JUNE 2008: AROUND THE STATE
REPOS RISE AS AUTO LOANS SINK
STATEWIDE Bobby
Sylvester has a front-row seat to the repo show.
Sylvester is the fleet manager for Brasher’s Cascade
Auto Auction in Troutdale, one of Oregon’s largest
auction lots. About 1,500 autos move through the property each
week, and the percentage of those that were recently
repossessed is climbing steadily. Last summer, Sylvester was
seeing 400-600 new repo cars per month. That number has
doubled, and with fuel prices and defaults shooting up,
Sylvester doesn’t expect the trend to reverse.
“When people have to choose between paying their
mortgages and making their car payments, they tend to lean more
toward the house.”
The same freewheeling “No credit? No problem!”
loan environment that has upended Oregon’s housing market
also is returning to haunt the auto industry. Subprime lenders,
banks, credit unions and dealerships that finance their own
sales are scrambling to keep ahead of a growing wave of
repossessions exacerbated by record levels of consumer debt.
Each new repo costs the lender approximately $7,000.
According to a recent study by Benchmark Consulting
International, the average credit score for purchasers of new
cars dropped from 709 in 2006 to 678 in 2007, and the
percentage of “upside down” borrowers owing more on
their cars than they were worth (by an average of more than
$4,000) jumped to 25%.
Tighter underwriting standards have chased many mainstream
banks out of the auto business, but for large subprime lenders
such as Reliable Credit Association of Milwaukie and
People’s Credit of Portland, car loans remain both risky
and profitable: risky because of the rising delinquency rates,
and profitable because of the whopping interest rates charged.
According to Reliable Credit’s website, the company
charges interest rates ranging from 19.99% to 36% in
Oregon.
Credit unions offer much better terms, but they are also
facing new challenges from cash-strapped borrowers. Pam
Bowersox, vice president of lending for Beaverton-based First
Tech Credit Union, says her institution works to avoid
repossessions by developing “work-out plans” for
members with financial troubles that may involve skipping or
reducing payments. About 35% of First Tech’s lending
portfolio is in auto loans, she estimates, but the number of
loans closing has dropped over the past year. As is the case
with most lenders, First Tech is making adjustments to its auto
loan program.
Oregon credit unions began delving deeply into car loans
during a broad shift in the early 2000s towards an
“automated approval matrix” that made lending
faster and more convenient to help credit unions compete with
larger institutions. Under the automated system, borrowers no
longer had to document stated income.
Given these all-too-familiar fundamentals, it comes as no
surprise that Oregon’s repo men are busier than
they’ve been in years, lenders are renegotiating to avoid
losses, and dealerships are buying and spending less at auction
in an effort to beat back oversupply. The most immediate
slow-down Sylvester has noticed are the vehicles that used to
sell fastest: “The big gas hogs are definitely not
moving,” he
reports.
BEN JACKLET
To comment, email feedback@oregonbusiness.com.
