Auto Lenders' Collection Departments' Dirty Little Secret

 

Okay, here it is: when creditors try and get "cheaper" repossession agencies to work for LESS (or contingent), they are actually blowing away thousands...  even millions...  of dollars.


This is not a joke, or even a modest exaggeration.


Creditors are often not paying attention to the one number in the equation that makes the biggest difference of all.

So it might go like this. Some accountant upstairs tells the collection department to "get their repossession costs down",  period. So the collection manager decides to start assigning repo accounts on a "contingent" basis in order to get lower repo costs. Seems like a less costly option, right?

 The problem is this: that, statistically, this lowball process loses hundreds of thousands of dollars in small portfolios...and millions in a larger ones.

Let's look at a small repossession portfolio of, let's say, 200 cars in a year.  NIADA says the average used car is worth $23,000, but for this experiment, let's use a number of $10,000 as the average residual return on each of the repossessed cars.

If a client goes through a "contingent" forwarder, and has a recovery ratio of 45% (which is an actual number that's used), the contingent forwarder would recover 90 cars, worth $900,000 total. Since they work for $275 "contingent", you don't pay those pesky close fees, and the total recovery fees are $24,750.00. Through this proceed, after repo fees, you recovered $875,250.

Falcon International is an investigation and repossession agency with a certified recovery rate of 68%.  We do charge a close fee, and we don't work contingent. This means we get to work with true fellow professionals, and good businessmen & women who value service over raw price. So you would think using a firm like ours simply "costs too much".

But.....with this same portfolio, we would recover 136 of your cars, worth a total of $1,360,000. You would have paid us around $40,000 more to get those numbers (which is what the accounting department would historically be focusing on).


Falcon International would have recovered an additional $420,000.00 in assets even on this tiny portfolio. 


In other words, paying a close fee to a real professional "saved" you $380,000!


What's the takeaway?  The number that really matters the most is the recovery ratio.  The difference in overall repo fees winds up being almost insignificant.  Even if a  forwarder only charged the creditor a $35 repo fee contingent, using a company like Falcon International would still come out ahead. By a long shot. 


Pull out your calculator and check it out yourself!