Tough Times Are Here—Even for the Repo Man
People assume a dismal economy means good times for repo men. But as the creditors who hire them aim to cut costs, these automotive bounty hunters are struggling along with the rest of American business.
The half-billion dollar repossession industry is expected to shrink by about 10 percent this year, according to Barnes Reports. Likewise, over a tenth of these jobs will disappear over the next 18 months.
Revenue is falling even as the recession brings record numbers of delinquencies on auto loans. GMAC, the bank holding company that was once associated with automaker General Motors, reports that in the first quarter of this year, delinquencies as a percentage of total loans stood at 3.6 percent, representing a 25 percent increase year-over-year. Second quarter data released by rival Ford Credit showed the same year-over-year trend.
So what explains this apparent paradox?
At the core of this discrepancy are struggling creditors' desperate attempts to cut costs, says Art Blanchette, 40-year veteran of the repo industry and president of the American Recovery Association.
A wide-array of creditors from banks to used car lots are giving owners more time to make payments in an effort to minimize their losses. This means they are calling in the repo man less often.
“The last thing our clients want is to get a car back,” says Blanchette. “The moment they do, they take a loss.” He estimates a car may bring a bank less than a fifth of what's owed on it when sold at auction.
GMAC spokesperson Sue Mallino says, "Our end goal is to keep people in their vehicles; it's in the interest of both parties."
As a result, creditors that formerly allowed a grace period of 30 days for customers to pay overdue loans are now giving extensions of as much as four months, according to Blanchette.
Banks also aren't lending as much money as they once did.
"If no money is being lent, nothing is being bought, therefore there’s nothing to default on, and so there’s no need for my services," Blanchette says.
Shopping for the Lowest Bidder
But when creditors are finally forced to hire someone to retrieve a vehicle, they are increasingly turning to the lowest bidder. Pricier repo specialists, who must maintain new equipment and costlier insurance to be affiliated with national associations like the ARA, are losing business.
“It’s not just the recession; it’s becoming a trend,” says Blanchette, who estimates 30 to 45 percent of repo industry revenues have been taken away by low-cost tow truck operators within the last few years.
Many towing companies will work for as little as $150 on a contingency basis, while contracted repo specialists’ fees begin at $350 a job, he says.
Blanchette makes a distinction between himself and what he calls illegitimate competition, made up of “uneducated, unprofessional fly-by-night operators."
"In my business, I don’t tow cars," he says, "I repossess them."
Blanchette tells creditors that professionals will avoid excess risk to retrieve a vehicle, while hiring cheap operators could cost a bank a lot more than what it might save.
He references multiple incidents of botched repossessions across the country in which creditors have been sued for more than $1 million after people were run over, shot, or towed away while still in their cars.
Blanchette urges creditors to use a professional who “will secure that vehicle without putting you in front of a judge.”
Mike Scott, president of Scotty's Carriage Works in Cameron, Mo., is one of those towing operators taking a piece of the repo pie. Expanding into the repo business is part of an effort to identify new sources of revenue as his mainstream business takes a hit.
"We've seen the same recession everyone else has," he says. Although tow operators have been helped by people keeping their cars for longer than normal, leading to more breakdowns, this increased revenue is marginal. Scott argues it is overshadowed by the sheer drop in the number of vehicles on the road as drivers reduce fuel spending, and commercial trucks make fewer cross-country shipments.
He says repossessions constitute just five to eight percent of his sales and aren’t enough to carry business, although he admits they are helping. “If you're not diversified, you're not going to make it," he argues.
Dwayne Kizziah, owner of Dwayne's Towing and Recovery in Tuscaloosa, Ala., said he has profited immensely from diversifying and expanding into repossessions.
He reports revenue is up as smaller creditors such as used car lots turn to his repo services, which now account for a quarter of his business. Kizziah quit taking calls from the bank a while ago.
Although he charges as little as $150 for a repo job, he denies undercutting so-called professional repo specialists. He claims to have branched out into the repo business eight years ago and has since carried out 10,000 jobs. Despite not being part of the ARA, he considers himself a professional, arguing he isn't a member because it's not required by law in Alabama. Only two states, California and Florida, require a special license to repossess, according to the ARA.
If there’s one thing the pure-breed repo men and their towing counterparts can agree on, it’s the nature of the business.
Blanchette, of the ARA, is a self-proclaimed "professional car thief” and describes the job as “99 percent boredom, surrounded by one percent of pure adrenaline.”
Kizziah, who proudly displays a tow truck tattoo on his forearm, compares his business to that of a bounty hunter. "The law says we have the right to repossess a car anywhere, anytime,” he says, “on public or private property, day or night, as long as it’s peaceful." He reports having been spit on, cussed at, and chased by dogs sent after him. He's seen people hop onto his hood and watched as naked car owners jumped into their vehicles.
“I’ve even had a gun stuck to my head,” he says, beginning to chuckle. “The cops took him to jail and I took his car."