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.