in control, and validate vehicle condition,” notes Haller. “On the other hand, they say wholesale-channel sales provide an advantage over the retail approach in achieving fast liquidation times.”

Beyond this, credit unions are least satisfied with their abilities to report ROI benchmarks by month, quarter, and year. “They want better ways to acquire reports on their performance compared to their peers and the market,” adds Haller.

Appraisal guides from the National Automobile Dealers Association are far and away credit unions' primary sources for pricing their repossessed vehicles. Seventy percent of credit unions say this is the option they use most. No other single option—Blue Book, Black Book, or auction sales guide—serves as the primary guide for more than 12% of credit unions.

Only two in 10 respondents say they're “very familiar” with independent auction remarketing companies and their benefits and advantages. Three in 10 are either “somewhat” or “very unfamiliar” with these organizations. Strong familiarity is higher among credit unions with more than $250 million in assets, and even higher among those with more than $500 million in assets.

CUNA's 2009 Vehicle Repossession Liquidation Survey was sponsored by Repo Remarketing, a national collateral liquidation firm. More information is available at RepoRemarketing.com.