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This is a guest article from Mike Levison, CEO of ALS Resolvion.
Over the years, repossession and skip tracing services have come to be viewed somewhat as commodities by many in the lending community. As such, outside of compliance, the primary focus around the management of these services has been costly. After all, since these services are available through multiple providers, why pay more than what the low-cost provider is willing to accept?
This downward pressure on costs has resulted in the service providers having to reduce resource allocation, in several key areas, in order to maintain an acceptable margin on the business. In many cases, this strategy ends up costing the lender more in the form of higher charge-offs, higher priced deep skip services, etc.
However, some lenders have realized that even small differences in recovery rates can translate into big gains in net dollars recovered even if the cost of the repossession was slightly higher.
When recovery fees are driven down to rock bottom levels, the service provider (whether a direct agent or a forwarder/skip company) is typically forced to undertake one or more of the following:
- Reduce the labor allocation devoted to the portfolio
- Reduce payment to the agent/driver
- Reduce the amount and quality of the data purchased from third-party providers
Let’s look at each of these issues in a little more detail:
In the case of forwarders or skip service providers, typically administrators or skip tracers are assigned to work a specific group of cases. The labor pool allocated to these functions is a significant part of the provider’s overall cost structure. When a lender pushes for rock bottom fees, inevitably queue sizes get increased in order to reduce labor cost. The more cases an investigator has to work, the less time that can be spent on each and recovery rates usually suffer.
Repossession Agent Fees
When margins are very tight due to low fees, the forwarder/skip provider is also limited as to how much can be offered to the recovery agency. In our case, those fees range from $275 on the low end to $375 on the high end. You can bet there is a big difference in the amount of effort the agent puts into the $375 cases than the $275 cases.
The repo agency faces the same dilemma since they also work primarily on a contingent model. On low fee cases, they will inevitably have to reduce the number of times an address is run, reduce the fee to the driver….or both.
This is a real issue in today’s world where the agent ranks have thinned over the past few years due to rising costs and compliance requirements. Fewer agents, combined with rising delinquency rates, means that agents are in a good position to pick and choose where they put their resources and you can be sure that they do just that. Wouldn’t you?
Reduced Data Purchases
When it comes to locating missing cars (outside of LPR technology) it is all about finding good addresses and contact numbers. Fortunately, there are many data sources out there that provide information. The cost can be anywhere from free to several dollars per report. As you might expect, the more expensive reports often (not always) contain the better/more current information. However, the service provider must be very careful on how and when the best data sources are used. For instance, a $6.00 report on a portfolio that generates a 20% recovery rate will add $30 in cost per recovery just for that report. Combine that with a low fee schedule and it makes it very difficult to utilize that data source.
All of these “adjustments” that are required to deal with low margin business absolutely make a difference in recovery rates, charge offs, auction values, etc..
Let’s take a look at a couple of different analysis of the trade off between higher recovery costs and higher recovery rates.
The analysis below illustrates the additional “lift” in recovery rates that is required to offset a $50 difference in recovery costs.
As you can see, based on these assumptions, the service provider would only have to generate less than one additional recovery for every 100 assignments to offset the cost of paying $50 more on all recoveries. This does not even take into consideration the value of avoiding the charge off.
Note: The below analysis is designed to illustrate two issues:
- The extremely small (1/4 of 1%) additional recovery rate that would have to be achieved to offset an additional $50 recovery fee
- The additional value ALSR believes it will generate based on the higher recovery rate we believe we can achieve
Of course, the net benefit between higher costs and higher recovery rates is significantly impacted by auction values. Some portfolios deal in collateral that often has little more than scrap value when recovered and some have average values in excess of $25,000. The table below illustrates the financial gain, under different auction value scenarios, if recovery rate increases just 5%.
- 250 1st placement cases per month
- 35% vs. 45% recovery rate
- $50 increase in recovery fee
If you would like to see a more detailed analysis based on the specifics of your portfolio, just let us know and we will prepare.
Cost is an important variable in the repossession management process, but pushing costs too low can produce a diminishing return.
Mike Levison, CEO of ALS Resolvion – Mike has over 30 years of senior executive experience in the financial institution marketplace. Prior to joining ALSR in 2010, he served a CEO of Remark Americas, an international insurance brokerage firm for 8 years. Prior to ReMark, he served as CEO of Coverdell & Company from 1987 – 2002. Mike is a graduate of the University of Georgia School of Finance.
As we are putting the final design touches on our new website, I thought it was important to share this our members. Chris was a vendor at NARS and asked about getting on our member resource page as a preferred vendor. Since we are working to repair the resource page, I am publishing this for your review.
No matter who is doing your website, it is more important than ever to get it up to speed technologically. I am told that once our new site is finished that, when combined with our members’ personal sites, we will be able to take advantage of the search engines’ process and elevate the relevance and standing of all of our sites.
