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LAS VEGAS – It’s a fact of life for credit unions that make auto loans – sometimes they have to repossess members’ vehicles. That makes for another challenge for credit unions – how can they maximize the value of repossessed vehicles to regain as much collateral as possible, especially in an environment where repo volumes are at historically high levels at auctions? Tom Kontos, vice president of analytical services for Indianapolis, Ind.-based Adessa Corp., a division of remarketing and auction service Allete Inc., shared some ideas on how credit unions can accomplish this with attendees at Credit Union Direct Lending’s annual symposium. Keeping in mind that the law of supply and demand determines the value of vehicles, Kontos shared some eye-opening statistics with his audience: new vehicle sales in 2003 are projected will be 19 million, and one out of every five new cars on the road now will change hands annually as a used car. That means, said Kontos, that “the ample supply of used cars on the market will keep a lid on the price of new cars.” Although the availability of used vehicles has tempered the price tags on new cars, that hasn’t affected the sales of new cars. In fact, said Kontos, 2002 was the fourth best year on record for new car sales, and those sales were mostly driven by manufacturers’ financing incentives. As a result, used vehicles sales have suffered and their value has eroded since 2000. What does this mean for credit unions? They have to find a way to get the most they can for repossessed vehicles in a market that’s already flooded with used vehicles with diminished values. Auctions continue to be a popular method to add economic value to repossessed vehicles and to maximize their value while minimizing transaction costs by redistributing vehicles in geographic areas where particular models are most needed. Last year, close to 10 million vehicles were handled by auctions. Adessa data show auction use by franchised dealers has grown six-fold in the past 20 years. The used vehicle auction industry in the U.S., Canada and Mexico is $370 billion, according to Adessa Corp.’s “2003 Global Vehicle Remarketing” report, independent used car dealers make up half of auction customers. Franchised new car retailers account for a bit more than a fifth; wholesale/brokers make up 18%; and the balance is comprised of “other sources.” Okay, so your credit union decides to sell its repossessed vehicles at auctions, what can it do to maximize the price dealers will bid on them? Kontos strongly advises credit unions to spend money on reconditioning their used vehicles. This typically yields an incremental wholesale value of $1.25 to $2.00. “Credit unions should remember that dealers have a limited amount of money to spend at auctions and will allocate their money economically. This usually means they bid on the best vehicles first. They also tend to want retail-ready vehicles that they can turn around and sell fast and won’t tie up service bays at their dealerships,” said Kontos. “So spending $200 to $750 on reconditioning used vehicles you’re going to sell at auction pays off.” To further maximize results at auctions, Kontos recommends credit unions establish a positive reputation among the dealers, bring their vehicles to the auction early enough to allow for proper vehicle preparation and marketing, and supply vehicles in volume instead of bringing just one or two cars. “The idea is to make it easy for the dealer to do business with you,” he said. Credit unions should also be able to provide the vehicle maintenance history. “Auctions are a great opportunity for credit unions to maximize the value of repossessed vehicles, but considering indicators show that even auction prices are declining because of the volume of used cars out there, credit unions have to know what dealers are looking for at auctions if they want to go this way,” Kontos advised. -

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