Car markets across the United States and in Wyoming have been on a wild ride the last two years, and it doesn’t look like the ride is over yet.
The latest sharp curve ahead appears to be an uptick in car repossessions — many of them seemingly holdovers from the beginning of the COVID-19 pandemic.
A number of those are voluntary repossessions, according to a representative of All Action Recovery, which operates in Wyoming, when borrowers realize they cannot keep up with payments and call their banks to have someone come and take cars back.
Others are involuntary and nontraditional repossessions.
“I have people calling me saying, ‘I loaned this guy money or, you know, I sold a car on Facebook,’ or wherever it might have been, or someone owes me money because they’ve been living in my rental for a year without paying rent, and now I have to come after them for it,” Panhandle Asset Recovery owner Stu Kissick told Cowboy State Daily.
“So, I am putting a lien on their vehicles, or you know, these kind of weird situations,” he said. “I didn’t see a lot of these before COVID, but I see a lot of them now.”
Kissick, based in Scottsbluff, Nebraska, estimated he’s seeing three to four times the usual number of nontraditional repossessions on handshake type deals that went awry.
“A couple of times a year I’d have a real serious assignment like that, where I’d have to go after a couple of vehicles for someone in a private sort of arrangement,” Kissick said. “Now I have two or three of them a month.”
In validating these types of repossessions, Kissick traces the pattern back to the beginning of COVID, when traditional lending models were inaccessible for many.
“Either the income wasn’t there for them to show on paper, or other people were eager to sell because their income wasn’t there,” Kissick said. “So, I think you had a lot of nontraditional sorts of lending, handshakes and personal contracts, and I’m having to go after them now.”
Used Car Prices Soared
Car repossessions during the pandemic were lower the past two years than expected, Kissick added.
There are a couple of reasons behind that. Not only did the Financial Conduct Association prohibit car repossessions during the COVID-19 pandemic, but with a spike in used car prices, many people found they could use car-buying service companies to offload vehicles they could no longer afford.
Those high used car prices — sometimes above list prices for new vehicles— meant many could off their burdens for a tidy sum well above their car’s outstanding loan. Many car-buying services also advertise they will take care of outstanding loans as part of the sale.
COVID Payments Played Out
Not all the repossessions are nontraditional.
Rich Whitaker, with Anytime Recovery Company and West Coast Recovery Services, told Cowboy State Daily that his repossessions are up 20% to 30% year over year, on everything from cars to RVs and construction equipment.
He believes the increase largely reflects stimulus money running out at last. He also believes a looming recession that’s being forced by Federal Reserve interest rate hikes could accelerate the rate of car repossessions once that hits the economy.
“When the government gave everybody basically $2,800, it postponed things, and then everybody got more money on unemployment and they were working,” he said. “That bought people some time. And then they also used the money to go buy stuff.”
Expects A Surge
As a result, Whittaker particularly expects to see a spike in repossessions for RVs bought during the pandemic.
“They had record sales of RVs the year the pandemic hit, and there’s going to be a lot of those people who had never owned one before, but they went and bought one because they couldn’t take their kids to Disneyland or something, and they didn’t realize they are a lot of work,” Whittaker said.
Cox Automoative, meanwhile, told Cowboy State Daily, car repossession rates had been down through the pandemic, but are slowly moving back to historical norms. They are not expecting a large spike, however, resulting in a crisis.
“While the evidence of stress in delinquencies is clear, the delinquencies are not yet maturing into defaults and repossessions as they historically have,” Cox Automotive’s Chief Economist John Smoke wrote in a report on the topic, examining whether a default crisis is looming.
With unemployment rates still low, Cox Automotive predicts the default rate will increase through the remainder of the year to 2.3%.
“An auto loan default rate of 2.3% would be a 16% increase from 2021, but would still be among the lowest levels in the past 15 years,” Smoke wrote in the report.
Strong Job Market
Kissick, meanwhile, believes a default crisis is unlikely in midwestern states like Wyoming, where there are three jobs for every job applicant.
“I think in the Midwest, we’re insulated from that by the fact we have strong jobs,” he said. “It’s the right kind of jobs, jobs that pay.
“I mean, I know we do have jobs that pay minimum wage and all that sort of stuff. But overall, I think percentage wise, they’re better jobs than that. There are mines, railroads and hospitals. That’s a good economic pressure.”