Here is the breakdown: Search engine ranking is pulled from various factors. One of the largest of these factors is link building. The more fresh, popular, and relevant a website is, the more valuable it is to link to and, therefore, the higher your website appears on organic searches. In other words, with the launch of the new repo.org, by linking to your website from ours, the higher your ranking will be. And, if you work to keep your website in top shape, not only will your search engine popularity grow higher, but ARA will also reap the same link-building benefit.
Please see Chris’s note below, and have a great day.
American Recovery Association
Hello ARA Members,
Do you want to improve your online presence? A strong web presence in today’s digital realm is more important than ever before. Does your website reflect the professionalism your company is known for? Does it offer a client friendly layout?
We, at Repo Solutions, support and admire the goals of the ARA in its pursuit of professionalism and seek to extend our services to all ARA members to assist you with your professional digital presence. We are currently offering ARA members sharply discounted rates. Whether you need just a logo, or complete website creation, we have the skill and ability to deliver what you need. With 15 years of combined repossession industry experience, we can assure you that we provide a truly functional solution for your repo business.
We offer the following services:
· Website Design
· Website Redesign
· Website Maintenance
· Website Hosting
· Email Hosting (POP/IMAP & Exchange available)
· Domain Name Registration
· Search Engine Optimization
· Website Security
· Brand Identity (Graphic Design, Logos, Letterheads, Business Cards, and more)
· Dynamic Forms, both Online and in Print
· And much more!
Call us today and let us help you find the solution your business deserves!
Chris Lewis – Web & Graphic Designer | Repo Solutions
Real Solutions, Real Results | http://www.reposolutions.net
Toll Free: 877-994-7376 | Phone: 724-252-7376
The 2011 National Alliance of Buy Here, Pay Here Dealers (NABD) East Coast Conference is coming up on November 6–8, 2011 in Atlanta, Georgia. Because of our long-standing relationship with the NABD and our commitment to the Buy-Here, Pay-Here industry, they are offering our ARA members a discounted $100 day pass good for Sunday or Monday of the conference. You can download the coupon here. For more information about the conference, please visit their website: www.bhphinfo.com. (more…)
American Recovery Association, Inc. (ARA), the world’s largest association of recovery and remarketing professionals, gathered last month on August 18–20 for its 47th Annual Convention in Jersey City, NJ. The Annual Convention was a great time to catch up with our fellow members, welcome new members, learn from speakers, discuss association and industry issues and get re-energized for the next year. While many discussions continue, our focus is still maintaining the most professional recovery and remarketing agents in the industry and in industry unity. (more…)
The following ARA members and supporters were recently honored at our Annual Convention. Thank you for your dedication to ARA!
Dedicated Service: Brenda Allen
Key Award: Art Christensen
Bob Dempsey Award: Chris Dunleavy
Lorna Lou Barnes Award: Mary Jane Hogan
Special Recognition Award: Dawn Wellington & Kevin Armstrong
Rookie of the Year: Dick Frame
10 Year Member Pin: Joan Hudson, Kenny Lee, Brian Long
20 Year Member Pin & Plaque: Sam Corolla, Linda Mardock
30 Year Member Pin & Plaque: Bruce Schneider
40 Year Member Pin & Plaque: Art Christensen, Harry Forrest, Frosty Thomas
OPENLANE’s Repossessor Remarketer of the Year Award: Dick Frame
American Recovery Association Chooses Seasoned Professionals as Part of Its Best in Class Approach
DALLAS, December 14, 2010 – American Recovery Association, Inc. (ARA), the world’s largest association of recovery and remarketing professionals, today announced the industry leaders chosen to teach its new Collateral Recovery and Remarketing Accreditation Program, which launches on January 25, 2011 for lenders, ARA members and members’ employees. (more…)
Tim Condon, President and Founder of LEAP Auto Loans, gave an informative and insightful keynote at our 46th Annual Convention. If you missed his presentation, you can find it here.
OPENLANE CONTINUES MOMENTUM IN RECOVERY SECTOR; SHOWCASES GROWTH AT 46TH ANNUAL AMERICAN RECOVERY ASSOCIATION (ARA) CONVENTION
OPENLANE to offer preferred service fee rebates to ARA Members who participate in remarketing vehicles on OPENLANE.com (more…)
New Relationships Save Lenders Time and Money In the Remarketing of Repossessed Vehicles
Dallas, Texas – September 14, 2010 – Roquemore & Roquemore, Inc, the industry leader in skip tracing and collateral location for more than 25 years, today announced strategic alliances with American Recovery Association, Inc. (ARA), the world’s largest association of collateral recovery agents; Recovery Management Incorporated (RMI), a bridge between lending institutions and independent recovery professionals; and OPENLANE, Inc., a leading online auction company in North America for automotive dealers to buy and sell wholesale vehicles. (more…)
Millard Land has more than 40 years experience in the repossession business and owns Adjusters, Inc., the oldest collateral recovery company in the state of Texas. Established in 1946, Adjusters Inc. recovers a wide variety of collateral including: automobiles, boats and yachts, airplanes and heavy equipment like bulldozers and tractors. With the downturn of the economy and the changes in how the lending community deals with recovering collateral, Land was eager to find a way to help grow the number of monthly assigned accounts. (more…)