As the recession snaked its way into the economy in 2008, credit unions braced for the impact it would have on members in unemployment, rising debt and underwater mortgages.
The auto industry took a massive hit back then, including an increase in vehicle repossessions. At U.S. credit unions, repossessions reached $317 million in 2008, according to CU Direct Corp., an indirect and point-of-purchase lending service CUSO based in Ontario, Calif.
Fast forward to 2012 and credit unions have managed to reduce the volume of repossessed vehicles. In the last year, the quantity and dollar volume declined by 16% to just under $145 million, with the credit union average value per repossessed vehicle at $10,161 at the end of the second-quarter 2012.
With nearly 75% of credit union repossessed vehicles valued from $5,000 to $20,000, there is a call to enact procedures that make disposition of these assets more efficient, timely and cost effective.
One way may be to follow certain benchmarks to ensure a successful asset disposition program. CUDL teamed up with Remarketing by GE and Manheim, an Atlanta-based provider of vehicle remarketing services, to outline performance checkpoints used by remarketers.
Among them, days-to-sale, tracking retention rates at auction, tracking the number of bidders at auction, monitoring fees paid to auction providers and third-party remarketing services.
“Asset disposition is a key component to any lenders backend process and should not be disregarded as the economy continues to improve,” said Brent Hollingsworth, national director of strategic alliances for CU Direct. It is essential that credit unions evaluate current processes to be sure, whether managed in-house or outsourced to a third party, a solid process is in place, Hollingsworth offered.
Beyond having a critical system to use, the first key benchmark is days-to-sale, which is measuring the time elapsed between when a credit union asset is reposed and when the credit union receives funds from the auction for sale of the asset. Top performer remarketers aim for an average days-to-sale on their wholesale portfolios of 30 days or less, data showed. Still, mitigating circumstances may occur such as member bankruptcy holds or challenges perfecting a title that in certain situations, according to the research.
“Credit unions should measure their asset disposition results against the metrics that leading wholesale remarketers use,” said Paul Seger, vice president of asset remarketing at GE Capital Fleet Services. “Credit union managers can then hold their internal staff and external providers accountable to perform to those same metrics. In addition, credit unions can use those metrics to support their lending methodologies.”
The second benchmark is closely tracking retention at the auction. The retention rate is the percentage of wholesale book value earned from the sale of the repossessed asset. The research revealed two common errors that credit unions tend to make when tracking retention rates including using loan deficiency balance as a measure of asset disposition success. The loan to value ratio of a new vehicle at the time the credit union makes a loan has no relationship to the market value of the vehicle at the time it is repossessed.
“All of the benchmarks are necessary to achieve the greatest net market values. Retention is often the benchmark credit unions focus on; however, other benchmarks are also critical to maximizing the net value of a vehicle portfolio,” said Jon Schrock, national accounts director for Manheim.
The second common error when it comes to tracking retention rates is using a retail guide book to measure the effectiveness of a wholesale transaction. In addition to the Manheim Market Report, others use the Black Book, which is a wholesale guide referred to many national remarketing companies.
Schrock said Manheim has been committed to the credit union movement for many years, and has worked with CUDL to provide education and awareness about how credit unions can take advantage of the auction process and the value that it offers.
Another disposition benchmark is the fee credit unions pay to their auction provider as well as to any third-party remarketing services they use. While there is variation among fees charged based on the volume of vehicles sold and geographic location, the most important consideration is to hold providers accountable to report all fees by vehicle in detail. Credit unions can then use the data to compare prices from competing providers to ensure they are receiving competitive fees for services rendered.
Hollingsworth said wholesale disposition is the process of liquidating assets utilizing a private dealer auction verses a retail consumer sales channel. “While I do not recommend one method over another, the wholesale channel for repossessed asset disposition is considered to be the most time efficient and cost effective,” Hollingsworth suggested.
A fourth disposition benchmark is credit unions tracking the number of bidders their providers are delivering. This is an area of particular concern for credit unions relying on a single broker or dealership to liquidate their assets, according to the research.
On the surface, it looks like the more intense the bidding competition is, the higher the sale price will be. However, by making a comparison, credit unions are equipped to hold their providers accountable to deliver robust bidding competition. If possible, staffers should also conduct on-site inspections on auction sale days to observe how many bidders are competing for their vehicles.
It is not uncommon for some top-performing remarketing companies to have more than 30 to 40 dealers bidding online, competing with 20 to 30 dealers on site, according to the research. While bidding activity for individual credit unions may not be quite as robust as for large national remarketers, the number of bidders is an important metric for credit unions to track over time.
The fifth and final asset disposition benchmark relates to online sales channels delivered by the credit union’s third-party remarketer or auction provider. At a minimum, they should provide an online tool for remote buyers to compete with bidders physically attending an auction on sale day.