Jan. 23, 2003 -- Last June, Carmella Walker woke up at around 3:30 in the morning, looked out her front window and glanced at her car sitting outside.
When she woke up again at 7 a.m., the car was gone.
But it wasn't a thief that took Walker's '98 Dodge Neon. The repo man had paid her a visit during the night.
After losing her job and getting behind on her car payments for three months, the finance company that provided her car loan decided to repossess her automobile in the middle of the night — a time repo experts say is the best way to insure a peaceful repossession.
Walker is not alone. Automobile repossessions by banks have been increasing steadily since the first quarter of 2001, according to the American Bankers Association. In the third quarter of 2002, 1.29 of every 1,000 bank-originated car loans ended up in repossession — an increase of almost 60 percent from the first quarter of 2001.
"We are seeing a lot of people that aren't able to pay," says Jack Barnes, a Tulsa, Okla., repossessor and executive director of the Baltimore-based National Finance Adjusters Association. "We're also seeing the lenders being more lenient than they were a year or two ago. Everybody sort of feels like times are tough and we're all in this together."
Horses to Helicopters
Although recent data shows that consumers are starting to hunker down and pay off their bills, as the recession wears on, consumer debt has remained a problem.
Consumer's debt loads fell by an unexpected $2.2 billion in November, the biggest drop since October 1991. Still, Americans as a whole continue their love affair with debt — taking on around $147 billion in new debt since the beginning of 2001, according to the latest data from the Federal Reserve.
Barnes, who has been working in the repo business for 40 years, says his business is primarily in automobiles, but he says he's seen some other items getting repossessed as well.
"Our slogan is, 'We repossess everything from horses to helicopters,'" says Barnes, who admits he hasn't had to repossess a horse for some time now.
"We pick up computers now, which we didn't pick up years ago," he says. "We've repossessed everything from advertising signs to satellites dishes to all kinds of stuff like that."
The debt load is also starting to show up in the housing market. Foreclosures tracked by the Mortgage Bankers Association, or MBA, rose 1.15 percent in the third quarter from 1.13 percent in the second quarter. However, the MBA noted that mortgage delinquencies, or the percentage of loans that were at least 30 days past due were showing signs of improvement, falling to 4.66 percent in the third quarter from 4.77 percent the previous quarter.
Lenders Feel the Pinch
The increasing number of repossessed items in a soft economy has been posing conundrums for resellers and banks alike. Typically, repossessed vehicles are resold at auction, mostly to auto dealers who try to sell them on the lot to the public. But with automakers continuing to offer attractive incentive deals for new car buyers, the market for used cars has suffered of late.
Used vehicle prices in December declined by 5.5 percent from December of last year, according to Atlanta-based Manheim Auctions, one of the country's largest auto auctioneers. On an annual average basis, used vehicle prices declined 2.9 percent in 2002 versus a drop of 1.5 percent in 2001.
"Obviously, our consigners who are selling the vehicle would prefer to get higher prices," says Tom Webb, chief economist at Manheim. "We're more impacted by volume, and volume has continued to go up, so it's good for our business."
Banks and finance companies say they lose money on repossessions as well. The cost of locating the delinquent payer and their automobile can add up to additional expenses incurred by the bank.
The average net loss per repossessed car was $6,033 in 2001, up from $5,325 in 2000, according to the latest figures from the Consumer Bankers Association, the Arlington, Va.-based retail banking trade association known as the CBA.
"That's a notable jump," says CBA spokesman Fritz Elemendorf. "It's a hit on the lender."
Debtor's Obligation Doesn't End
Of course, getting your primary form of transportation repossessed is also a hit on the consumer, too.
Walker, who lives in Raleigh, N.C., says Nuvell Financial, the finance company which repossessed her car, initially asked her to pay $11,000 to get the car back — around $1,700 more than what she paid for it. Since she didn't have the money, the car was sold at auction.
Walker says she received notice from the company that the car was sold at auction for a little more than $3,988, and that she owed them another $5,900 to make up the difference.
"I told them that if they wanted me to pay the difference, put a car in front of my door for the difference and I will pay them," she says. "There may be some people stupid enough to pay for a car that they're no longer driving, but I'm not one of them."
A spokeswoman from GMAC, the parent company of Nuvell, declined to comment on Walker's specific situation, but noted that debtors are still obligated to pay the difference to them.
"They've signed a contract with us. So they owe us," says GMAC spokeswoman Ann Marie Sylvester, who adds that the company tries to work with its clients individually to avoid repossession, which they use as a last resort.
Black Mark for Consumers
Experts say it is standard practice for banks or finance companies to bill debtors for the difference between the resale price and the amount of the loan, which is referred to as a deficiency balance. If the debtor refuses to pay it, the repossession and the balance will mar their credit report for seven to 10 years, says Greg McBride, financial analyst at Bankrate.com, a consumer finance information Web site.
"It may end up costing you more in the long run," says McBride. "Any time you apply for credit going forward, any credit that you do obtain you're going to pay a higher rate for it."
Walker, who now has a full-time job at a public relations firm and is living on a bus line, is unconcerned. She vows that she'll never take out a car loan again.
"I'll probably work a part time job and put all the money from that job into savings," she says. "That way I can find a car, pay cash for it, and go ahead and have a car."