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Repossessions – “The Biggest Loser”

There is a TV show on now called “The Biggest Loser”.  It is one of those makeover/weight loss shows.  The title sounds like an apt description of the attitude Buy Here Pay Here (BHPH) dealers should have toward repossessions.  I know a lot of us have come to BHPH from other dealership experiences, where typically the biggest expense is Payroll.  However in BHPH, that line on our financial statement is oftentimes dwarfed by the impact that repossessions have on our bottom line.

Now, I realize that anyone involved with auto financing at any level has to deal with repossessions to a certain extent (let’s shorten it to “repo”—it’s more fitting that it be a 4-letter word!).  They are just a fact of life in this industry.  And I would dare say that most in the industry would agree with the general principle of trying to minimize repo expense.  But acknowledging that we will always have repos or blaming the underwriting shouldn’t be used as a cop-out or an excuse to justify why our charge-off expense is too high.

Reducing repos requires a proactive approach.  We actually implemented what we called our “Repo Prevention Policy,” which listed in writing why we wanted to reduce our repos and specific steps we were willing to take in order to convey how we would reduce our repos.  

The why part of the equation is crucial to understanding the reason repos should be considered the most despised of all expense items.  Anytime we experience a repo in the BHPH business, we don’t just lose, but in fact as the old Bonnie Raitt song said, we are a “Three Time Loser”. 

Think about it – it’s bad enough we take the inevitable financial loss when the account is charged off.  But, not only do we lose the potential revenue from that one account, potentially more damaging is that we have lost that customer and all of the business opportunities related to their future purchases. This would be the antithesis of Carl Sewall’s “Customer for Life” philosophy!  Add to that the loss of any possible referrals from that customer and you begin to see the ripple effect of how each repo exponentially increases the negative impact on your overall business.  For all of those factors, we do anything within reason (and sometimes beyond) to avoid repossessions.

The how question is where the more aggressive, and at times even fanatical, approach comes into play.   When we developed our Repo Prevention Policy, we made it clear to our collections department that if the customer is staying in contact and is being honest with us, then repossessing the vehicle should be the absolute last resort, after attempting everything else at our disposal.

It’s probably easier to state it in the way my father expressed it, (imagine the thick Maine accent and extremely animated hand gestures), “We do NOT want to lose these customers to repossession!  Do whatever it takes to keep them as our customer.  Re-pair the vehicle, Re-duce the payment, Re-negotiate the balance, Re-sell the customer, Re-contract the note, Re-set their account to current,  Re-negotiate the Terms … Anything to avoid Re-possessing the vehicle and losing the customer!” 

A friend from one of our twenty groups borrows a term from George Bush by labeling this approach the “kinder, gentler” collections technique.  You might also modify a favorite phrase of the younger George Bush by calling it a “compassionate collections department.”  Basically, it all boils down to being willing to work with the customer and finding a solution to whatever situation is causing them to be past due.  It’s all about going the extra mile to help them keep their vehicle, and keep the account paying, rather than doing the easy thing and repossessing the vehicle at the first opportunity.

Again, I emphasize this philosophy should be applied to those customers who are doing their part by staying in communication with you, and being honest in what they are communicating to you, not the small percentage of people who are out to take advantage of you.  In fact, we take the opposite approach with that group by repossessing as soon as legally possible.  Thankfully, the vast majority of your accounts will consist of people in the former group, if you have done your underwriting properly.

One last thought on this topic:  Is it possible for a dealer to have a total repo expense that is too low?  While that might seem counterintuitive (kind of like having a wife that is too pretty or a bank account with too much money), a case could be made that if your repo expense is too low, it is an indication that your underwriting is too tight, and you are leaving sales on the table. 

For the sake of this discussion, however, we are primarily focusing on saving accounts that are already on the books, as opposed to evaluating how tight or loose your underwriting guidelines should be.  Those guidelines will be different for each dealer, based on his risk aversion, availability of funds, size of his market and other factors, but regardless of how you structure the approval process for your organization, once the customer has driven away in your vehicle, it is generally in your best interest to do whatever it takes to keep them happily driving that vehicle until it is paid in full.

So, if your dealership is like ours, and you also tend to shift into extreme expense cutting mode during time of year, consider trimming excess weight from your repossessions and charge-offs.  This year, I encourage you to make a resolution to do whatever it takes to reduce your repo expense, and transform your 2007 bottom line into “The Biggest Winner”!

Vol 4, Issue 1



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